HEALTHCARE FRAUD
Ihosvany Marquez, a former teenage pitching star in Miami-Dade who made a fortune off Medicare, pleaded guilty to healthcare fraud.
Fugitives suspected of Medicare fraud
Related Content
Ileana Ros-Lehtinen, Ron Klein unite against Medicare fraud
Fugitive Miami-Dade brothers face Medicare fraud charges
The FBI's list of Marquez's assets
BY JAY WEAVER
jweaver@MiamiHerald.com
Miami Springs High pitching ace Ihosvany Marquez got drafted by the Baltimore Orioles in 1990 and went on to make millions of dollars.
Not from throwing strikes -- but from ripping off the federal Medicare program.
On Monday, Marquez pleaded guilty in Miami federal court to healthcare fraud charges alleging he submitted $55 million in false Medicare claims for HIV and cancer services at his seven Miami-Dade and Orlando area clinics. He and his partners raked in$22 million from the government healthcare program for the elderly and disabled.
During Monday's hearing, U.S. District Judge Patricia Seitz asked Marquez why he was pleading guilty, and he said matter-of-factly: ``Because I'm guilty.''
The judge said Marquez, 38, could be imprisoned up to 32 years at his June 29 sentencing, though his punishment is expected to be about 20 years.
The story of Marquez going from professional baseball to the business world and the soon-to-be big house began when he was a teenager growing up in the Miami Springs area.
Marquez became a right-handed pitching star at Miami Springs High and was picked 994th overall in the Major League amateur draft in June 1990. He pitched on minor league teams for the Orioles and Boston Red Sox, hanging up his cleats in 1996.
``I was bouncing around, one season here, one season there,'' Marquez told the judge.
He held down jobs as a truck driver, beer salesman and cosmetics distributor for a few years -- then came to know people in the close-knit community involved in Medicare fraudand eventually hit the jackpot.
Marquez and his partners, who were charged in a separate indictment, became wealthy by billing ``huge numbers'' to Medicare for HIV and cancer therapy as well as pain treatments, according to Marquez' attorney Michael Walsh.
His spending habits rank him as an unusually big spender among the hundreds of local Medicare-licensed operators convicted of bilking the government program during the past decade.
Marquez spent his share of taxpayer money on jewelry, watches and racing horses, according to court records. He was especially fond of luxury cars, buying 19 for himself, his wife, other relatives and for his personal trainer.
The purchases included Lamborghini Murcielago with spaceship-like doors at $455,959, a Lamborghini Gallardo, a Ferrari 612 Scaglietti, two Bentley Continental GTs, two Mercedes Benz CL63s and at least six Mercedes Benz S550s. The total tab: $2.7 million.
He also spent $545,652 on jewelry and watches, among them a Rolex Meteorite for $48,000 and a diamond necklace for $108,443, authoritiessay. And he bought a seven-carat diamond ring for$98,086.
His family's 5,000-square-foot home, at 6535 S.W. 132nd Ave., was valued at nearly $933,000 last year, according to property records. Then there was the $1 million he spent on thoroughbred horses.
Magistrate Judge Barry Garber was so troubled by his conspicuous consumption that in early January he refused to give Marquez a bond -- citing his ``access to substantial wealth'' to flee the country.
Marquez was accused of operating six fraudulent Miami-Dade clinics -- including one called Tender Loving Care -- with partner Michel De Jesus Huarte.
Huarte was indicted separately last June on charges of submitting more than $50 million in bogus claims to Medicare for purported infusion therapy to treat patients with cancer, HIV and varicose veins.
Huarte, 38, who pleaded guilty, was sentenced to 22 years in prison and ordered to pay $18.3 million to the government.
The partners stole Medicare patients' numbers and physicians' IDs to fleece the federal program, without providing any services to patients, according to prosecutors. They also laundered the Medicare payments through ``shell'' companies such as Babalu Telemarketingand Madreagua Construction -- named after Santería saints.
But Huarte and Marquez couldn't have beat the system without recruiting Cuban immigrants to pose as the owners of their clinics, prosecutors said.
``Marquez and his conspirators paid large fees to such nominee owners -- sometimes in excess of $100,000 -- with the understanding that the nominee owner would flee to Cuba or another foreign country to evade law enforcement capture,'' federal prosecutor Ryan Stumphauzer wrote in Marquez's plea agreement.
Read more: http://www.miamiherald.com/2010/04/12/1576543/former-pitcher-i-made-millions.html#storylink=omni_popular#ixzz0l6XEYZOZ
Comment
It is rumored that the feds could stop 60 billion in jusy Medicare fraud alone. Throw them all in jail, and then use that 60 billion for people who need it!
Wednesday, April 14, 2010
Banks Making Big Profits From Tiny Loans
Jane Hahn for The New York Times
Anita Edward says she has borrowed money three times from LAPO, Lift Above Poverty Organization, for her hair salon, Amazing Collections, in Benin City, Nigeria.
By NEIL MacFARQUHAR
Published: April 13, 2010
In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives.
Microcredit for Profit
Related
Times Topic: Microfinance
Adriana Zehbrauskas for The New York Times
In Mexico City, Maria Vargas has borrowed larger and larger amounts from Compartamos, a Mexican firm, over the past two decades to expand her T-shirt factory to 25 sewing machines from 5. More Photos »
Read All Comments (128) »
Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005.
But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.
“We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” Mr. Yunus recently said at a gathering of financial officials at the United Nations. “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”
The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.
Rates vary widely across the globe, but the ones that draw the most concern tend to occur in countries like Nigeria and Mexico, where the demand for small loans from a large population cannot be met by existing lenders.
Unlike virtually every Web page trumpeting the accomplishments of microcredit institutions around the world, the page for Te Creemos, a Mexican lender, lacks even one testimonial from a thriving customer — no beaming woman earning her first income by growing a soap business out of her kitchen, for example. Te Creemos has some of the highest interest rates and fees in the world of microfinance, analysts say, a whopping 125 percent average annual rate.
The average in Mexico itself is around 70 percent, compared with a global average of about 37 percent in interest and fees, analysts say. Mexican microfinance institutions charge such high rates simply because they can get away with it, said Emmanuelle Javoy, the managing director of Planet Rating, an independent Paris-based firm that evaluates microlenders.
“They could do better; they could do a lot better,” she said. “If the ones that are very big and have the margins don’t set the pace, then the rest of the market follows.”
Manuel Ramírez, director of risk and internal control at Te Creemos, reached by telephone in Mexico City, initially said there had been some unspecified “misunderstanding” about the numbers and asked for more time to clarify, but then stopped responding.
