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Serious question I understand how micro-finance helps small scale borrowers at a micro level and boosts the economy at a macro level. What I don't understand

Serious question I understand how micro-finance helps small scale borrowers at a micro level and boosts the economy at a macro level. What I don't understand is what drives so many consumers into micro-borrowing for basic consumer-level purchase. Could someone who has used such services explain who and why micro-borrowing was useful for them?

pmjordan 7y ago
I haven’t used this or any other micro-borrowing service. But we’ve got over a decade‘a worth of failed microtransaction services in the West. I’m going to guess that this is a fantastic way to encourage traction with such a service. Want to spend a few cents here and there? Great! Get started and pay us later. Then when you’ve used that up they get your (bank) details and trust you with more and more credit, until they’re no longer micro-loans. And people buy all sorts of stuff (consumer goods) on credit, this much shouldn’t be a surprise.
- notfromhere 7y ago
  at least in the US, micro-borrowing didn't take off because its already easy to get credit. What is concerning is that micro-lending for e-commerce is taking off with services like affirm, which looks like a dangerous economic signal when people are using it to finance purchases under $100 dollars. basically any major boost in micro-lending in the US would be a warning and not anything to celebrate.
  - aSplash0fDerp 7y ago
    Good points... And I commend you for staying on topic with that last paragraph. Literally all of the warning lights are blinking (due to intentional neglect and corruption across the board), but the micro-lending bastion is safe for now. Username checks out...
kevmo314 7y ago
Credit cards are also micro-borrowing. There can be a variety of reasons for using them, convenience or being able to collect your paycheck are two.
nostrebored 7y ago
One factor is that it's easier to say "I'm paying back a loan" than saying "I need to buy new shorts". Keep in mind that loans and gifting are pervasive features of low income communities already.
deleted 7y ago
[deleted]
thephyber 7y ago
Convenience and satisfaction. I remember how anxious I was when, as a student, I didn’t know if a CC charge would be declined or if a debit charge that brought my account balance would fall to -$0.02, thus bringing the wrath of a $29 overdraft fee. The overdraft notice is also a distinctly anxiety-inducing letter. Microloans are typically offered to people who are not eligible for larger, more traditional loans. Also, some people who want expensive consumer goods do so for the feeling of the purchase and the feeling of accomplishment, but ignore the nagging reality that they haven’t actually accomplished the purchase until it is paid off.
- o-__-o 7y ago
  A college student would not take a $7 microloan for convenience and satisfaction. The funny part here is that a college student should know how to keep a balanced ledger! But that's not the point, the point is that microloans are meant for developing countries where an established credit market is still forming (like many countries in Africa and Southeast Asia)
  - klyrs 7y ago
    > The funny part here is that a college student should know how to keep a balanced ledger! That's something I was taught neither by my parents, nor at any point through my schooling. It'd be great if folks had this kind of fiscal literacy; but where are we expected to gain that knowledge? I've heard tell of "civics" courses, back in the day, that taught the basics of what adults are expected to know. But they're long gone now.
    - yorwba 7y ago
      I think the point is that a college student should be able to figure it out on their own. I was never taught how to keep a ledger; I just decided one day to download GnuCash and enter all my transactions there. Maybe I'm actually doing it all wrong, but I think it's been quite helpful for planning my spending.
    - jason_slack 7y ago
erikig 7y ago
- Convenience: Having your payment info saved in Alibaba (or Jet,Walmart,Amazon etc) makes it easier to purchase & check out especially because you don't have to incur the financial consequences right away. - Increased buying power & revenue: The customers don't incur any finance charges. This allows them to purchase $14 worth of products while only paying $7 right away. The merchants that sell the products likely pay a transaction fee. As such, Ant/Alibaba can generate additional revenue from the increased sales and transaction fees.
cookie_monsta 7y ago
I don't think you're likely to find too many micro-borrowers on this site. We used to set up micro-finance co-ops in developing countries. The amount of seed money requested by borrowers was ridiculously small - $100 to set up a corner store in the front room of someone's home, $150 to buy some clothing wholesale and sell it retail door to door. What we found was that the people who most need credit often just to make ends meet are the ones who are least likely to have access to it. So they resort to "village moneylenders" which is a nice way of saying loan sharks (whose interest rates just perpetuate the cycle). Compare that with people who are relatively rolling in cash who can play all sorts of games with multiple lines of credit and basically work the system in their favour. I understand that the amounts seem absurdly small, but for some people "I have no money" literally means that they have $0.00, not "I only have a couple of hundred and my credit cards, overdraft, afterpay, etc to get me through to pay day"
- scarejunba 7y ago
  It's pretty easy in those regions to lend so the fact that loansharks still dominate seems to indicate to me that they're lending to unreliable borrowers. i.e. that this is market equilibrium, you cannot compete on margin.
  - cookie_monsta 7y ago
    It's easy to lend anywhere. Where it gets complicated is when you're trying to borrow. From my experience the popularity of loan sharks has a lot more to do with the fact that banks traditionally have seen no value in small, short term loans (which is basically what a credit card transaction is). Interestingly enough, in many places where we worked and proved that "poor" does not necessarily equate to "unreliable" those same banks are starting to offer microcredit-like[1] loans, presumably because they've crunched the numbers and decided that the volume makes it a viable proposition even if the margin is thin. [1] "Microcredit-like" because banks' offerings are obviously profit-oriented whereas traditional microcredit tends towards a community development focus
    - jstanley 7y ago
coderintherye 7y ago
In addition to cookie_monsta's answer, you also have to consider that a very sizable portion of microcredit borrowers live on a day-to-day or week-to-week budget. Often times income in will be lumpy whether from a paycheck every two or four weeks or because sales from their micro-business being lumpy as well (e.g. maybe they most of their money at the market on the weekend).
encoderer 7y ago
Yes every single day I micro borrow amounts as low as 2.99 to buy coffee. I pay these off with zero interest at the end of the month. It gives me a way to get what I want without having cash in hand. It’s great. Some micro loans even pay ME for taking them.
forkx 7y ago
I use this "HuaBei". I wouldn't call it "borrowing". Actually the Ant-finance have another product called 'JieBei' which means 'just borrow'. "HuaBei" works like the credit card, if you pay within the 1 month, you don't need to pay interest. There are the following reasons encourage people to use this. - 1) You get cheaper product (not a lot, but still cheap) - 2) If you use this HuaBei and pay off on time, you'll get higher credit score which is called 'sesame credits'. With it, you can go to the hotel without paying in advance. Or you can use it as the finance statement when applying VISA. - 3) Ant finance also have funds products. The most used one is 'YU'E bao'. It is monetary fund. The yearly interest rate for now is around 2.3%(used to 4%). You can deposit and withdraw any time. If I don't pay the product with debit but the "huabei", after 1 month I got more money. (I feel like I should write a blog about this ;) For me, the reason 2 is the most important one.

