11 ms·

Oh great. Payday loan sharks meet Wall-street meet the developing world. The whole concept of microlending is based on the free market fantasy that poor people

Oh great. Payday loan sharks meet Wall-street meet the developing world. The whole concept of microlending is based on the free market fantasy that poor people can build their own businesses and be self reliant, as if market entry barriers don't exist. As if a weaver investing in a manual loom does not face the competition of textiles industrially produced in China for pennies. The financial sector jumped all over microlending: it's a virgin market for financial services ("the unbanked"), the default rate is low because the existing social structure is leveraged (like MLMs, Amway etc.), and the profit potentials are huge. Meanwhile, they can claim they are helping people and the nasty effects of this type of loan sharking take place in a far away country to people who can barely understand they are victimized. Poor people need jobs and education, not high interest loans that will just finance survival. The developing world will increase it's standard of living the same way the West did: large scale efficient production, ran by educated and productive workers earning wages and creating demand. It will not be via a bunch of banana cart pushers.

cornholio 12y ago
By all means, don't address any of my points, just hit the downvote button.
- pessimizer 12y ago
  When you post things like this, my downvote ends up nullifying my initial upvote on your OP. If you value the precious magic internet points, with a complaint about downvotes you're just giving people twice the opportunity to downvote you.
  - cornholio 12y ago
    I agree it looks stupid, but when I posted that there were three negative votes and not a single reply. I really don't care about the downvotes, I want arguments. The lending industry is like a drug store: you care cure some diseases with the right drugs, but you can't run it like an "all you can eat" buffet. People will kill themselves, literally.
    - pessimizer 12y ago
      If I want to encourage people to respond because I'm honestly interested or confused, I edit my downvoted reply and double-down on the explanation of my point-of-view. It's important to me that people downvote me for something that is expressed unambiguously and that I truly believe. Then, it's a point of pride to be downvoted. Also, for anti-authoritarian/anti-libertarian stuff that gets downvoted: I notice that I generally get most of the votes back later in the day and overnight after Europe gets into the office. The US middle class is generally very angry, and believes that money is the condensation of divine grace. Just saying.
viraptor 12y ago
The short response is: Payday loans have APR up to 1000%. These ones are comparable with bad rating, but still reasonable, long-term bank loans. Payday loans capture people who need food or pay the late bills now, discussed loans are (usually) for pretty well-defined business purpose. > Poor people need jobs and education Good, microlending helps them create a job, or sustain it themselves rather than looking for one. Or do you think someone should come in from outside and do it for them? > large scale efficient production So... China's mass production model then? How do you propose jump-starting that? Edit: On a specific example: https://www.zidisha.org/microfinance/loan/MwangiGituathi/7915.html https://www.zidisha.org/microfinance/loan/MwangiGituathi/791... (first non-trivial-shop entry from front page) - started business using the first loan - got successful, tries to expand to another location - creates job for another - money helps him get the education Isn't that exactly what you wanted him to achieve? (job*2, education, person capable of creating your large scale production environment in the future, wouldn't call him victimised)
- cornholio 12y ago
  > China's mass production model then? How do you propose jump-starting that? By loans made by the private or public sectors for the purpose of developing large scale productive capacities ? Craftsmen can't compete with industrial production, there is a minimal scale problem. > microlending helps them create a job, or sustain it themselves rather than looking for one. A $50 loan can't do that. You will not get an education and you will not build a business with $50, not even in the poorest village on Earth. You might help a small business owner solve a crisis situation and find some stability. The source of poverty is lack of investment, micro-loans will drain resources out of the community (principal + interest) and leave very little actual productive capital behind. While the idea as initially conceived by Yunus was well intentioned, the focus on lending (as opposed to developing and building) has transformed it into a form of loan sharking. Many of the newer Microlending networks that operate in India have focused so tightly on performance and profit and so little on the welfare of the clients that it has resulted in a slew of suicides and assorted tragedies: http://www.bloomberg.com/news/2010-12-28/suicides-among-borrowers-in-india-show-how-men-made-a-mess-of-microcredit.html http://www.bloomberg.com/news/2010-12-28/suicides-among-borr... Edit: the example you provide is just that, an anecdote. It's certainly possible, but is the dominant story or the exception ? At 20% interest rate in US dollars, plus any volatility the local currency will induce, we are talking about credit card level rates, and not business loans. The introductory loan in 50 to 150$, if you need more you need to build credit, just like credit cards. How well are the borrowers and their scheme selected ? What's to prevent it from becoming a way for poor families to finance interest bearing consumption, just like a credit card ? On a case by case basis, there are opportunities for development that can withstand 20% interest because the local need for that service is so great, thus the amortization is very rapid. There is a massive risk in this internet driven model that borrowers are selected solely for their ability to repay, and that scale and growth becomes the driving factors. You will NOT spur development by simply lending money to the poor, quite the contrary you will lock them into a high debt, high interest form of consumption that is all too familiar to poor families in the West.

