Entrepreneurial financing under uncertainty : Performance comparison between ROMCA and conventional microloans using agent based simulation

In this research we create a complex simulation environment where we compare the performance of two micro-financing modes in a group lending context under uncertain market and price conditions : A classical conventional mode and a proposed Profit and loss sharing model called ROMCA (Rotating Musharakah). Both models are based on group lending of entrepreneurs over a specified period. We identify four cases of market and price conditions and use Netlogo as a simulation tool to assess the performance of the two modes in terms of employment , enterprises , investment , tax proceeds and wealth creation. We found a simulation evidence that ROMCA performs better than conventional lending in terms of creating wealth, new enterprise (and therefore new employment opportunities) and better consumption level even under adverse market conditions. On the other hand, Conventional lending is found to dominate ROMCA in terms of employment under favorable market condition