By G. Smith
For decades, microfinance was cited as one of the ways the global banking industry advanced the greater good by making small amounts of capital available at affordable interest rates to third-world entrepreneurs. However, a new Time Magazine story suggests the sector may now be a better illustration of the modern plague of unhinged bankers and their impotent government regulators.
When microlending got its start in 1983, for-profit financial institutions had little interest in doing business with the poor here in the U.S. or with the 99 Percent in developing nations like India. But just as banking deregulation loosed the dogs of predatory mortgage, credit card and payday lending on sub-prime borrowers here in the U.S., it also helped shift microfinance in developing nations from nonprofit institutions to for-profit lenders.
Predatory lenders began to pour into the field like rapacious locusts once nonprofit microfinanciers showed that the poor could be trusted to repay their debts, provided those loans were structured responsibly. Those predators are now transforming it from a tool for social mobility into one of financial enslavement.
The microfinance industry has grown to hundreds of institutions serving more than 150 million borrowers worldwide since its founding in 1983, according to Time.
Instead of alleviating poverty, the new face of predatory microfinance has left millions of small entrepreneurs saddled with debts they cannot repay and beset by rapacious collection agents. In some developing nations, those debts pass down through generations of the same family and cannot be escaped through protections like bankruptcy law.
More than 200 poor, debt-ridden people killed themselves in the Indian state of Andhra Pradesh in 2010 alone in response to aggressive collection tactics by microlenders, according to a special report by The Associated Press.
Predatory microfinanciers encourage the financially illiterate to take out more than they can repay and use opaque financial terms to make those loans more difficult to repay and ultimately more profitable.
All three major monotheistic religions prohibit the practice of lending money at exorbitant interest rates, which is commonly knwon as “usury.” The sinful nature of predatory lending is one of the few things Islam, Judaism and Christianity all agree on. And yet, members of the faithful routinely engage in the practice.
In the U.S. we used to call such lenders “loansharks” (right) and lock them up as criminals, before banking deregulation legalized their predatory lending rates. So, the hijacking of the microfinance sector is a familiar story for those of us who watched entire inner-city neighborhoods being destabilized by predatory mortgage lenders in the 1990s and 2000s after former President Ronald Reagan undermined state usury rates on behalf of the 1%.
It reinforces the growing belief among many in the 99% Percent that neither bankers nor the political hookers they employ can be trusted. They must be shunned by decent people everywhere.