A Test of the Generalized Yunus Equation and its Implications for Microcredit in the Philippines

Authors

Jasmin-Mae Santos Luy, University of the Philippines, Diliman, Quezon City, PhilippinesFollow

JEL Classification System

C69, E43, G21

Abstract

Microcredit is one of the most important financial services offered by microfinance institutions (MFIs) in the Philippines. Loan repayment by frequent installments faces the challenge of possible random delays, which leads to random interest rates. Such randomness affects both microlenders and borrowers. This research utilizes a mathematical model called the generalized Yunus equation (GYE) to study the microloan repayment process in the Philippine setting. Using this model, an explicit formula was formulated expressing the effective interest rate involved in repayment as a function of the time when the delay takes place, which closely approximates the actual values of the rate that microlenders receive. The model can potentially help lenders identify how much interest they gain or lose, which is a viable part of their operation’s sustainability.

Recommended Citation

Santos Luy, Jasmin-Mae (2020) "A Test of the Generalized Yunus Equation and its Implications for Microcredit in the Philippines," DLSU Business & Economics Review: Vol. 29: No. 2, Article 11.
DOI: https://doi.org/10.59588/2243-786X.1137
Available at: https://animorepository.dlsu.edu.ph/ber/vol29/iss2/11