[p2p-research] anti-microfinance movement in nicaragua protests usury

[Ryan Lanham]

Not quite the whole picture as I have seen it.  As I have mentioned before,
I lend a lot on microfinance sites.  My most common is MyC4.com ...a Danish
non-profit working in Eastern Africa mostly.  I know a fair amount about the
field.

I often lend at rates up to 20%.  So far, I have lost 10% of my funds--that
is, I have a negative ten percent return...if I had 1000 euros, I now have
900.  Why?  Not defaults.  In general, people pay because it is a very good
deal for them.  The great deal for the borrowers is that the currency risk
is bourne by the lender.  So I lend in Euros...they borrow in local
currency.  As the local currency falls versus the Euro (since most global
currencies most closely track the dollar or simply fall until worthless
anyway...) the lender borrows current dollars without any risk of ever
paying back even the full amount borrowed much less interest.  If I were a
local person, I'd buy all the tangible low-depreciation assets I possibly
could through microfinance.  That is, you want to buy printing presses,
machine tools, farm tools, etc.  You don't want to buy carrying
stock...which is what most of the loans are for...retail trade.  The most
common developing world business is unfortunately buying a manufactured good
from the developed world (e.g. a cell phone) and then marking it up.  Not a
horrible business, but not a very productive one either.  On a GDP basis,
there is much greater benefit to be had by buying raw materials and then
making something...the Chinese learned this because they have excellent
economists...thousands of them now.

I don't make such loans to make money..those who try to do so have long
since left the field...far easier for me to lend money to GE or J.P. Morgan
if I want to make money.

So to call what is going on "usury" is a bit much.  Drying up these loans
will only cut capital to the poor...one of the last places where it is
useful.  El Salvador may have different issues, but the article paints with
a broad (and seemingly ignorant) brush.  What they are saying is certainly
not the case in Africa...or most of Asia.  If a person wants to assure they
are loaning in a manner favorable to the poor, I recommend MyC4.com which I
have personally witnessed do a great deal of good.

Ryan


On 11/16/09, Michel Bauwens <michelsub2004 at gmail.com> wrote:
>
> http://www.commoner.org.uk/blog/?p=220
>
>
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