Unwitting individuals, who can make loans of $20 or more through Web sites like Kiva or Microplace, may also end up participating in practices some consider exploitative. These Web sites admit that they cannot guarantee every interest rate they quote. Indeed, the real rate can prove to be markedly higher.
Debating Microloans’ Effects
Underlying the issue is a fierce debate over whether microloans actually lift people out of poverty, as their promoters so often claim. The recent conclusion of some researchers is that not every poor person is an entrepreneur waiting to be discovered, but that the loans do help cushion some of the worst blows of poverty.
“The lesson is simply that it didn’t save the world,” Dean S. Karlan, a professor of economics at Yale University, said about microlending. “It is not the single transformative tool that proponents have been selling it as, but there are positive benefits.”
Still, its earliest proponents do not want its reputation tarnished by new investors seeking profits on the backs of the poor, though they recognize that the days of just earning enough to cover costs are over.
“They call it ‘social investing,’ but nobody has a definition for social investing, nobody is saying, for example, that you have to make less than 10 percent profit,” said Chuck Waterfield, who runs mftransparency.org, a Web site that promotes transparency and is financed by big microfinance investors.
Making pots of money from microfinance is certainly not illegal. CARE, the Atlanta-based humanitarian organization, was the force behind a microfinance institution it started in Peru in 1997. The initial investment was around $3.5 million, including $450,000 of taxpayer money. But last fall, Banco de Credito, one of Peru’s largest banks, bought the business for $96 million, of which CARE pocketed $74 million.
“Here was a sale that was good for Peru, that was good for our broad social mission and advertising the price of the sale wasn’t the point of the announcement,” Helene Gayle, CARE’s president, said. Ms. Gayle described the new owners as committed to the same social mission of alleviating poverty and said CARE expected to use the money to extend its own reach in other countries.
The microfinance industry, with over $60 billion in assets, has unquestionably outgrown its charitable roots. Elisabeth Rhyne, who runs the Center for Financial Inclusion, said in Congressional testimony this year that banks and finance firms served 60 percent of all clients. Nongovernmental organizations served 35 percent of the clients, she said, while credit unions and rural banks had 5 percent of the clients.
Private capital first began entering the microfinance arena about a decade ago, but it was not until Compartamos, a Mexican firm that began life as a tiny nonprofit organization, generated $458 million through a public stock sale in 2007, that investors fully recognized the potential for a windfall, experts said.
Read All Comments (147) »
Although the Compartamos founders pledged to plow the money back into development, analysts say the high interest rates and healthy profits of Compartamos, the largest microfinance institution in the Western Hemisphere with 1.2 million active borrowers, push up interest rates all across Mexico.
According to the Microfinance Information Exchange, a Web site known as the Mix, where more than 1,000 microfinance companies worldwide report their own numbers, Compartamos charges an average of nearly 82 percent in interest and fees. The site’s global data comes from 2008.
But poor borrowers are often too inexperienced and too harried to understand what they are being charged, experts said. In Mexico City, Maria Vargas has borrowed larger and larger amounts from Compartamos over 20 years to expand her T-shirt factory to 25 sewing machines from 5. She is hazy about what interest rate she actually pays, though she considers it high.
“The interest rate is important, but to be honest, you can get so caught up in work that there is no time to go fill out paperwork in another place,” she said. After several loans, now a simple phone call to Compartamos gets her a check the next day, she said. Occasionally, interest rates spur political intervention. In Nicaragua, President Daniel Ortega, outraged that interest rates there were hovering around 35 percent in 2008, announced that he would back a microfinance institution that would charge 8 to 10 percent, using Venezuelan money.
There were scattered episodes of setting aflame microfinance branches before a national “We’re not paying” campaign erupted, which was widely believed to be mounted secretly by the Sandinista government. After the courts stopped forcing small borrowers to repay, making international financial institutions hesitant to work with Nicaragua, the campaign evaporated.
A Push for More Transparency
The microfinance industry is pushing for greater transparency among its members, but says that most microlenders are honest, with experts putting the number of dubious institutions anywhere from less than 1 percent to more than 10 percent. Given that competition has a pattern of lowering interest rates worldwide, the industry prefers that approach to government intervention. Part of the problem, however, is that all kinds of institutions making loans plaster them with the “microfinance” label because of its do-good reputation.
Damian von Stauffenberg, who founded an independent rating agency called Microrate, said that local conditions had to be taken into account, but that any firm charging 20 to 30 percent above the market was “unconscionable” and that profit rates above 30 percent should be considered high.
Mr. Yunus says interest rates should be 10 to 15 percent above the cost of raising the money, with anything beyond a “red zone” of loan sharking. “We need to draw a line between genuine and abuse,” he said. “You will never see the situation of poor people if you look at it through the glasses of profit-making.”
Yet by that measure, 75 percent of microfinance institutions would fall into Mr. Yunus’s “red zone,” according to a March analysis of 1,008 microlenders by Adrian Gonzalez, lead researcher at the Mix. His study found that much of the money from interest rates was used to cover operating expenses, and argued that tackling costs, as opposed to profits, could prove the most efficient way to lower interest rates.
Many experts label Mr. Yunus’s formula overly simplistic and too low, a route to certain bankruptcy in countries with high operating expenses. Costs of doing business in Asia and the sheer size of the Grameen Bank he founded in Bangladesh allow for economies of scale that keep costs down, analysts say. “Globally interest rates have been going down as a general trend,” said Ms. Javoy of Planet Rating.
Many companies say the highest rates reflect the costs of reaching the poorest, most inaccessible borrowers. It costs more to handle 10 loans of $100 than one loan of $1,000. Some analysts fear that a pronounced backlash against high interest rates will prompt lenders to retreat from the poorest customers.
But experts also acknowledge that banks and others who dominate the industry are slow to address problems.
Added Scrutiny for Lenders
Like Mexico, Nigeria attracts scrutiny for high interest rates. One firm, LAPO, Lift Above Poverty Organization, has raised questions, particularly since it was backed by prominent investors like Deutsche Bank and the Calvert Foundation.
LAPO, considered the leading microfinance institution in Nigeria, engages in a contentious industry practice sometimes referred to as “forced savings.” Under it, the lender keeps a portion of the loan. Proponents argue that it helps the poor learn to save, while critics call it exploitation since borrowers do not get the entire amount up front but pay interest on the full loan.