pmjordan 7y ago

I haven’t used this or any other micro-borrowing service. But we’ve got over a decade‘a worth of failed microtransaction services in the West. I’m going to guess that this is a fantastic way to encourage traction with such a service. Want to spend a few cents here and there? Great! Get started and pay us later. Then when you’ve used that up they get your (bank) details and trust you with more and more credit, until they’re no longer micro-loans. And people buy all sorts of stuff (consumer goods) on credit, this much shouldn’t be a surprise.

notfromhere 7y ago
at least in the US, micro-borrowing didn't take off because its already easy to get credit. What is concerning is that micro-lending for e-commerce is taking off with services like affirm, which looks like a dangerous economic signal when people are using it to finance purchases under $100 dollars. basically any major boost in micro-lending in the US would be a warning and not anything to celebrate.
- aSplash0fDerp 7y ago
  Good points... And I commend you for staying on topic with that last paragraph. Literally all of the warning lights are blinking (due to intentional neglect and corruption across the board), but the micro-lending bastion is safe for now. Username checks out...

kevmo314 7y ago

Credit cards are also micro-borrowing. There can be a variety of reasons for using them, convenience or being able to collect your paycheck are two.

nostrebored 7y ago

One factor is that it's easier to say "I'm paying back a loan" than saying "I need to buy new shorts". Keep in mind that loans and gifting are pervasive features of low income communities already.

deleted 7y ago

[deleted]

thephyber 7y ago

Convenience and satisfaction. I remember how anxious I was when, as a student, I didn’t know if a CC charge would be declined or if a debit charge that brought my account balance would fall to -$0.02, thus bringing the wrath of a $29 overdraft fee. The overdraft notice is also a distinctly anxiety-inducing letter. Microloans are typically offered to people who are not eligible for larger, more traditional loans. Also, some people who want expensive consumer goods do so for the feeling of the purchase and the feeling of accomplishment, but ignore the nagging reality that they haven’t actually accomplished the purchase until it is paid off.

