Chneseexpat wrote: ↑Mon Jul 08, 2019 8:45 pm
I think the real problem with MFIs is that the people who most need the loans are poor and therefore uneducated. Mix that with an industry which uses agents on commission and its really leaving the door wide open to abuse.
No one who has any money would want to borrow money at 18 per cent compounded interest or pay a monthly admin fee of around $14 when they could get a bank loan for much less. Having money, they are also more likely to be educated and therefore more aware of debt traps.
If the MFIs were really meant to help the people they say they are, the poor and uneducated, they would be giving them rates much lower than the standard bank rates, which they can't get, and there would be no monthly admin fee.
Well that's all lovely in theory, but the real world is somewhat different. The reason rates are 18% compounded is because such loans ARE to poor people, and there is a much higher risk of default. Furthermore, you could make a good case that 18% isn't extortionate. What rates do you have to pay for an average credit card in the west? 25-30% or even more.
You could also argue that the DO in fact provide a service; the alternative would be unlicensed loan sharks who would charge interest rates of over 1000% percent for the same service, and who won't be so forgiving of delinquent debt as Acleda etc.