Microcredit for Profit
The Takeaway With Neil MacFarquhar
LAPO collected these so-called savings from its borrowers without a legal permit to do so, according to a Planet Rating report. “It was known to everybody that they did not have the right license,” Ms. Javoy said.
Under outside pressure, LAPO announced in 2009 that it was decreasing its monthly interest rate, Planet Rating noted, but at the same time compulsory savings were quietly raised to 20 percent of the loan from 10 percent. So, the effective interest rate for some clients actually leapt to nearly 126 percent annually from 114 percent, the report said. The average for all LAPO clients was nearly 74 percent in interest and fees, the report found.
Anita Edward says she has borrowed money three times from LAPO for her hair salon, Amazing Collections, in Benin City, Nigeria. The money comes cheaper than other microloans, and commercial banks are virtually impossible, she said, but she resents the fact that LAPO demanded that she keep $100 of her roughly $666 10-month loan in a savings account while she paid interest on the full amount.
“That is not O.K. by me,” she said. “It is not fair. They should give you the full money.”
The loans from LAPO helped her expand from one shop to two, but when she started she thought she would have more money to put into the business.
“It has improved my life, but not changed it,” said Ms. Edward, 30.
Godwin Ehigiamusoe, LAPO’s founding executive director, defended his company’s high interest rates, saying they reflected the high cost of doing business in Nigeria. For example, he said, each of the company’s more than 200 branches needed its own generator and fuel to run it.
Until recently, Microplace, which is part of eBay, was promoting LAPO to individual investors, even though the Web site says the lenders it features have interest rates between 18 and 60 percent, considerably less than what LAPO customers typically pay.
As recently as February, Microplace also said that LAPO had a strong rating from Microrate, yet the rating agency had suspended LAPO the previous August, six months earlier. Microplace then removed the rating after The New York Times called to inquire why it was still being used and has since taken LAPO investments off the Web site.
At Kiva, which promises on its Web site that it “will not partner with an organization that charges exorbitant interest rates,” the interest rate and fees for LAPO was recently advertised as 57 percent, the average rate from 2007. After The Times called to inquire, Kiva changed it to 83 percent.
Premal Shah, Kiva’s president, said it was a question of outdated information rather than deception. “I would argue that the information is stale as opposed to misleading,” he said. “It could have been a tad better.”
While analysts characterize such microfinance Web sites as well-meaning, they question whether the sites sufficiently vetted the organizations they promoted.
Questions had already been raised about Kiva because the Web site once promised that loans would go to specific borrowers identified on the site, but later backtracked, clarifying that the money went to organizations rather than individuals.
Promotion aside, the overriding question facing the industry, analysts say, remains how much money investors should make from lending to poor people, mostly women, often at interest rates that are hidden.
“You can make money from the poorest people in the world — is that a bad thing, or is that just a business?” asked Mr. Waterfield of mftransparency.org. “At what point do we say we have gone too far?”
Comments
It's a mistake to even refer to these predatory lending practices as "microcredit". The spririt of microcredit is to lift the poor out of poverty. The big banks could care less if their customers are poor now, or if the bank's actions force the customers into generational poverty.
Recommend Recommended by 89 Readers 18.Domingo33Rome, Italy
April 13th, 20106:24 pmThe answer to all in this article seems so simple... Regulation, regulation, and.. regulations. In Italy, anything above a certain percentage is considered.. usury. So why this whole article call into question such outrageous percentages, instead of calling them under their name: usury? It is up for each country to set the red line, for the banks to abide, and for the abusers to be punished.
Recommend Recommended by 70 Readers 30. (what's this?) Vibha PingleBoston MA
April 13th, 20107:06 pm The micro finance bubble is waiting to burst. And when it does it will shatter the already precarious lives of millions of women and men living on less than $2/day across the developing world.
The women micro entrepreneurs I work with at Ubuntu at Work Inc (www.ubuntuatwork.org) prefer to gain skills to organize themselves into an entrepreneurial group, gain new market connections, and seek mentoring support as they begin to aspire to become successful entrepreneurs. Most of them stay well away from micro finance institutions. They are seeking to empower themselves; not to enslave themselves to creditors.
Recommend Recommended by 35 Readers 34.HIGHLIGHT (what's this?) HamakerNYC
April 13th, 20107:54 pm Having run my own microcredit lending institution, I can tell you that you have two choices in the field: make it a charity or charge exorbitant rates. Putting something like together costs a lot of time and energy. It's a shame that banks are getting involved because they will only be watching their bottom lines for the present year rather than investing long term; add this to the list of anti-social activities our protectors of capitalism participate in.
Recommend Recommended by 20 Readers 58.HIGHLIGHT Andrey ZNew York, NY
April 13th, 20109:34 pm Hey banks...stop making money. No wait, please lend, now stop lending, now lend more, now lend less. Now, only lend to the needy, now lend to the small businesses. Now reduce my mortgage, now give me free money. Gimmie gimmie gimmie.
You see where I'm going with this? It's called populist anger, and it gets people nowhere, fast!
Recommend Recommended by 8 Readers 84.HIGHLIGHT (what's this?) KatePhiladelphia PA
April 14th, 20108:20 am I would like to see a list of these banks and financial institutions published - prominently - in a variety of newspapers etc. I would like the choice to take my business elsewhere.
Recommend Recommended by 11 Readers 91.HIGHLIGHT (what's this?) BrianNYC
April 14th, 20108:30 am I've worked in Haiti, Colombia, Bolivia and now in the US in microfinance. Here are some comments about interest rates:
--If you go to a payday lender here in the US, you might pay a $25 fee to get an advance of $250 on your paycheck for a week. This is 10% a week or 520% a year. But still not such a bad service.
--In Guatemala vendor ladies in the central vegetable/fruit market might pay 3 quetzales (their money) for a loan of 300 quetzales from the wholesaler, and then during their 16-hour day, sell the same vegetables/fruits for 400 quetzales, from which proceeds they pay back the loan. They are paying, then, 1% a day for their loan or 360% a year. But still it's a good deal for them, and convenient.
--In microfinance most loans are very short term. If you lend someone a $100 for 1 month, with two payments, and charge them 18% a year, effectively you earn about 75 cents. That doesn't cover costs.
--Interest rates on very short term loans (microfinance)are not very relevant. But, on the other hand, on long term loans--real estate--they are very relevant.
