What caused the sudden 30% increase in loan defaults for mPokket's instant cash advance product last month?

Introduction

The sudden 30% increase in loan defaults for mPokket's instant cash advance product last month is a critical issue that demands immediate attention and thorough analysis. This unexpected spike in defaults not only impacts the company's financial health but also raises questions about the product's sustainability and risk management practices. To address this complex problem, I'll employ a systematic approach to identify, validate, and address the root cause while considering both short-term and long-term implications.

Step 1

Clarifying Questions (3 minutes)

• Looking at the timing, I'm thinking there might be a seasonal factor at play. Has this 30% increase been compared to the same month last year?

Why it matters: Seasonal trends could explain sudden changes and help differentiate between cyclical and systemic issues. Expected answer: No significant seasonal variation observed in previous years. Impact on approach: If seasonal, we'd focus on improving forecasting and risk models.

• Considering the magnitude of the change, I'm wondering about recent product changes. Have there been any modifications to the loan approval criteria or credit scoring model in the past 3-6 months?

Why it matters: Recent changes could have unintended consequences on default rates. Expected answer: A minor update to the credit scoring algorithm was implemented 2 months ago. Impact on approach: If confirmed, we'd need to review the algorithm changes and their impact.

• Given the nature of instant cash advances, I'm curious about the user demographics. Has there been a shift in the user base or an influx of new users from a particular segment?

Why it matters: Changes in user composition could explain higher default rates if riskier segments are overrepresented. Expected answer: There's been a 20% increase in new users from tier 3 cities. Impact on approach: We'd need to analyze the risk profiles of new user segments and adjust our models accordingly.

• Considering external factors, I'm thinking about potential economic changes. Have there been any significant economic events or policy changes that could affect borrowers' ability to repay?

Why it matters: Macroeconomic factors can have a broad impact on loan repayment behavior. Expected answer: No major economic shifts, but there's been some volatility in the job market. Impact on approach: We'd need to incorporate economic indicators into our risk assessment models.