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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.

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.

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.