Old School Money Lending

At the turn of the century, I worked in a dairy with a group of guys from Southeast Asia. One in particular gave me some insight on a money lending deal that would allow someone who had just come to America the chance to get their hands on a good-sized sum of money without the need for real banks, etc...here's how it works--I thought it was very interesting


20 guys get together (I don't think the southeast asian culture is too progressive so I am assuming just men, but my knowledge on the subject is very limited)

The program is that each guy is going to pay $500/month for 20 months. Each month, one of the 20 guys is going to get one of the payments from everyone else in the group. The trade-off for being the first to get paid is that you don't actually get $500 from each person. You bid down the amount you'll accept from everyone for the month--when you win, everyone pays you the bid amount right then--lets say your winning bid was $450--you are going to take home $8,550 that day. But you're also committed to paying $500 each month for the next 19 months. You've gotten your money. Now you just have to make 19 monthly payments of $500

Each month another guy bids for the right to take home a lump sum until everyone is done. The last guy, theoretically, paid out something less than $500 each month, but received $500 from each person over the course of the 20 months. Say you were that last guy and you paid out 440/440/450/450/450/450/460/460/460/460/460/470/470/470/470/470/475/475/475

That totals $8,755..but you'd collect 19 payments of $500 which is $9500

I am not sure exactly how low the bids go, but basically if you go early, you can get enough money to buy a used car in cash today; and the benefit for others is to make a little money in the informal market and maybe help out a relative or friend in the process. I am sure I'm glamorizing it and there is probably an ugly aspect to it but kind of a neat concept so I wanted to share...