Indian money saving habits and micro loans with game theory

Group A: micro Money Lenders

We were having a discussion about market sizing of Indians earning around ~20K ( which is 400 USD per month) and in the age group of 20 -35 and living in urban areas.

The guesstimate was that such people might be around 100 million and from this a simple estimate gives a market size of 40 billion dollars per month. ( I mean the earning potential)

Next thing we were trying to guess was the break up of their salaries. We (disussion group had a similar background at some point in their life) guesstimated that the biggest fraction 30-40% might go in saving. Which still means close to 12 -16 billion USD per month unused cash.

Group B: people who need micro loans

Then on the other end we have people below the poverty line, they might be from anywhere to 300 million to 400 million. Not all of them in city but maybe a significant number. Also, the hypothesis is that these people under bottom of pyramid need access to micro loans which existing systems have failed to provide because of trust, bureaucracy and what not.

Also, taking another guestimate about typical needs of these people....which might be served under 2K INR (40 USD) for most of the business they want to enter (like buying an old rickshaw)


Enabler
Note: the National ID project, India is currently having an ambitious national id project (assuming it is executed with an acceptable accuracy). It offers us a unique opportunity to connect the above two groups for bringing the trust in system.

Game Theory

I am not an expert in this subject area but if I try to simplify the use of it. Which is, two self interested players are trying to win a game by applying some strategies which are definitely guided by certain incentives.

Something similar we can have in the auctions like second price auctions, where honesty is the best policy. It uses ideas from game theory to maximise the auction bids.

Solution : The money wall

People in group A wants to save money ......but won't mind getting some interest (as most of the Indians look for a savings bank account with higher interest rate).

People in group B need money and are often exploited by money lenders by charging them as high as 100 - 200% interest rates. However , this high interest rate mitigates the risk for money lender.

So what we propose is "A money lending wall" which has two facets: (technically which has a look much like an ATM machine but has an auction kind of algorithm running connecting money lenders with money borrowers and uses the national id to bring the trust in the system)

People from group A can come and deposit money and set their bid of interest rates they are looking from market. (game theory concepts)

People from group B, can come and set their bid for amount of interest or extra money they are willing to pay. (game theory concepts)

The system can give out micro loans to people who are willing to offer as much interest as lenders are expecting and which is then definitely dictated by market forces but removes bureaucratic process and gives easy access of money to people who need it. At the same time giving incentive to people who are willing to lend.

This system can be man less totally run on the mathematical models (like Google runs for Ads auction) and charge a service fee from the people who use it for the running fees or any profits which are needed.

There will be two slight improvements needed in it to make it more robust:

1. to reduce the risk the amount one can borrow could be reduced to a small installment (say 2K, the amount of damage a person can make is reduced)
2. defaulters are linked through national id ,which is unique, so one time defaulter cannot lend money again from the system. (however, by paying a fine it must be possible to join the system back and get out from the list of defaulters)

We expect people to frequently lend for this system to be of use to to people. which is I guess the nature of micro loans. You take small but often :)

Malicious website .......... reaches you ....... through your network ........and you click it! ......but thanks to FireFox!!!!!!!!

First email (real one): One good friend of mine sent me a mail advert recently about USID challenge 2009. Below is the snippet of same......I registered by sending the email to email ID shown in red box........





Second email (Fake one): Then I get another mail about the same event but this one looks more fancy.......this one also comes from a good friend. Something which made me read this mail was, I didn't get registration reply when registering through the address on the first email. You can see the screenshot of the same advert below ( I am using the screenshot as I don't want to spread the attack myself :P but one can see the url of malicious website in the redbox in bottom left ....thanks to Mozilla Firefox 3.5)



I am really impressed by the ingenuity of the spammer/attacker as here the mail didn't came to me as a random email but from someone trusted. So the attack searched for me ..... :)

They knew that the event is recent .....so they were mixing familiar names with malicious links (some of the URL's point to trusted portals like Forum Nokia). Since the event info comes through network ....it reaches to a person who has a high chance of clicking on it. So, the chances of the attack being successful are even higher.

Lessons to be learned:

1. Have upgraded browser and working one (like Firefox) , which can tell you that the website you are trying to open is malicious.
2. Even though mail comes from a trusted source ....... first hover over the link before clicking on it ......if it is something malicious...I am clicking on! (like the one in above image is just an IP )
3. Inform your network about it ...so that they stop spreading attack........but inform them in a smart way (by not spreading it again) ........ :)