--A problem in microfinance is unfair competition. There are some charities that lend at zero percent until their funds run out--how can another institution compete with that? They can't. But zero percent is not sustainable. 40% to 60% annual percentage rate is more sustainable. Nominally this seems high. But on the other hand, if I charge $2 fee to apply to borrow $50 for a month with weekly payments, if you include the application fee as part of the annual percentage rate, I am effectively charging 2/25 x 12, or 96% a year. Still a good deal. (The formula is based on the fact that if you pay %50 over a month's time, you on the average only have use of half of it, $25 for that month.)
--Compartamos was an egregious example of greed--the end user did not benefit. They should be ashamed. It gives all of microfinance a bad name. It was a Wall-Street type IPO with incredible returns to the original investors.
Microfinance works! It is good. And credit unions are the leaders in microfinance. They are sustainable on just 18% a year maximum annual percentage rate.
Brian in Brooklyn
Recommend Recommended by 17 Readers 99.HIGHLIGHT Peter GCanberra, Australia
April 14th, 20108:39 am The small sums of micro-credit financing do make a large difference to the one in four people in our developing world who try to live on US$1.25 each day.
The value of a cup of coffee in our western world can make a difference to these 1.4 billion people.
As one example of the value of our western aid, $5,000 would help transform a village in Afghanistan. The value of a large plasma TV can instead mean child and adult literacy, clean water and agricultural training amongst one community in Afghanistan.
More of these dollars would be to our credit - in some small way.
Our aid dollars do make a difference in this war - on world hunger and poverty.
Recommend Recommended by 6 Readers 105.HIGHLIGHT (what's this?) babudsIndia
April 14th, 20108:40 am I think the 125% interest on yearly basis is a bit high to be fleeced from poor who have zero or negative credit rating in conventional banking terms. But still it is a cake compared to what the loan sharks in India charge from urban poor. For example, a push cart vendor takes a loan of 9$ from the local shark and buys vegetables in the whole sale market and peddles them roaming from street to street. Before dusk he needs to pay back the shark 10$ and any default can often lead to physical assault. This makes an interest rate of 10% day. From the lenders side; if he has capital investment of 9$ and the ability and a strong heart to recover the loan each day he can earn 365$ a year. Even 50 % defaults can earn 180$ in a year for 9$. So MFIs are welcome in India even if they charge 125% PA from the poor.
Recommend Recommended by 2 Readers 108.HIGHLIGHT (what's this?) John MacgregorPhnom Penh April 14th, 20108:42 am There was recently a study (and discussion) of the actual evidence for microcredit at one of the international microcredit research websites:
http://microfinance.cgap.org...
The study concluded that there was no evidence that microcredit helped people to get out of poverty - though it was often good at 'income-smoothing' (helping people pay for shortfalls and emergencies).
One can't argue against a loan to get a sick child to hospital (for example). However this loan must be repaid, and repaying it - that is, increasing the family's outgoings - will reduce its ability to get the next sick child to hospital.
My own experience is that when microcredit is tied strictly to something such as vocational training, or getting a hard land title, it can be beneficial. However most microcredit is done dispensed for such reasons any more, and one has to wonder if all those billions could be spent better.
Recommend Recommended by 2 Readers 126.HIGHLIGHT (what's this?) KelvynGreece
April 14th, 201011:23 am Given that we have been witness to the greed of hedge funds and banks during the global financial crisis 2008/9, it is not surprising to be confronted by the greed of banks and credit unions exploiting the financial needs of the poor. It was only a matter of time before the generosity of the Grameen Bank, and the initiatives of Muhammed Yunus, were spotted by money lenders across the globe. In a world in which 90% of global wealth is controlled by less than 1% of the population, it was inevitable that the 1% would want to get their fingers on the other 10%. But as witnesses to this immoral greed, too many of us remain opposed to the supervision and regulation of the money lenders. We still allow ourselves to be persuaded that speculative capitalism will make us all wealthy. We fail to recognise that capitalism, state or corporate or individual, has enabled less than 1% of 6.8 billion people to be wealthy. Microfinance, and microcredit, was originally conceived as a way of redistributing wealth for the benefit of the poor. It is clear that such credit must not be left to the credit funds and banks, for to do so is to be more concerned about maximising profits!
please go to www.kelvynrichards.com
Social Ecology - a new morality....alternative choices.
Recommend Recommended by 2 Readers 138.HIGHLIGHT (what's this?) ZonieArizona
April 14th, 201011:43 am As usual, you start off trying to lift a person out of poverty and on to prosperity and walla the big corporations smell green and take over. But all the righties and conservatives say "NO REGULATIONS". And why is that? It's because they "are" the big corporations! There is nothing new here, it's been going on for centuries and will for centuries more. The greedy and immoral will take advantage of anyone, anywhere, and at anytime. The poor and uneducated are just the low hanging fruit. It's up to the lefties and liberals to stay and fight for the poor and uneducated, knowing that we will never win but will fight the good fight.
Recommend Recommended by 1 Reader 152.HIGHLIGHT (what's this?) Pierce RandallAtlanta, GAApril 14th, 201011:52 am I read that some are skeptical about whether microcredit gets people out of poverty at all. This is, of course, right--it won't, in and of itself. What microcredit does is ease the inequalities of liquid capital. You still need macroeconomic factors, like positive GDP growth, to improve per capita GDP in poor countries. So looking at microcredit in countries like Kenya is problematic, for the same reason their macro situation (not being normative here) is problematic. Microcredit is a way to get liquidity to the poor. It's not going to sew entrepreneurs from whole cloth--you need increased aggregated demand for that. It will democratize the system by which people can attain wealth, however.
Isn't that called loan sharking?
Recommend Recommended by 55 Readers 2.HIGHLIGHT (what's this?) dgWind Point, WI April 13th, 20106:23 pm It's a mistake to even refer to these predatory lending practices as "microcredit". The spririt of microcredit is to lift the poor out of poverty. The big banks could care less if their customers are poor now, or if the bank's actions force the customers into generational poverty.
Recommend Recommended by 95 Readers 3.WhateverAustin, Texas April 13th, 20106:23 pm
All right, everybody, go up to a poor person and say, "We hate you. We hate you, and your life can never change." Clearly, that is the only message we know how to send, and I say it's time to send that message loud and clear.
Jerks.
Recommend Recommended by 35 Readers 4.MartinPortland, OR April 13th, 20106:23 pm
Where is this going to end with these banks? Slave trade? Why does our society allow these institutions to exist? Just when you thought you would get a break from hearing about the evil that these institutions do; here comes something else.
