Convincing the bank if you don’t have money or collateral is difficult, if not impossible. It is now easier for the bank to reach its subgame-perfect Nash equilibrium by rejecting the application. Here the bank has done nothing wrong as its primary goal was to protect its business. But in the process, it made the poor out of the credit market, eventually throwing them into a downward spiral. On the other hand, the bank was far more confident with the rich because of the collateral.
Bangladeshi economist Muhammad Yunis, who later got the Nobel Peace Prize for this work, broke this spiral by founding a community development bank, Grameen Bank, employing the microcredit system.
16 Decisions
The banking system works by giving several small loans to a pool of interconnected people. Then, instead of creating any legal framework, the Grameen bank laid a value system by sixteen decisions. Those are aimed to foster discipline, community building, saving, and sustainability.
Introducing Game Theory: Ivan Pastine, Tuvana Pastine
Grameen Bank: Wiki
