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Microcredit turns to usury 19 May 2009

Posted by cooperatoby in social economy, Uncategorized.

Yesterday, TV 5 Monde reported worryingly that the microcredit movement has started to devour its own progeny. As the Western consumer economies lock solid, it was heart-warming to see Grameen Bank founder Mohammed Yunus, interviewed on the BBC’s Newsnight, saying airily that microcredit wasn’t at all affected by the global credit crisis, because behind every loan there was a cow, a crop or whatever other productive asset. Well apparently things are no longer so simple. It is quite common for Bangdadeshis to take out microloans to buy furniture or pay a daughter’s dowry – or, worse, to keep up the repayments on a previous loan. Many loan monitoring officers, with caseloads of up to 700 loans, are so busy chasing bad debts that they have no time to monitor the ones that haven’t gone bad yet. As banking multinationals including Citibank pile into this fast-growing market, interest rates are rocketing as high as 30%. People take on one loan on top of another. “Emergency loans” are openly touted for consumption rather than investment.

The idea that availability is the essential thing and usurious interest rates like this are fair game seems to be downright wrong. A study by Mohammed Sikander Khan showed that only 22% of loans were repaid – and the remaining 78% of borrowers fell into over-indebtedness. The shame that non-payment brings has led to a series of suicides. And worse, as debts are passed to surviving spouses, even double suicides.

This article bears this out.


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