Economics of Microcredit-From current crisis to new possibilities

Following the United Nations declaration of 2005 as the International Year of Microcredit, international organizations began to promote a tighter regulatory and supervisory framework for the microcredit industry. In this paper, I review the theoretical basis of this development considering recent empirical findings that microcredit programs tend to have initial success yet demonstrate few significant benefits beyond two years. I utilize an agent-based simulation as an ex-ante policy assessment tool to examine a tighter regulatory strategy. My findings for Kenya, with possible application to other developing countries and regions, suggest that a less rigid regulatory framework is more likely to lead to more sustained positive impacts than this emulation strategy.