Recommend Recommended by 122 Readers 5.dbrainPensacola April 13th, 20106:23 pm
One of the evil practices of greedy professionals had been prevented by USUARY LAWS being some of the ones eliminted by so-called Rrepublican reforms of "out-dated regulations".. OF COURSE , it would be very simple to return to the books ALL those modified and repealed acts that had held back these evil exploitations of the masses by the predators. I am sure the Reps will holler and scream and turn loose their tea-baggers BUT sooooo WHAT = RECONCILE !!!!
Recommend Recommended by 55 Readers 6.jeromeeast hampton,NY April 13th, 20106:23 pm
making money on the back of the poor,i mean,if it truly goes that route......we are really a despicable race and one can only hope for a catastrophe to eradicate such a monstrous financial system.maybe we should have let it all collapse after all,suffer heavily collectively,punish the rich,oligarchs etc... and through the dreadfull experience,learn enough so that we would change forever our present damned course.who knows ??
Recommend Recommended by 84 Readers 7.Jimmy Hwangsomerset April 13th, 20106:23 pm
Government should enforce usury law
Recommend Recommended by 81 Readers 8.newthoughtsOcean City April 13th, 20106:23 pm
Do you really want to change the way banking does business around the world? Do you want to see real competition come to banking?
Let Wal-Mart compete in banking. How do you think the 5 largest banks in America would view a company that uses “continually falling prices” as a core operating philosophy? Do you think that Wal-Mart would pass along to the public the immense savings from the automation of financial transactions?
Take a look at the productivity changes in the world of Banking. We now have electronic funds transfers, vast networks of ATM machines and other card payment systems. Very few employees even handle money anymore. Billions of transactions are handled each day by computers and no human hands are used. Yet, banking costs and banking compensation continue to rise? Why? NO COMPETITION.
The world of banking is the largest oligarchy in the world. It makes more money than the oil cartel. It is time to let a new philosophy enter the world of banking. Let’s see how they like competing with a company that will ruthlessly attack costs and pass on those savings to the public. I say, it is time to let Wal-Mart and Wal-Mart styled cost oriented companies into the banking sector. What about you?
Recommend Recommended by 53 Readers 9.hmmmHawaii April 13th, 20106:23 pm
Thank you for enlightening me about Kiva. I saw some American asking for a loan for her clothing design business on there, lol. Does anyone have suggestions as to what they consider a good micro-lending org to donate or lend to? Ideally, one that helps poor entrepreneurs start a business, but doesn't make them functionally existant on greater and greater loans?
Recommend Recommended by 21 Readers 10.MikeNJ April 13th, 20106:23 pm
Interest is the "price" a place of business (bank or other lending institution) charges to those who wish to rent (borrow) from their product inventory (money/funds), correct? So then, does or does not a place of business have the right to charge whatever it wants for selling or loaning out IT'S OWN product? If the price is too high, their business will suffer, right? If it's too low, their bottom line will suffer, right? Is that not a decision they, and they alone have the right to make? So these institutions are charging 'high interest rates'. So what? If it's too high, don't borrow the money. Besides, shouldn't the bank be free to decide for itself what interest rate is commensurate with the risk it's incurring? Should the auto companies - including OM (Obama Motors) - be forced to sell their products at a lower price so that everybody can afford them? Are we going to scour the Constitution to find a penumbra containing a right to luxury automobiles and the funds with which to purchase them? Chil' plzzz...
Recommend Recommended by 9 Readers 11.NormChicagoApril 13th, 20106:23 pm
Gee, never saw that coming.
Recommend Recommended by 19 Readers 12.Thomas PearlNew YorkApril 13th, 20106:23 pm
What a misleading headline!
Recommend Recommended by 4 Readers 13.LVNew JerseyApril 13th, 20106:23 pm
At first glance, this seemed to be another article riding an irrational backlash against anything that says "big" and "bank"? Is there a real story here?
My intuition tells me, that microfinance pioneers should be proud of their own success. The key is to keep records on the volume and perfomance of these loans and the rates people are being charged. Laws on usury should be enforced, though I think the bigger problem is too rapid credit creation that leaves people temporarily better off but more vulnerable to economy shock.
Countries can and should monitor the lending data and restrict excessive lending once they see danger. The experience of the US with mortgages will hopefully have teached, for a generation, that government needs to step in when households are not dangerously levered.
Recommend Recommended by 8 Readers 14.Gene BradyNew JerseyApril 13th, 20106:23 pm
What else is new??? The Financial Industry is the enemy of the people of America and need to be taken down and replaced.
Recommend Recommended by 53 Readers 15.RosetexasApril 13th, 20106:23 pm
Where is Robin Hood when you need him?
Recommend Recommended by 44 Readers 16.dbrainPensacolaApril 13th, 20106:24 pm
Any interest rate of over 25% charged to any poor person is usury and unhealthy for ALL concerned. The mere fact of describing the person as being poor means there is no way that person can repay the loan nor use the funds in such a way as to earn or receive a benefit from it to justify such charges, Any attempt to rationalize such a practice is dishonest even criminal. It is the grossest misconduct and mistreatment of a fellow being and is contemptable. Any article reporting otherwise is not journalism but mere enablers and abetters equally contemptable people !!!!
Recommend Recommended by 50 Readers 17.mr.independentMAApril 13th, 20106:24 pm
That figures, the big banks will suck this country dry.
Wheres my garlic?
Recommend Recommended by 23 Readers 18.HIGHLIGHT (what's this?) Domingo33Rome, Italy April 13th, 20106:24 pm
The answer to all in this article seems so simple... Regulation, regulation, and.. regulations. In Italy, anything above a certain percentage is considered.. usury. So why this whole article call into question such outrageous percentages, instead of calling them under their name: usury? It is up for each country to set the red line, for the banks to abide, and for the abusers to be punished.
Recommend Recommended by 79 Readers 19.onderayMelbourne, AustraliaApril 13th, 20106:24 pm
Correction to Article - I use Kiva microcredit and i earn no interest/profit, soo all the money i lend out comes back - no more, no less!
Recommend Recommended by 1 Reader 20.leNYCApril 13th, 20106:24 pm
Why is this a surprise? Banks are loan sharks taking advantage of the poor.
Recommend Recommended by 28 Readers 21.BabNYApril 13th, 20106:46 pm
unlike kiva, microplace returns your money along with interest. so technically not a donation site.
Recommend Recommended by 1 Reader 22.JeffArlington, TXApril 13th, 20106:46 pm
I have a lot more respect for big financial players who figure out an ongoing way to profitably lend money to cash-starved businesses in poor countries than I do for rock stars who fly to the Third World in a private jet, have their pictures taken with some locals, and then lift-off a few hours later for their next gig. Charity doesn't lift societies out of poverty, an expanding business community does.