o-__-o 7y ago
A college student would not take a $7 microloan for convenience and satisfaction. The funny part here is that a college student should know how to keep a balanced ledger! But that's not the point, the point is that microloans are meant for developing countries where an established credit market is still forming (like many countries in Africa and Southeast Asia)
- klyrs 7y ago
  > The funny part here is that a college student should know how to keep a balanced ledger! That's something I was taught neither by my parents, nor at any point through my schooling. It'd be great if folks had this kind of fiscal literacy; but where are we expected to gain that knowledge? I've heard tell of "civics" courses, back in the day, that taught the basics of what adults are expected to know. But they're long gone now.
  - yorwba 7y ago
    I think the point is that a college student should be able to figure it out on their own. I was never taught how to keep a ledger; I just decided one day to download GnuCash and enter all my transactions there. Maybe I'm actually doing it all wrong, but I think it's been quite helpful for planning my spending.
  - jason_slack 7y ago

erikig 7y ago

- Convenience: Having your payment info saved in Alibaba (or Jet,Walmart,Amazon etc) makes it easier to purchase & check out especially because you don't have to incur the financial consequences right away. - Increased buying power & revenue: The customers don't incur any finance charges. This allows them to purchase $14 worth of products while only paying $7 right away. The merchants that sell the products likely pay a transaction fee. As such, Ant/Alibaba can generate additional revenue from the increased sales and transaction fees.

cookie_monsta 7y ago

I don't think you're likely to find too many micro-borrowers on this site. We used to set up micro-finance co-ops in developing countries. The amount of seed money requested by borrowers was ridiculously small - $100 to set up a corner store in the front room of someone's home, $150 to buy some clothing wholesale and sell it retail door to door. What we found was that the people who most need credit often just to make ends meet are the ones who are least likely to have access to it. So they resort to "village moneylenders" which is a nice way of saying loan sharks (whose interest rates just perpetuate the cycle). Compare that with people who are relatively rolling in cash who can play all sorts of games with multiple lines of credit and basically work the system in their favour. I understand that the amounts seem absurdly small, but for some people "I have no money" literally means that they have $0.00, not "I only have a couple of hundred and my credit cards, overdraft, afterpay, etc to get me through to pay day"

scarejunba 7y ago
It's pretty easy in those regions to lend so the fact that loansharks still dominate seems to indicate to me that they're lending to unreliable borrowers. i.e. that this is market equilibrium, you cannot compete on margin.
- cookie_monsta 7y ago
  It's easy to lend anywhere. Where it gets complicated is when you're trying to borrow. From my experience the popularity of loan sharks has a lot more to do with the fact that banks traditionally have seen no value in small, short term loans (which is basically what a credit card transaction is). Interestingly enough, in many places where we worked and proved that "poor" does not necessarily equate to "unreliable" those same banks are starting to offer microcredit-like[1] loans, presumably because they've crunched the numbers and decided that the volume makes it a viable proposition even if the margin is thin. [1] "Microcredit-like" because banks' offerings are obviously profit-oriented whereas traditional microcredit tends towards a community development focus
  - jstanley 7y ago

coderintherye 7y ago

In addition to cookie_monsta's answer, you also have to consider that a very sizable portion of microcredit borrowers live on a day-to-day or week-to-week budget. Often times income in will be lumpy whether from a paycheck every two or four weeks or because sales from their micro-business being lumpy as well (e.g. maybe they most of their money at the market on the weekend).

encoderer 7y ago

Yes every single day I micro borrow amounts as low as 2.99 to buy coffee. I pay these off with zero interest at the end of the month. It gives me a way to get what I want without having cash in hand. It’s great. Some micro loans even pay ME for taking them.

forkx 7y ago

I use this "HuaBei". I wouldn't call it "borrowing". Actually the Ant-finance have another product called 'JieBei' which means 'just borrow'. "HuaBei" works like the credit card, if you pay within the 1 month, you don't need to pay interest. There are the following reasons encourage people to use this. - 1) You get cheaper product (not a lot, but still cheap) - 2) If you use this HuaBei and pay off on time, you'll get higher credit score which is called 'sesame credits'. With it, you can go to the hotel without paying in advance. Or you can use it as the finance statement when applying VISA. - 3) Ant finance also have funds products. The most used one is 'YU'E bao'. It is monetary fund. The yearly interest rate for now is around 2.3%(used to 4%). You can deposit and withdraw any time. If I don't pay the product with debit but the "huabei", after 1 month I got more money. (I feel like I should write a blog about this ;) For me, the reason 2 is the most important one.