Predatory lending as explained in the 1970’s sitcom “Good Times”:
Merry Christmas, Happy Holidays, or [insert politically correct term of choice here]. I’m writing this in the days of the Christmas holiday when I and many around me are surrounded by abundance and festivity. I’d seen some real poverty and exploitation in parts of my trip 2 years ago.
The other day in the wrestling room I overheard a high school student talking about his credit card. I thought to myself, “hmm… the cycle of debt is starting early,” which was probably unfair of me. This 17-18 year old kid MAY have been a responsible user of credit and paid his balance promptly before accruing any finance charges. Right?
My own personal philosophy is that debt and exploitation go hand and hand.
In the USA, the ‘business of debt” is regulated when it comes to credit cards, banks etc. We have the luxury of “bankruptcy” for which I don”t believe there is an equivalent in the developing world. As a matter of fact, debt is in some countries can be viewed as “negative inheritance’ and passed from one generation to the next. When the loans are designed with the principles of predatory lending, the result is debt slavery, from one generation to the next- a rationalized and supposedly civil version of slavery that we had here in the USA for 200+ years.
Of course we have predatory lending in the USA as well. Primarily in the form of “private money lenders” (aka loan sharks), and more recently the supposedly regulated “Payday Loan” stores. 
What are the principles of predatory lending? Basically to ensure that the original principal of the loan (amount actually borrowed) can never be repaid due to:
- High interest rate
- Frequent compounding of interest (daily,weekly, etc)
- A combination of 1 and 2
So who would agree to these types of terms? Those suffering the conditions of:
- Desperation/Emergency
- Poverty
- Ignorance/lack of education
Most who would agree to these terms focus on the short term solution to their problems and likely do not understand the terms of their loan.
Social entrepreneur Mohamed Yunus won the Nobel Peace Prize for starting Grameen Bank, which introduced to the world to the concept of micro-finance. In an interview he stated that he sought to do the exact opposite of regular/western banks by establishing different loan criteria:
- Demonstrating need (ie you had no money)
- Group/community lending
- emphasis on loans for women
- Outreach (taking the bank to the people/villages)
The invention of Micro-finance/ Micro-credit has since become and integral tool in poverty alleviation, with establishment in much of the developing world. One may liken it to a small scale version of the World Bank, where instead of funding a Dam or Mine, a loan is made for a cow, or sewing machine. One might even argue that micro-finance has done more for poverty alleviation than the World Bank 😀 A story demonstrating the concepts follow in this video (NOT Muhamed Yunus):
[youtube https://www.youtube.com/watch?v=jTF094ZBbXc&w=560&h=315]
So this is my rant about what’s wrong with the world and how to possibly fix it 😛
If you’re interested in micro-lending check out the Kiva Site (www.kiva.com)
Thanks again for reading. Please share, comment AND subscribe!
Signing out,
The Rover
[jetpack_subscription_form]