Recommended by 14 Readers 23.David G.Cleveland, OH April 13th, 20106:46 pm
Another candidate for the Nick Kristoff award to 'compassionate capitalists' saving the world poor.
Recommend Recommended by 8 Readers 24.JackIllinois
April 13th, 20106:46 pm I have always used one guide when I shopped for my banking services. Find the smallest one in town. I have to say that I have almost always been a satisfied customer. I began doing this thirty years ago.
Recommend Recommended by 26 Readers 25.CharlesCairoApril 13th, 20106:46 pm
Small loans to the poor at ridiculously high interest rates to people who don't know any better? Sounds like Cash Advance/Pay-Day Loans to me. Same predatory practices, but magnified to a global scale.
Anita Edward says she has borrowed money three times from LAPO, Lift Above Poverty Organization, for her hair salon, Amazing Collections, in Benin City, Nigeria.
By NEIL MacFARQUHAR
Published: April 13, 2010
In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives.
Microcredit for Profit
Related
Times Topic: Microfinance
Adriana Zehbrauskas for The New York Times
In Mexico City, Maria Vargas has borrowed larger and larger amounts from Compartamos, a Mexican firm, over the past two decades to expand her T-shirt factory to 25 sewing machines from 5. More Photos »
Read All Comments (128) »
Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005.
But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.
“We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” Mr. Yunus recently said at a gathering of financial officials at the United Nations. “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”
The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.
Rates vary widely across the globe, but the ones that draw the most concern tend to occur in countries like Nigeria and Mexico, where the demand for small loans from a large population cannot be met by existing lenders.
Unlike virtually every Web page trumpeting the accomplishments of microcredit institutions around the world, the page for Te Creemos, a Mexican lender, lacks even one testimonial from a thriving customer — no beaming woman earning her first income by growing a soap business out of her kitchen, for example. Te Creemos has some of the highest interest rates and fees in the world of microfinance, analysts say, a whopping 125 percent average annual rate.
The average in Mexico itself is around 70 percent, compared with a global average of about 37 percent in interest and fees, analysts say. Mexican microfinance institutions charge such high rates simply because they can get away with it, said Emmanuelle Javoy, the managing director of Planet Rating, an independent Paris-based firm that evaluates microlenders.
“They could do better; they could do a lot better,” she said. “If the ones that are very big and have the margins don’t set the pace, then the rest of the market follows.”
Manuel Ramírez, director of risk and internal control at Te Creemos, reached by telephone in Mexico City, initially said there had been some unspecified “misunderstanding” about the numbers and asked for more time to clarify, but then stopped responding.
Unwitting individuals, who can make loans of $20 or more through Web sites like Kiva or Microplace, may also end up participating in practices some consider exploitative. These Web sites admit that they cannot guarantee every interest rate they quote. Indeed, the real rate can prove to be markedly higher.
Debating Microloans’ Effects
Underlying the issue is a fierce debate over whether microloans actually lift people out of poverty, as their promoters so often claim. The recent conclusion of some researchers is that not every poor person is an entrepreneur waiting to be discovered, but that the loans do help cushion some of the worst blows of poverty.
“The lesson is simply that it didn’t save the world,” Dean S. Karlan, a professor of economics at Yale University, said about microlending. “It is not the single transformative tool that proponents have been selling it as, but there are positive benefits.”
Still, its earliest proponents do not want its reputation tarnished by new investors seeking profits on the backs of the poor, though they recognize that the days of just earning enough to cover costs are over.
“They call it ‘social investing,’ but nobody has a definition for social investing, nobody is saying, for example, that you have to make less than 10 percent profit,” said Chuck Waterfield, who runs mftransparency.org, a Web site that promotes transparency and is financed by big microfinance investors.
Making pots of money from microfinance is certainly not illegal. CARE, the Atlanta-based humanitarian organization, was the force behind a microfinance institution it started in Peru in 1997. The initial investment was around $3.5 million, including $450,000 of taxpayer money. But last fall, Banco de Credito, one of Peru’s largest banks, bought the business for $96 million, of which CARE pocketed $74 million.
“Here was a sale that was good for Peru, that was good for our broad social mission and advertising the price of the sale wasn’t the point of the announcement,” Helene Gayle, CARE’s president, said. Ms. Gayle described the new owners as committed to the same social mission of alleviating poverty and said CARE expected to use the money to extend its own reach in other countries.
The microfinance industry, with over $60 billion in assets, has unquestionably outgrown its charitable roots. Elisabeth Rhyne, who runs the Center for Financial Inclusion, said in Congressional testimony this year that banks and finance firms served 60 percent of all clients. Nongovernmental organizations served 35 percent of the clients, she said, while credit unions and rural banks had 5 percent of the clients.
Private capital first began entering the microfinance arena about a decade ago, but it was not until Compartamos, a Mexican firm that began life as a tiny nonprofit organization, generated $458 million through a public stock sale in 2007, that investors fully recognized the potential for a windfall, experts said.
Read All Comments (147) »
Although the Compartamos founders pledged to plow the money back into development, analysts say the high interest rates and healthy profits of Compartamos, the largest microfinance institution in the Western Hemisphere with 1.2 million active borrowers, push up interest rates all across Mexico.
According to the Microfinance Information Exchange, a Web site known as the Mix, where more than 1,000 microfinance companies worldwide report their own numbers, Compartamos charges an average of nearly 82 percent in interest and fees. The site’s global data comes from 2008.
But poor borrowers are often too inexperienced and too harried to understand what they are being charged, experts said. In Mexico City, Maria Vargas has borrowed larger and larger amounts from Compartamos over 20 years to expand her T-shirt factory to 25 sewing machines from 5. She is hazy about what interest rate she actually pays, though she considers it high.
“The interest rate is important, but to be honest, you can get so caught up in work that there is no time to go fill out paperwork in another place,” she said. After several loans, now a simple phone call to Compartamos gets her a check the next day, she said. Occasionally, interest rates spur political intervention. In Nicaragua, President Daniel Ortega, outraged that interest rates there were hovering around 35 percent in 2008, announced that he would back a microfinance institution that would charge 8 to 10 percent, using Venezuelan money.
There were scattered episodes of setting aflame microfinance branches before a national “We’re not paying” campaign erupted, which was widely believed to be mounted secretly by the Sandinista government. After the courts stopped forcing small borrowers to repay, making international financial institutions hesitant to work with Nicaragua, the campaign evaporated.
