India's poorest reel under microcredit debt burden

[TheMightyFavog]

http://www.npr.org/2010/12/31/132497267/indias-poor-reel-under-microfinance-debt-burden?ft=1&f=1001&sc=tw&utm_source=twitterfeed&utm_medium=twitter

The idea behind microcredit is to give a small loan to a very poor person to buy some asset that will help her work her way out of poverty.

A typical client is a poor woman who lives in a slum or a rural village. She might earn money as a farm laborer or in small trade, such as selling vegetables by the side of the road.

As little as $200 — the theory goes — could allow a woman like that to buy more goods to sell, or a couple of goats to milk, or a sewing machine to make clothing. A working asset could increase her ability to earn a living and make enough extra to repay the loan with interest.

(snip)

"Just so your audience can brace themselves, the typical interest rates are in a range of 24 to 30 percent per annum," says Vijay Mahajan, president of the Microfinance Institutions Network, a trade group. "Most people find it very hard that this interest rate does any good to poor people who are the recipients."

[freshwest]

1. I never really bought this idea. The marketing was too slick.

[ThomCat]

7. Yes, I thought so too.

When you have a bright, slick marketing plan, you are clearly planning to make a lot of money.

When you tell me that you are loaning out only a few hundred dollars at a time to the very poorest people in the world, and that is your whole business plan, obviously there is a catch. High interest rates were the obvious catch.

Of course you are going to make a lot of money if you are making loans with high interest rates. Bastards! x(

It doesn't matter that they are small loans. To you it might be a very small amount of money, but to someone desperately poor, that might be a year's income, or more. Now that you have tacked on a high interest rate, that "small" amount of money may now be very incredibly difficult to pay back.

The profit is in volume. If you can make enough of these small loans, the small amount of profit from each loan adds up pretty quickly, especially at such high interest rates.

They found a way to make a profit by driving the very poorest of the poor even farther into impoverishment.

[Hannah Bell]

10. agree. the other part is to "marketize" people who exist largely outside the money economy.

money debt, like taxes, brings people into the market economy.

marketization is one of the "philanthropies" bill gates' foundation sponsors world-wide.

essentially to force peasants & tribal people into the global labor pool.

i've always thought micro-credit was a scam.

something else to ponder: our president's mother did the pioneering research on microcredit. her work is the foundation on which all these programs rest. and she did it for usaid & the ford foundation.

[DCKit]

2. Scumbags. nt

[customerserviceguy]

3. So, what's the solution, then

No microcredit, and just simply have poverty, with zero chance to work one's way out of it?

[Odin2005]

4. Take the money from the rich, give it to the poor.

[jwirr]

9. That doesn't seem to working out so well. The rich are not interested.

And no one seems to want to force them.

[customerserviceguy]

14. The only problem is

the rich own the army and the police in the countries where microcredit is used.

[awoke_in_2003]

8. there used to be a term

for 24 to 30% interest rates- Usury, and it used to be illegal. Yes, I know India is not subject to our laws, but we have entities here who do about the same thing- the payday loan places.

[customerserviceguy]

15. These loans have high interest

because they have high risk. Giving a loan to a person who has only one possible way of paying it back (success of a very small business) is incredibly risky. One of the useful things that the microcredit lenders do is band groups of borrowers together to assist each other in getting their businesses off the ground.

If a place outlaws interest rates that reflect the true costs of lending, including the expected default rate, you have a situation where only the well-off can get loans, and they're the only ones who can buy things to keep an economy going.

I personally believe that microcredit loans are a positive solution to the problem of world poverty. Just giving handouts to people isn't going to solve the problem.

[Odin2005]

5. capitalist debt-peonage spun as aid to the poor.

[freshwest]

11. Yep

[Donnachaidh]

6. and the companies take out life insurance and then shame the recipients into suicide

The loaners win.

One girl doused herself with kerosene -- I think that kerosene should be reserved for the bankers. :grr:

[earth mom]

12. I remember being skeptical of the guy who won the peace prize for the idea of micro-credit.

I knew in my gut that there was something wrong about it and I was right. :(

Micro-Credit Pioneer Wins Peace Prize
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/13/AR2006101300211.html

[OneGrassRoot]

13. Wow, this is really eye opening.

Thanks for the OP and this link. I've seen this gentleman, and Grameen Bank, touted far and wide the last few years.

:(

[niceypoo]

16. The idea of microcredit is sound

The lack of banking regulation ruins it.

[salin]

17. I agree. Take away the usurous interest rates

and it is a lot more promising.

[aikoaiko]

18. It just goes to show that even good things can be corrupted and exploited.

And really depending on the pay back plan (length of time), 30% apr is really not that bad.

It's better than some of the pay-day loans out in our country.