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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 m

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
    > It's easy to lend anywhere. There are quite a lot of regulations surrounding lending in the "developed" world. It's not easy for you or I to just go out one day and set up shop trying to lend money.
    - cookie_monsta 7y ago
      Ah, well if we are talking about regulated lending that would be a different kettle of fish. Although some recent examples spring to mind where the developed world's financial lending regulations could have been a bit tighter ;)
    - hug 7y ago
      It's only not easy if you intend to do it legally. If you don't, it's really easy. I mean like "you can start running payday loans with a paypal account, a reddit account, and 10 minutes to read an FAQ" level of easy: reddit.com/r/borrow Some of the loans on the new page are over 4000% APR, and the lenders are (presumably, I don't actually know, but whatever) from the "developed" world.
- omeze 7y ago
  I mean, its not like markets reach equilibrium in an instant, or that financial education/operations are particularly robust in these communities. A more competitive lending market takes time to setup (i.e. to learn idiosyncratic risks) and some amount of operational overhead/expertise to run efficiently. Just because things are the way they are doesn’t mean they can’t change
- thawaway1837 7y ago
  The problem is lending is extremely expensive. The amounts people want to borrow are tiny, so the logistics involved themselves become a huge expense. Further, in many places where micro finance took off, there is a lack of ids, digital tracking, or even phones and addresses you can either contact or identify the borrowers by. Micro finances genius was to offload enforcement costs to the community at large, and to focus lending to women. Today where everyone has cellphones, a lot of the original expenses with lending to small scale borrowers have disappeared, and the cell phone itself becomes an ID.
  - cookie_monsta 7y ago
    > Today where everyone has cellphones, a lot of the original expenses with lending to small scale borrowers have disappeared, and the cell phone itself becomes an ID. yeah... not so much in places where you can get a prepaid SIM card with no ID from the corner store for pennies. I agree with your other points, though - only lending to women and only forming groups consisting of women from the same village/community are absolute bedrock requirements for getting microcredit to work
    - 9nGQluzmnq3M 7y ago
      You can't get a SIM in China without showing & registering your ID, and you can't get access to payment facilities without additional verification (link to bank, referral from user, etc). There are of course ways around this, but they're non-trivial.
taneq 7y ago
> the people who most need credit often just to make ends meet are the ones who are least likely to have access to it Is this not because the people can't afford to buy dinner today are equally unlikely (or even more so) to be able to afford to buy dinner and repay a loan tomorrow?
- cookie_monsta 7y ago
  Sure. Because people living in abject poverty don't need a loan, they need access to essential goods and services. Microcredit works a notch or so above that level, somewhere around what you might call the working poor.
  - taneq 7y ago
    I think "the people who most need credit often just to make ends meet" fits into that first bracket. Anyone who's drowning just trying to keep up with absolute essentials needs help, not loans. If you can repay a loan then you can save. And if you can save, you shouldn't take out a loan.
    - t0mas88 7y ago
      Unless you need the loan to generate income. Then you cannot first save (or it would take much longer) Take the example of needing $ 100 to setup a small restaurant. You probably need tables, kitchen equipment and some ingredients. After you have those you can start selling food and over some time pay back the loan. Once the loan is paid back you have more profit leftover for yourself. So you've become less poor and more able to provide for your own future.
      - chii 7y ago
        then they are not taking out a loan to make ends meet, but to start a business. If they are borrowing money for food, and hoping to make it back in the future by working - that's making ends meet. And i agree, in this case, that they need help, not loans.
    - 7y ago

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
  > It's easy to lend anywhere. There are quite a lot of regulations surrounding lending in the "developed" world. It's not easy for you or I to just go out one day and set up shop trying to lend money.
  - cookie_monsta 7y ago
    Ah, well if we are talking about regulated lending that would be a different kettle of fish. Although some recent examples spring to mind where the developed world's financial lending regulations could have been a bit tighter ;)
  - hug 7y ago
    It's only not easy if you intend to do it legally. If you don't, it's really easy. I mean like "you can start running payday loans with a paypal account, a reddit account, and 10 minutes to read an FAQ" level of easy: reddit.com/r/borrow Some of the loans on the new page are over 4000% APR, and the lenders are (presumably, I don't actually know, but whatever) from the "developed" world.
omeze 7y ago
I mean, its not like markets reach equilibrium in an instant, or that financial education/operations are particularly robust in these communities. A more competitive lending market takes time to setup (i.e. to learn idiosyncratic risks) and some amount of operational overhead/expertise to run efficiently. Just because things are the way they are doesn’t mean they can’t change
thawaway1837 7y ago
The problem is lending is extremely expensive. The amounts people want to borrow are tiny, so the logistics involved themselves become a huge expense. Further, in many places where micro finance took off, there is a lack of ids, digital tracking, or even phones and addresses you can either contact or identify the borrowers by. Micro finances genius was to offload enforcement costs to the community at large, and to focus lending to women. Today where everyone has cellphones, a lot of the original expenses with lending to small scale borrowers have disappeared, and the cell phone itself becomes an ID.
- cookie_monsta 7y ago
  > Today where everyone has cellphones, a lot of the original expenses with lending to small scale borrowers have disappeared, and the cell phone itself becomes an ID. yeah... not so much in places where you can get a prepaid SIM card with no ID from the corner store for pennies. I agree with your other points, though - only lending to women and only forming groups consisting of women from the same village/community are absolute bedrock requirements for getting microcredit to work
  - 9nGQluzmnq3M 7y ago
    You can't get a SIM in China without showing & registering your ID, and you can't get access to payment facilities without additional verification (link to bank, referral from user, etc). There are of course ways around this, but they're non-trivial.

taneq 7y ago

> the people who most need credit often just to make ends meet are the ones who are least likely to have access to it Is this not because the people can't afford to buy dinner today are equally unlikely (or even more so) to be able to afford to buy dinner and repay a loan tomorrow?

cookie_monsta 7y ago
Sure. Because people living in abject poverty don't need a loan, they need access to essential goods and services. Microcredit works a notch or so above that level, somewhere around what you might call the working poor.
- taneq 7y ago
  I think "the people who most need credit often just to make ends meet" fits into that first bracket. Anyone who's drowning just trying to keep up with absolute essentials needs help, not loans. If you can repay a loan then you can save. And if you can save, you shouldn't take out a loan.
  - t0mas88 7y ago
    Unless you need the loan to generate income. Then you cannot first save (or it would take much longer) Take the example of needing $ 100 to setup a small restaurant. You probably need tables, kitchen equipment and some ingredients. After you have those you can start selling food and over some time pay back the loan. Once the loan is paid back you have more profit leftover for yourself. So you've become less poor and more able to provide for your own future.
    - chii 7y ago
      then they are not taking out a loan to make ends meet, but to start a business. If they are borrowing money for food, and hoping to make it back in the future by working - that's making ends meet. And i agree, in this case, that they need help, not loans.
  - 7y ago