A Push for More Transparency
The microfinance industry is pushing for greater transparency among its members, but says that most microlenders are honest, with experts putting the number of dubious institutions anywhere from less than 1 percent to more than 10 percent. Given that competition has a pattern of lowering interest rates worldwide, the industry prefers that approach to government intervention. Part of the problem, however, is that all kinds of institutions making loans plaster them with the “microfinance” label because of its do-good reputation.
Damian von Stauffenberg, who founded an independent rating agency called Microrate, said that local conditions had to be taken into account, but that any firm charging 20 to 30 percent above the market was “unconscionable” and that profit rates above 30 percent should be considered high.
Mr. Yunus says interest rates should be 10 to 15 percent above the cost of raising the money, with anything beyond a “red zone” of loan sharking. “We need to draw a line between genuine and abuse,” he said. “You will never see the situation of poor people if you look at it through the glasses of profit-making.”
Yet by that measure, 75 percent of microfinance institutions would fall into Mr. Yunus’s “red zone,” according to a March analysis of 1,008 microlenders by Adrian Gonzalez, lead researcher at the Mix. His study found that much of the money from interest rates was used to cover operating expenses, and argued that tackling costs, as opposed to profits, could prove the most efficient way to lower interest rates.
Many experts label Mr. Yunus’s formula overly simplistic and too low, a route to certain bankruptcy in countries with high operating expenses. Costs of doing business in Asia and the sheer size of the Grameen Bank he founded in Bangladesh allow for economies of scale that keep costs down, analysts say. “Globally interest rates have been going down as a general trend,” said Ms. Javoy of Planet Rating.
Many companies say the highest rates reflect the costs of reaching the poorest, most inaccessible borrowers. It costs more to handle 10 loans of $100 than one loan of $1,000. Some analysts fear that a pronounced backlash against high interest rates will prompt lenders to retreat from the poorest customers.
But experts also acknowledge that banks and others who dominate the industry are slow to address problems.
Added Scrutiny for Lenders
Like Mexico, Nigeria attracts scrutiny for high interest rates. One firm, LAPO, Lift Above Poverty Organization, has raised questions, particularly since it was backed by prominent investors like Deutsche Bank and the Calvert Foundation.
LAPO, considered the leading microfinance institution in Nigeria, engages in a contentious industry practice sometimes referred to as “forced savings.” Under it, the lender keeps a portion of the loan. Proponents argue that it helps the poor learn to save, while critics call it exploitation since borrowers do not get the entire amount up front but pay interest on the full loan.
Microcredit for Profit
The Takeaway With Neil MacFarquhar
LAPO collected these so-called savings from its borrowers without a legal permit to do so, according to a Planet Rating report. “It was known to everybody that they did not have the right license,” Ms. Javoy said.
Under outside pressure, LAPO announced in 2009 that it was decreasing its monthly interest rate, Planet Rating noted, but at the same time compulsory savings were quietly raised to 20 percent of the loan from 10 percent. So, the effective interest rate for some clients actually leapt to nearly 126 percent annually from 114 percent, the report said. The average for all LAPO clients was nearly 74 percent in interest and fees, the report found.
Anita Edward says she has borrowed money three times from LAPO for her hair salon, Amazing Collections, in Benin City, Nigeria. The money comes cheaper than other microloans, and commercial banks are virtually impossible, she said, but she resents the fact that LAPO demanded that she keep $100 of her roughly $666 10-month loan in a savings account while she paid interest on the full amount.
“That is not O.K. by me,” she said. “It is not fair. They should give you the full money.”
The loans from LAPO helped her expand from one shop to two, but when she started she thought she would have more money to put into the business.
“It has improved my life, but not changed it,” said Ms. Edward, 30.
Godwin Ehigiamusoe, LAPO’s founding executive director, defended his company’s high interest rates, saying they reflected the high cost of doing business in Nigeria. For example, he said, each of the company’s more than 200 branches needed its own generator and fuel to run it.
Until recently, Microplace, which is part of eBay, was promoting LAPO to individual investors, even though the Web site says the lenders it features have interest rates between 18 and 60 percent, considerably less than what LAPO customers typically pay.
As recently as February, Microplace also said that LAPO had a strong rating from Microrate, yet the rating agency had suspended LAPO the previous August, six months earlier. Microplace then removed the rating after The New York Times called to inquire why it was still being used and has since taken LAPO investments off the Web site.
At Kiva, which promises on its Web site that it “will not partner with an organization that charges exorbitant interest rates,” the interest rate and fees for LAPO was recently advertised as 57 percent, the average rate from 2007. After The Times called to inquire, Kiva changed it to 83 percent.
Premal Shah, Kiva’s president, said it was a question of outdated information rather than deception. “I would argue that the information is stale as opposed to misleading,” he said. “It could have been a tad better.”
While analysts characterize such microfinance Web sites as well-meaning, they question whether the sites sufficiently vetted the organizations they promoted.
Questions had already been raised about Kiva because the Web site once promised that loans would go to specific borrowers identified on the site, but later backtracked, clarifying that the money went to organizations rather than individuals.
Promotion aside, the overriding question facing the industry, analysts say, remains how much money investors should make from lending to poor people, mostly women, often at interest rates that are hidden.
“You can make money from the poorest people in the world — is that a bad thing, or is that just a business?” asked Mr. Waterfield of mftransparency.org. “At what point do we say we have gone too far?”
Comments
It's a mistake to even refer to these predatory lending practices as "microcredit". The spririt of microcredit is to lift the poor out of poverty. The big banks could care less if their customers are poor now, or if the bank's actions force the customers into generational poverty.
Recommend Recommended by 89 Readers 18.Domingo33Rome, Italy
April 13th, 20106:24 pmThe answer to all in this article seems so simple... Regulation, regulation, and.. regulations. In Italy, anything above a certain percentage is considered.. usury. So why this whole article call into question such outrageous percentages, instead of calling them under their name: usury? It is up for each country to set the red line, for the banks to abide, and for the abusers to be punished.
Recommend Recommended by 70 Readers 30. (what's this?) Vibha PingleBoston MA
April 13th, 20107:06 pm The micro finance bubble is waiting to burst. And when it does it will shatter the already precarious lives of millions of women and men living on less than $2/day across the developing world.
The women micro entrepreneurs I work with at Ubuntu at Work Inc (www.ubuntuatwork.org) prefer to gain skills to organize themselves into an entrepreneurial group, gain new market connections, and seek mentoring support as they begin to aspire to become successful entrepreneurs. Most of them stay well away from micro finance institutions. They are seeking to empower themselves; not to enslave themselves to creditors.
