Monday, December 17

Microloans / Microlending / Microcredit / Microfinance

Whatever you call it, there's a problem with it:

All organizations that loan extremely small amounts of money [to the poor] are now calling themselves "microlenders" / "microfinancers" / "microcreditors."

For decades--or perhaps even a century or two--big banks didn't loan any amount of money to extremely poor people. Why? Because even when they charged sky-high, usurious interest and sent harrassing collectors around, they still couldn't manage to get their money back.

Muhammad Yunus (of Grameen Bank) and others said, "Duh!" They added that the way you can get your money back from poor people is to:

  1. charge interest rates lower than the amount of profit a poor person's business is going to start bringing in on account of the loan
  2. take the harrassment out of "pressure" to pay back loans (e.g. make pressure from neighbors be supportive and helpful)

In addition to increasing the revenues of tiny businesses through loans, strategies #1 & #2 worked for getting the money back! Therefore "microloans" became famous as a good thing.

But now, because strategies #1 & #2 aren't actually in the word "microloan," big banks are able to reconsider usury-and-harrassment small loans to extremely poor people.

Though they'd previously considered such loans impossible to get money back on and not even worth trying, the good moral name of Yunus-style tiny loans (or "microloans") is making first-world investors pour money into usury-and-harrassment tiny loans (and insist that this time, the harrassment get the money back. After all, with the public thinking that "microloans" are a good thing, one can get away with more harrassment than was previously possible, right?).

Are you a teacher? Part of your pension fund is probably counting on making 15% from putting money into usurious (90%APY), harrassment-filled "microloans" to Ghanans. Maybe it's time to tell TIAA-CREF that you won't stand for that.

I'm looking into other ways to fight "usury and harrassment" tiny loans while preserving the ability of "affordable rates and lots of help" tiny lenders to keep doing what they're doing.

No free morality ride for lenders!

Recent headlines from the blog "Black and Missing but Not Forgotten:"