Every financial instrument was originally designed to help and serve people but somehow some guys who think they are smart manage to abuse the system, make a lot of damage and still get away with it. Why are not there any regulations to prohibit this? Why everybody learns only after game over when its too late? Here you go, the results of capitalism at its best
Suicides in India show the dark side of micro-finance
21–30 of 69 posts
Re: Suicides in India show the dark side of micro-finance
#22Earlier quoted context omitted.
If SKS microfinance is charging 24% they are a loanshark, period.Rates as high as that are usury and should not be lawful. I'm of half-Indian and half-European descent and I am always ashamed of my Indian heritage. The Indian people as a collective simply do not know what it means to be humane and have never heard the word solidarity. I don't mean that Western countries are perfect, just that they are lightyears ahea…
Of course any developing entrepreneurs will have higher interest rates - they are greater credit risks, and the costs of making the loan are similar for small loans an large loans. To properly compare, you have to compare the the 24% rate to the previous lenders, who, if I remember correctly charged rates from 100-300% and up.
That's all well and good provided that the loan is unsecured and generous (i.e. humane) bankruptcy laws are available.
In India, bankruptcy means a rural farmer will lose everything, including his land and his seed corn.
You can't have it both ways. Either the loan is secured and farmers pay low interest rates.
Or a high rate is allowed because the loans is an unsecured loan with high credit risk. But then the debter should be able to default without severe consequences, just a damage to his credit rating.
Neither is possible, because India doesn't know what humane capitalism is.
Edit: Sure 24% is better than 300%. So I should congratulate India for leaving the Feudal ages and entering the Robber-baron capitalist era of the 19th century.
Well OK: Congrats India! Now let's enter that 20th century, shall we?
Re: Suicides in India show the dark side of micro-finance
#23Earlier quoted context omitted.
If SKS microfinance is charging 24% they are a loanshark, period.Rates as high as that are usury and should not be lawful. I'm of half-Indian and half-European descent and I am always ashamed of my Indian heritage. The Indian people as a collective simply do not know what it means to be humane and have never heard the word solidarity. I don't mean that Western countries are perfect, just that they are lightyears ahea…
There's no 'general and historical' interest rate limit of 8-12%. Credit card APRs in the United States range up to 30% or so, and payday loans can have APRs of well over 100%. In other countries, rates for products catering to the poor are similarly high - this is just the cost of doing business when extending small amounts of credit to poor prospects with high default rates. The wisdom of that is what should be deb…
Check your facts: http://www.lectlaw.com/files/ban02.htm
E.g. Alabama: ALABAMA, the legal rate of interest is 6%; the general usury limit is 8%. The judgment rate is 12%.
Like I said, it's not perfect, there are many exceptions. The US has devolved quite a bit from the humane society that built it up.
But generous bankruptcy laws still make it possible for Americans to escape high debt. In India, suicide seems to be the only solution for some.
Re: Suicides in India show the dark side of micro-finance
#24India’s booming microlending industry is part of a global phenomenon that began as a charitable movement but now attracts private capital seeking growth and high returns. Good old capitalism, always there to turn nice things into shit.
>Good old capitalism, always there to turn nice things into shit. The best thing about this meme is that it WILL turn everything nice into shit if people believe it. Capitalism and free enterprise produced everything good. The issue with suicides is not related to capitalism, it's related to cultural norms and lack of bankruptcy laws. Your communist spin on this turns my stomach. If you really care about the poor you…
Yes, the desire to exploit and the drive to work tirelessly to maximize what you might get from being exploited is the source of all good things.
Re: Suicides in India show the dark side of micro-finance
#25Earlier quoted context omitted.
>Good old capitalism, always there to turn nice things into shit. The best thing about this meme is that it WILL turn everything nice into shit if people believe it. Capitalism and free enterprise produced everything good. The issue with suicides is not related to capitalism, it's related to cultural norms and lack of bankruptcy laws. Your communist spin on this turns my stomach. If you really care about the poor you…
Yes, the desire to exploit and the drive to work tirelessly to maximize what you might get from being exploited is the source of all good things.
Your verbal virtuosity is vacuous.
And I maintain that you don't actually care about the poor. I don't know wtf you're talking about but I do know one thing has been consistently shown to be true:
Free enterprise lifts poor people out of poverty.
