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.
MFI loans require collateral?
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What did the MFI do that you had experienced with, as you alluded to earlier?
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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.Chneseexpat wrote: ↑Mon Jul 08, 2019 8:45 pmI 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.
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.
Might even save you the cost of a large freezer.Dallow Spicer wrote: ↑Tue Jul 09, 2019 7:03 pmYou 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.
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A few points to address. Firstly, we need to confirm whether you think the loan default rate across the MFI industry is in fact around 1 percent ?Dallow Spicer wrote: ↑Tue Jul 09, 2019 7:03 pmWell 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.Chneseexpat wrote: ↑Mon Jul 08, 2019 8:45 pmI 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.
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.
It’s closer to 2% but the IMF estimates it to be much higher due to underReporting. Default measures total delinquency. It doesn’t take into account late debt or the very common habit of taking on higher loans to pay existing debt. Either way, exposure to such debt is huge in Cambodia, hence the relatively high interest rates.
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For those of you interested, here is a report on MFI practices in Cambodia, dated August 2019. The report says that Cambodians owe up to 8 billion dollars in MFI debt.
...the webpage hosting the report at LICADHO:
http://www.licadho-cambodia.org/reports.php?perm=228
...the report: Collateral Damage: Land Loss and Abuses in Cambodia's Microfinance Sector
http://www.licadho-cambodia.org/reports ... 082019.pdf
...the webpage hosting the report at LICADHO:
http://www.licadho-cambodia.org/reports.php?perm=228
...the report: Collateral Damage: Land Loss and Abuses in Cambodia's Microfinance Sector
http://www.licadho-cambodia.org/reports ... 082019.pdf
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That’s a lot of dough for sure.
Still, the default rate is still very low so they’re finding the cash to pay the loans.
All countries are built on debt. Cambodia’s debt per capita/earring power is still a lot lower than most western countries (US debt makes my eyes water) but it has one of the best performing economies in the world.
Still, the default rate is still very low so they’re finding the cash to pay the loans.
All countries are built on debt. Cambodia’s debt per capita/earring power is still a lot lower than most western countries (US debt makes my eyes water) but it has one of the best performing economies in the world.
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