cornholio 12y ago

By all means, don't address any of my points, just hit the downvote button.

pessimizer 12y ago
When you post things like this, my downvote ends up nullifying my initial upvote on your OP. If you value the precious magic internet points, with a complaint about downvotes you're just giving people twice the opportunity to downvote you.
- cornholio 12y ago
  I agree it looks stupid, but when I posted that there were three negative votes and not a single reply. I really don't care about the downvotes, I want arguments. The lending industry is like a drug store: you care cure some diseases with the right drugs, but you can't run it like an "all you can eat" buffet. People will kill themselves, literally.
  - pessimizer 12y ago
    If I want to encourage people to respond because I'm honestly interested or confused, I edit my downvoted reply and double-down on the explanation of my point-of-view. It's important to me that people downvote me for something that is expressed unambiguously and that I truly believe. Then, it's a point of pride to be downvoted. Also, for anti-authoritarian/anti-libertarian stuff that gets downvoted: I notice that I generally get most of the votes back later in the day and overnight after Europe gets into the office. The US middle class is generally very angry, and believes that money is the condensation of divine grace. Just saying.

viraptor 12y ago

The short response is: Payday loans have APR up to 1000%. These ones are comparable with bad rating, but still reasonable, long-term bank loans. Payday loans capture people who need food or pay the late bills now, discussed loans are (usually) for pretty well-defined business purpose. > Poor people need jobs and education Good, microlending helps them create a job, or sustain it themselves rather than looking for one. Or do you think someone should come in from outside and do it for them? > large scale efficient production So... China's mass production model then? How do you propose jump-starting that? Edit: On a specific example: https://www.zidisha.org/microfinance/loan/MwangiGituathi/7915.html https://www.zidisha.org/microfinance/loan/MwangiGituathi/791... (first non-trivial-shop entry from front page) - started business using the first loan - got successful, tries to expand to another location - creates job for another - money helps him get the education Isn't that exactly what you wanted him to achieve? (job*2, education, person capable of creating your large scale production environment in the future, wouldn't call him victimised)

cornholio 12y ago
> China's mass production model then? How do you propose jump-starting that? By loans made by the private or public sectors for the purpose of developing large scale productive capacities ? Craftsmen can't compete with industrial production, there is a minimal scale problem. > microlending helps them create a job, or sustain it themselves rather than looking for one. A $50 loan can't do that. You will not get an education and you will not build a business with $50, not even in the poorest village on Earth. You might help a small business owner solve a crisis situation and find some stability. The source of poverty is lack of investment, micro-loans will drain resources out of the community (principal + interest) and leave very little actual productive capital behind. While the idea as initially conceived by Yunus was well intentioned, the focus on lending (as opposed to developing and building) has transformed it into a form of loan sharking. Many of the newer Microlending networks that operate in India have focused so tightly on performance and profit and so little on the welfare of the clients that it has resulted in a slew of suicides and assorted tragedies: http://www.bloomberg.com/news/2010-12-28/suicides-among-borrowers-in-india-show-how-men-made-a-mess-of-microcredit.html http://www.bloomberg.com/news/2010-12-28/suicides-among-borr... Edit: the example you provide is just that, an anecdote. It's certainly possible, but is the dominant story or the exception ? At 20% interest rate in US dollars, plus any volatility the local currency will induce, we are talking about credit card level rates, and not business loans. The introductory loan in 50 to 150$, if you need more you need to build credit, just like credit cards. How well are the borrowers and their scheme selected ? What's to prevent it from becoming a way for poor families to finance interest bearing consumption, just like a credit card ? On a case by case basis, there are opportunities for development that can withstand 20% interest because the local need for that service is so great, thus the amortization is very rapid. There is a massive risk in this internet driven model that borrowers are selected solely for their ability to repay, and that scale and growth becomes the driving factors. You will NOT spur development by simply lending money to the poor, quite the contrary you will lock them into a high debt, high interest form of consumption that is all too familiar to poor families in the West.