Microfinance and social behavior: an agent-based model for profit-loss sharing contracts

Traditional microfinance as a tool for poverty alle-viation is becoming increasingly controversial. In contrast, after the 2008 global financial crisis, islamic finance saw a great deal of development with its partnership and risk sharing based models being championed. Today, the real challenge lies in assessing the impact of microfinance in a complex economic and financial ecosystems where both conventional and islamic microfinance institutions cohabit and growing clients are interacting with each other within their financial ecosystems. This paper introduces an agent-based model with the aim of capturing and assessing the behavioral biases and agents' interactions in repayment behaviors and on the market dynamics following the implementation of Profit-Loss Sharing (PLS) contracts and Charity in microfinance. The paper is one of the first to follow the ODD protocol in order to describe an agent-based model in microfinance and islamic finance.