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Suicides in India show the dark side of micro-finance

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Re: Suicides in India show the dark side of micro-finance

#41

Post by forgottenpaswrd »

This illustrates very clearly not only a problem of micro-finance, but other problems as well.

USA and Europe is printing money like there is no tomorrow, money created by big banks at negative interest rates(when real inflation is more than the 0% they pay) and this money is flowing to developing countries because they pay huge interest.

What these countries see is that there is so much people eager to lend them(before Grameen nobody did).This is a big change, because it has produced a flood of money that produces enormous distortion.

Too much money, if the real assets(house, food,energy) remain the same, creates inflation. Economy 101.

This happened in Spain,Grece,Portugal, we were getting loans at 15-18%. There were rules that put limits to in debt years. Entering European Union meant 3% interest rates and debt limits removed,no collateral needed (German and French banks flood as with money). Now everybody could buy a house, any house(signing a 40years loan), and houses got 4x more expensive, salaries growing very little(15-20%).

Got we richer?, no. We got poorer, because the capital that entered the country was external it made things really expensive for people inside the country, more difficult to life with the same money.

Re: Suicides in India show the dark side of micro-finance

#42

Post by ck2 »

These are not true microloans in the original spirit of microloans.

The article uses the word "perverted" and I agree it's definitely something entirely different and horrible. Reminds me a bit of payday loans in the USA, except people here aren't killing themselves over it. At least not until one of our political powers finds a way to recreate debtor prisons.

Re: Suicides in India show the dark side of micro-finance

#43

Post by shrikant »

shrikant wrote: post #20
r90 wrote: post #13

Earlier 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…

I agree with your bit about solidarity in India, but you might be a bit mis-informed about the interest rates. The CoF (cost of funds) to SKS is in the vicinity of 12-14%, and the norm is to add 10% on top of that. More middle-of-the-curve MFIs usually charge 30%+. Loan sharks in villages typically charge 100% and/or servitude, and are more often than not the cause of loan repayment related suicides.

I know my comments have a few upvotes attached to them already, and I don't really see any point in cribbing about karma points anyway.

However, it would be useful to me if the person who downvoted both my comments in this thread were to drop a line explaining why/how I was detracting from the conversation in any way...

Re: Suicides in India show the dark side of micro-finance

#44

Post by BvS »

r90 wrote: post #13
shrikant wrote: post #9

[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…

If you give out 50US loans are expexted to do due diligence and are onyl allowed to take 8% (4US) how should that work if you also have to cover for defaulting loans and pay fo the capital you are providing.

Luckily this is not really a problem since you return on investment should be closer to 1000% than to 100% (obviously your returns will diminish pretty fast as soon as your investment gets bigger). Therefore even interests rates of 50%+ shouldn't be a problem as long as it invested in income generating activities.

If you are interested in that topic I wrote my master thesis about it: http://www.scribd.com/doc/92714/Microfinance (partly a bit dated but the basic premise regarding interest rates should be still valid).

Re: Suicides in India show the dark side of micro-finance

#45

Post by yummyfajitas »

Tichy wrote: post #37
shrikant wrote: post #9

[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…

I was so far unable to grasp the justification for the extremely high interest rates of micro loans. What is going on, and how can such high interest rates ever work?

They are risky investments in projects which supposedly have high rates of return.

Re: Suicides in India show the dark side of micro-finance

#46

Post by hardik »

shrikant wrote: post #9

[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…

I think SKS jumped the shark when they decided sometime in late 08/early 09 to directly sell gold & other consumer durables instead of providing cash lump sum.

Re: Suicides in India show the dark side of micro-finance

#47

Post by nir »

MIT's Poverty Action Lab did a study of micro finance, and found it much overhyped: http://www.boston.com/bostonglobe/ideas/articles/2009/09/20/...

My personal impression is that microfinance have gone through the same hype curve of many developing world projects: it started as a local initiative by people who knew their environment and did nicely. Then organizations from developing nations picked up on it, knowing little about the place, ridiculously overhyped it and messed it up.

What we're doing in Africa and Asia now is a continuation of the imperial age. In the past, we needed stuff, so went in and took it, regardless of the impact on locals. Now we have our stuff, and having climbed Maslow's pyramid we're looking for self-actualization - so we go to Africa and do projects that make us feel good, again regardless of the actual impact in the field (health projects not included). We should start listening to Esther Duflo and Bill Easterly, rather than Bono and Angelina Joli.

Re: Suicides in India show the dark side of micro-finance

#48

Post by z0r »

forensic wrote: post #25
z0r wrote: post #24

Earlier quoted context omitted.

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.

Your argument just seems dogmatic to me. I suppose my comment was not constructive. It is interesting that you have inferred that I don't care about the poor from my post.

Re: Suicides in India show the dark side of micro-finance

#49

Post by Semiapies »

srean wrote: post #27

Not 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…

This is the sort of thing that makes me skeptical of this story - people suffer a problem for a variety of reasons, and suddenly, a scapegoat gets seized upon.

Re: Suicides in India show the dark side of micro-finance

#50

Post by coefficient »

forensic wrote: post #25
z0r wrote: post #24

Earlier quoted context omitted.

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.

nah not really bro. market liberalism consistently lifts rich people further into richness and pounds poor people further into poorness

cf. india both in the 19th century (hooray for capitalist genocides) and today, the caribbean (especially jamaica) after trade liberalization was forced by the imf, africa for pretty much all time, the vast majority of the population of china, latin america for its entire history, etc

given your previous post about bankruptcy laws you probably have a more or less moral capitalist system in mind like sweden or canada as opposed to a post-industrial cyberpunk hellhole but you've got to remember that even in those countries capitalism creates more losers than winners and the vast majority of those countries' wealth has been extracted from the third world, the shittiness of life in which i don't need to talk about in detail.

just as an example the capital which propelled britain's industrial revolution was accumulated through the plunder of north america and heavy involvement in the transatlantic slave trade. the same with the dutch, and holland is the birthplace of capitalism after all.

the purpose of capitalism is to defend the private property (particularly ownership in production, for example dudes who hold stocks) of those who hold it against those who do not, and to allow people who have capital to get more of it through investment etc. you can say that people who invest capital deserve ownership because they risk their capital but you have to ask where the necessity of capital comes from in the first place - it's something of a circular argument.

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