Re: Suicides in India show the dark side of micro-finance
#26[I was involved in a project for SKS Microfinance in a previous job, and I've gotten up-close and personal with their numbers for a few months, all pre-IPO] A majority of the small-ticket loans are given out under the umbrella called IGLs (Income Generating Loans), which is basically capital for asset development and/or small-time business building. (e.g. the spice shop woman in the article) These are the loans given…
If SKS microfinance is charging 24% they are a loanshark, period.Rates as high as that are usury and should not be lawful. I'm of half-Indian and half-European descent and I am always ashamed of my Indian heritage. The Indian people as a collective simply do not know what it means to be humane and have never heard the word solidarity. I don't mean that Western countries are perfect, just that they are lightyears ahea…
There was a very interesting article in the Economist about this. The gist of it is that 24% is indeed steep, but bear in mind that:
a) These are very small sums of money, so the proportional overhead is much higher b) Microfinance loans represent about 30% of loans, the rest coming from local loansharks, who typically charge around 2-300% apr (and have more violent debt collection procedures). Any cap on rates will lower that percentage, and so make things worse.
Re: Suicides in India show the dark side of micro-finance
#27Not all of farmer suicides in India is micro-credit related. There are many other forces in play, for example bad and corrupt policies. You would find it surprising that the worst hit states are those where agriculture is more industrialized than others.
In the name of import reforms, the quality requirements for imported seeds have been drastically lowered. Traditionally germination rates of seeds used to be tightly regulated and the farmers expected that they would be able to re-use part of the harvest as seeds. Lack of mandatory seed quality designation is a problem. Earlier the mandated germination rates were higher than 90% for much of the GM seeds it is 65%, and more expensive.
The market has been flooded with GM seeds with poor germination rates, higher input costs, no re-usability and lacking the pest resistance that was promised. You would find a high correlation with the suicide patterns and introduction of GM varieties like BT cotton.
The agriculture sector used to be served well by the (national and state) banks. That credit has almost but completely disappeared, by way of change in government policy. On the other hand, in Indian cities it is common to be spammed on your cell-phone by banks continuously, for loans that you do not want or need. Same goes for advertisements on TV. So one major factor is mis-allocation of credit. For the banks it makes sense because there is more profit to be made of (defaulting) car loans than loans to agricultural enterprises. With no banks offering loans the farmers usually turn to private money lenders who charge arbitrary and astronomical interests. Most of the lending related suicides have their source here.
The sad part is that this is a decade old phenomena and the average urban Indian has been unaware of it (partly by choice). The popular media did not report it. The movie "Peepli Live" has given the issue much needed visibility.
If anyone is interested a very good resource with analysis and yearly trends etc. is http://www.indiatogether.org/2010/feb/psa-suicides.htm and http://www.indiatogether.org/agriculture/suicides.htm
I am looking forward to peer to peer lending to start in India, much like prosper and kiva.
Re: Suicides in India show the dark side of micro-finance
#28India’s booming microlending industry is part of a global phenomenon that began as a charitable movement but now attracts private capital seeking growth and high returns. Good old capitalism, always there to turn nice things into shit.
>Good old capitalism, always there to turn nice things into shit. The best thing about this meme is that it WILL turn everything nice into shit if people believe it. Capitalism and free enterprise produced everything good. The issue with suicides is not related to capitalism, it's related to cultural norms and lack of bankruptcy laws. Your communist spin on this turns my stomach. If you really care about the poor you…
Capitalism and free enterprise produced everything good? A bit over the top aren't we?
Re: Suicides in India show the dark side of micro-finance
#29India’s booming microlending industry is part of a global phenomenon that began as a charitable movement but now attracts private capital seeking growth and high returns. Good old capitalism, always there to turn nice things into shit.
>Good old capitalism, always there to turn nice things into shit. The best thing about this meme is that it WILL turn everything nice into shit if people believe it. Capitalism and free enterprise produced everything good. The issue with suicides is not related to capitalism, it's related to cultural norms and lack of bankruptcy laws. Your communist spin on this turns my stomach. If you really care about the poor you…
While I agree with your general gist, "Capitalism and free enterprise produced everything good" is a bit of an exaggeration. Capitalism didn't "produce" labour rights, it didn't "produce" national parks, the sexual revolution or the abolition of slavery. I don't think we can simplistically say that captialism is the cause of all that is great in this world, even though it's a pretty major component.
Re: Suicides in India show the dark side of micro-finance
#30I wonder how many people killed themselves before microlending existed because they had no hope of improving their lot in life.
It's rather remarkable how able people are to tolerate a borderline existence until a concrete metaphor for its inevitability and hopelessness - like an unpayable loan - is thrust into their faces.
There's more to the suicides than microcredit. I commented on some here http://news.ycombinator.com/item?id=2055046