Sunday, December 17, 2006

Micro Loans v. PayDay Loans

My last post pointed out how Progressives want us to hate PayDay Lenders. What is funny is that change minded individuals have started to embrace and idea called micro-loans. In the 1990s, the United Nations finally came to grips with the fact that the big loans made to third world governments and to big businesses wanting to exploit resources in the third world made things worse for the people living in the third world. The United Nations and World Bank had made gigantic loans to governments on projects that effectively displaced the people they claimed to be helping. The big loans ended up feeding corruption, increasing the gap between the rich and poor. Even worse, the big loans saddled future generations with onerous debts.

Conversely, entrepreneurs and well meaning NGOs found out that making small loans to small community minded businesses end up having a very profound positive effect. Best yet, a lower percentage of the microloans go into default than the big loans from big banks with big government consent and security.

The United Nations is now ringing the bells of MicroCredit. They even declare 2005 as the Year of Microcredit. Much of the worldwide economic boom of the last 6 years is a direct result of the explosion of microcredit.

As with all things, MicroCredit is likely to be overdone. The first microcredit loans by Grameen Bank came from a good lender to good borrowers. This universal declaration of the goodness of Microloans is likely to attract sharks wanting to lend at absurd rates to subprime borrowers.

It is interesting that local progressives are systematically slamming all the doors that provide credit to the poor in our local communities in the United States, while progressives on the international scene have figured out that George Bailey (It's A Wonderful Life reference) style banks working within a community to help it thrive lead to true, sustainable progress.


Anonymous said...

Micro loans, also known as pay day loans, are a big business in the US. This market has quadrupled in the last decade to over $40 billion in loans. The main issue for Americans though is the high cost of these micro loans which can exceed 300% per year. A new way is needed.

That is where comes in. FYGO has the fundamental belief that the best deal a person is going to get in Finance is from people they know and trust. That is why FYGO has created a social networking site where individuals can create networks and invite friends and family. Once these trusted groups have been created, people can post loan requests or loan offers at fair interest rates.

FYGO cannot help all consumers, but we plant to take a dent out of the pay day market.

Your Friend in Finance,
David Farias

y-intercept said...

I will look up this FYGO concept. With my Community Color project, I had become interested in finding ways that would allow people to invest in their community.