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> Another thing that's interesting is that it's really not all about enabling entrepreneurship. Increasingly, I have noticed loans for education [1], home-build

by doktrin 13y ago

> Another thing that's interesting is that it's really not all about enabling entrepreneurship. Increasingly, I have noticed loans for education [1], home-building [2], and other needs. This is actually a not-uncommon catch with regards to micro-credit in general, both in the US and abroad. At one point I worked for a micro finance institution, having been very impressed with the concept (applied generally) and the goals of the company. What I realized shortly after joining was that the overwhelming majority of loans issued were for "life expenses" - which often translates to "buying stuff", although this is of course not always the case. Ultimately, then, micro-credit in this context is really just lending targeted at an under-served demographic with not-quite-awful interest rates. Certainly not evil by any stretch (and on the whole, a net-positive) - but not living up to the very serene ideals of more Grameen-purist micro finance.

unclebucknasty 13y ago
>the overwhelming majority of loans issued were for "life expenses" >micro-credit in this context is really just lending targeted at an under-served demographic I think we have to be careful when providing loans to impoverished people as a means of helping them with subsistence-level stuff. Seems that it is very likely to leave them worse off, especially when interest is involved. Going forward, they now have largely the same income and expenses, yet also a debt to service. Reminds me of payday loan places here in the U.S. And, it seems difficult to imagine that those who would saddle impoverished people with interest-bearing debt so they can meet basic needs aren't knowingly preying upon their plight. But, I have no experience working in the field. I'd be interested in hearing success stories or other scenarios to the contrary that you may have witnessed.
- rahimnathwani 13y ago
  Two basic elements of underwriting for personal unsecured loans are assessing the ability to pay and the willingness to pay. If the borrower expects to have monthly expenses which are greater than their monthly income, and therefore nothing left over to make regular repayments of interest and capital as they become due, then the lender has no business making the loan in the first place. I'm not familiar with payday lenders in the US, but responsible ones in the UK will steer customers to an installment-based product if it turns out they've needed to roll the loan over to the next month, more than a couple of times.
  - unclebucknasty 13y ago
    There's already an entire industry around making loans to people who cannot afford them. Of course, when the source of the funds is free to the banks, as with Kiva, the economics are somewhat altered. >responsible ones in the UK will steer customers to an installment-based product if it turns out they've needed to roll the loan over to the next month, more than a couple of times. Installment-based products are still debt, right? In fact, I would imagine that to be what's primarily sold to impoverished people who have little-to-no assets. Still, it's no-good when we're talking about debt for subsistence. My view is that it's better to simply give them the money. If the person could not afford to eat without help, what will change to make it so when he now also has an additional expense (debt)?
    - rahimnathwani 13y ago
      Installment-based products are still debt, right? That's correct. However, as my original comment states, assessing ability to pay is part of underwriting. For an installment loan, this means checking (at least) that someone's monthly/weekly income is higher than their monthly/weekly regular expenses. The first loan I took was to buy a reliable car (for my journey to/from work). I could not afford to buy that car in cash, but could afford to pay it off within a couple of years, as my income was higher than my regular expenses, and I could use the difference to pay for the car. it's no-good when we're talking about debt for subsistence I agree. It's good mainly for revenue-generating assets (e.g. expanded inventory for your small shop) or cost-saving assets (e.g. a car which doesn't need frequent costly repairs).
      - unclebucknasty 13y ago
        >I agree. It's good mainly for revenue-generating assets... Precisely.

by doktrin 13y ago

unclebucknasty 13y ago

>the overwhelming majority of loans issued were for "life expenses" >micro-credit in this context is really just lending targeted at an under-served demographic I think we have to be careful when providing loans to impoverished people as a means of helping them with subsistence-level stuff. Seems that it is very likely to leave them worse off, especially when interest is involved. Going forward, they now have largely the same income and expenses, yet also a debt to service. Reminds me of payday loan places here in the U.S. And, it seems difficult to imagine that those who would saddle impoverished people with interest-bearing debt so they can meet basic needs aren't knowingly preying upon their plight. But, I have no experience working in the field. I'd be interested in hearing success stories or other scenarios to the contrary that you may have witnessed.

rahimnathwani 13y ago
Two basic elements of underwriting for personal unsecured loans are assessing the ability to pay and the willingness to pay. If the borrower expects to have monthly expenses which are greater than their monthly income, and therefore nothing left over to make regular repayments of interest and capital as they become due, then the lender has no business making the loan in the first place. I'm not familiar with payday lenders in the US, but responsible ones in the UK will steer customers to an installment-based product if it turns out they've needed to roll the loan over to the next month, more than a couple of times.
- unclebucknasty 13y ago
  There's already an entire industry around making loans to people who cannot afford them. Of course, when the source of the funds is free to the banks, as with Kiva, the economics are somewhat altered. >responsible ones in the UK will steer customers to an installment-based product if it turns out they've needed to roll the loan over to the next month, more than a couple of times. Installment-based products are still debt, right? In fact, I would imagine that to be what's primarily sold to impoverished people who have little-to-no assets. Still, it's no-good when we're talking about debt for subsistence. My view is that it's better to simply give them the money. If the person could not afford to eat without help, what will change to make it so when he now also has an additional expense (debt)?
  - rahimnathwani 13y ago
    Installment-based products are still debt, right? That's correct. However, as my original comment states, assessing ability to pay is part of underwriting. For an installment loan, this means checking (at least) that someone's monthly/weekly income is higher than their monthly/weekly regular expenses. The first loan I took was to buy a reliable car (for my journey to/from work). I could not afford to buy that car in cash, but could afford to pay it off within a couple of years, as my income was higher than my regular expenses, and I could use the difference to pay for the car. it's no-good when we're talking about debt for subsistence I agree. It's good mainly for revenue-generating assets (e.g. expanded inventory for your small shop) or cost-saving assets (e.g. a car which doesn't need frequent costly repairs).
    - unclebucknasty 13y ago
      >I agree. It's good mainly for revenue-generating assets... Precisely.