Casual Friday: The Onion – Microlender Forecloses On Goat
In a piece which I think highlights some of the problems with micro-lending, this just in from the Onion:
SAN FRANCISCO—Representatives from One World Finance, a U.S.-based microcredit provider, confirmed Monday that they had initiated foreclosure proceedings on a goat in southern India following a borrower’s repeated failure to make her $2.20 monthly loan payments. “I tried to work with Ms. [Subha] Thangam on this, but once she fell a full $6.10 behind, I had to repossess the goat,” said loan officer Michael Conrad, who stated that he was just doing his job and that it was “not [his] fault” if certain subsistence farmers were living beyond their means. “I’d love to recoup the entire $22 loan at auction, but given the glut of foreclosed and abandoned goats in the area, I’d be lucky to get even half that.” Conrad also acknowledged that the owner had left the goat in “pretty bad shape” and had even stripped it of its hair for potential resale on the paintbrush market.
I’ve always been a bit skeptical about the micro-lending fad. For more analysis on micro-lending based on conversations with people who’ve actually worked in the field click here:
To me it always seemed silly to ask for interest on a 20 dollar 6 month loan. But in the 2000’s micro-lending took off as the newest coolest liberal fad. Spurred on by the growing belief in the morality of the free-market, liberals learned there was a way they could save the world, ease their conscious, and make money.
The problem I always had with micro-loans was that it was America’s way of exporting a debt culture to regions which had, while previously been poor, at least not had to cope with the problems of a negative balance sheet. Micro-lending served to push debt onto people who already had so little, while spreading one of capitalism’s more insidious notions and less moral qualities. Remember of course, prior to the 1800s Christians were forbidden from loaning money at interest because of usury laws. Furthermore, it seems a bit callous to claim to be helping people while making them pay you interest. By that standard all bankers are saints. Of course, if you really are a free market junky, there are plenty of ways you can donate money to people in developing countries that invest in local markets (receiving interest doesn’t change much, and in fact probably makes it less likely some of the funding will go to useful economic things like education and disease prevention). In essence you’re likely just contributing to furthering debt peonage of the poor, as they are forced to work in some dead-end menial job to pay off the loan; rather than possibly developing necessary infrastructure. However, after talking with someone who had worked in the micro-lending field I learned the problems with micro-lending were much more obvious than my analysis.
Micro-lending doesn’t work, because the whole industry is a sham. The impoverished recipients of mico-lending know this and so what they do is treat it as a cash donation. This is in part cultural, and in part because they are crafty people. Mico-lenders usually have nothing to foreclose on and what this means is that there is no incentive to pay. Furthermore, my source informed me that it is common for micro-loan recipients to simply pay off one loan with another. Of course Americans do this all the time, but here it only works to a limited extent. In the micro-loan industry there is no communication between companies. As a result there is no way to track who is a good loan recipient and who has taken out lots of loans. This makes it incredibly easy to scam the loan agencies. The loan companies themselves are similarly corrupt, because what looks good to their investors is how big their portfolio is. This is based on the false premise that they are helpful, feel good organizations and so if they’ve loaned a lot of money to people they’ve touched a lot of lives. In truth, my associate has informed me they under report the default rates on micro-loans.
In short, the micro-lending industry is a fake. Its time to call micro-lending out for what it is… exploitative junk-bonds. It is a way for liberals to feel like they are doing good, making money, and smarter than you because they’ve figured out all the solutions to the global inequalities of the capitalist game. Their super brilliant solution is… hold your breath for it… : DEBT! Especially debt for poor people!
And we’ve all seen how wonderfully a culture of debt (and low wages) has worked out for America!