Recommend Recommended by 35 Readers 34.HIGHLIGHT (what's this?) HamakerNYC
April 13th, 20107:54 pm Having run my own microcredit lending institution, I can tell you that you have two choices in the field: make it a charity or charge exorbitant rates. Putting something like together costs a lot of time and energy. It's a shame that banks are getting involved because they will only be watching their bottom lines for the present year rather than investing long term; add this to the list of anti-social activities our protectors of capitalism participate in.
Recommend Recommended by 20 Readers 58.HIGHLIGHT Andrey ZNew York, NY
April 13th, 20109:34 pm Hey banks...stop making money. No wait, please lend, now stop lending, now lend more, now lend less. Now, only lend to the needy, now lend to the small businesses. Now reduce my mortgage, now give me free money. Gimmie gimmie gimmie.
You see where I'm going with this? It's called populist anger, and it gets people nowhere, fast!
Recommend Recommended by 8 Readers 84.HIGHLIGHT (what's this?) KatePhiladelphia PA
April 14th, 20108:20 am I would like to see a list of these banks and financial institutions published - prominently - in a variety of newspapers etc. I would like the choice to take my business elsewhere.
Recommend Recommended by 11 Readers 91.HIGHLIGHT (what's this?) BrianNYC
April 14th, 20108:30 am I've worked in Haiti, Colombia, Bolivia and now in the US in microfinance. Here are some comments about interest rates:
--If you go to a payday lender here in the US, you might pay a $25 fee to get an advance of $250 on your paycheck for a week. This is 10% a week or 520% a year. But still not such a bad service.
--In Guatemala vendor ladies in the central vegetable/fruit market might pay 3 quetzales (their money) for a loan of 300 quetzales from the wholesaler, and then during their 16-hour day, sell the same vegetables/fruits for 400 quetzales, from which proceeds they pay back the loan. They are paying, then, 1% a day for their loan or 360% a year. But still it's a good deal for them, and convenient.
--In microfinance most loans are very short term. If you lend someone a $100 for 1 month, with two payments, and charge them 18% a year, effectively you earn about 75 cents. That doesn't cover costs.
--Interest rates on very short term loans (microfinance)are not very relevant. But, on the other hand, on long term loans--real estate--they are very relevant.
--A problem in microfinance is unfair competition. There are some charities that lend at zero percent until their funds run out--how can another institution compete with that? They can't. But zero percent is not sustainable. 40% to 60% annual percentage rate is more sustainable. Nominally this seems high. But on the other hand, if I charge $2 fee to apply to borrow $50 for a month with weekly payments, if you include the application fee as part of the annual percentage rate, I am effectively charging 2/25 x 12, or 96% a year. Still a good deal. (The formula is based on the fact that if you pay %50 over a month's time, you on the average only have use of half of it, $25 for that month.)
--Compartamos was an egregious example of greed--the end user did not benefit. They should be ashamed. It gives all of microfinance a bad name. It was a Wall-Street type IPO with incredible returns to the original investors.
Microfinance works! It is good. And credit unions are the leaders in microfinance. They are sustainable on just 18% a year maximum annual percentage rate.
Brian in Brooklyn
Recommend Recommended by 17 Readers 99.HIGHLIGHT Peter GCanberra, Australia
April 14th, 20108:39 am The small sums of micro-credit financing do make a large difference to the one in four people in our developing world who try to live on US$1.25 each day.
The value of a cup of coffee in our western world can make a difference to these 1.4 billion people.
As one example of the value of our western aid, $5,000 would help transform a village in Afghanistan. The value of a large plasma TV can instead mean child and adult literacy, clean water and agricultural training amongst one community in Afghanistan.
More of these dollars would be to our credit - in some small way.
Our aid dollars do make a difference in this war - on world hunger and poverty.
Recommend Recommended by 6 Readers 105.HIGHLIGHT (what's this?) babudsIndia
April 14th, 20108:40 am I think the 125% interest on yearly basis is a bit high to be fleeced from poor who have zero or negative credit rating in conventional banking terms. But still it is a cake compared to what the loan sharks in India charge from urban poor. For example, a push cart vendor takes a loan of 9$ from the local shark and buys vegetables in the whole sale market and peddles them roaming from street to street. Before dusk he needs to pay back the shark 10$ and any default can often lead to physical assault. This makes an interest rate of 10% day. From the lenders side; if he has capital investment of 9$ and the ability and a strong heart to recover the loan each day he can earn 365$ a year. Even 50 % defaults can earn 180$ in a year for 9$. So MFIs are welcome in India even if they charge 125% PA from the poor.
Recommend Recommended by 2 Readers 108.HIGHLIGHT (what's this?) John MacgregorPhnom Penh April 14th, 20108:42 am There was recently a study (and discussion) of the actual evidence for microcredit at one of the international microcredit research websites:
http://microfinance.cgap.org...
The study concluded that there was no evidence that microcredit helped people to get out of poverty - though it was often good at 'income-smoothing' (helping people pay for shortfalls and emergencies).
One can't argue against a loan to get a sick child to hospital (for example). However this loan must be repaid, and repaying it - that is, increasing the family's outgoings - will reduce its ability to get the next sick child to hospital.
My own experience is that when microcredit is tied strictly to something such as vocational training, or getting a hard land title, it can be beneficial. However most microcredit is done dispensed for such reasons any more, and one has to wonder if all those billions could be spent better.
Recommend Recommended by 2 Readers 126.HIGHLIGHT (what's this?) KelvynGreece
April 14th, 201011:23 am Given that we have been witness to the greed of hedge funds and banks during the global financial crisis 2008/9, it is not surprising to be confronted by the greed of banks and credit unions exploiting the financial needs of the poor. It was only a matter of time before the generosity of the Grameen Bank, and the initiatives of Muhammed Yunus, were spotted by money lenders across the globe. In a world in which 90% of global wealth is controlled by less than 1% of the population, it was inevitable that the 1% would want to get their fingers on the other 10%. But as witnesses to this immoral greed, too many of us remain opposed to the supervision and regulation of the money lenders. We still allow ourselves to be persuaded that speculative capitalism will make us all wealthy. We fail to recognise that capitalism, state or corporate or individual, has enabled less than 1% of 6.8 billion people to be wealthy. Microfinance, and microcredit, was originally conceived as a way of redistributing wealth for the benefit of the poor. It is clear that such credit must not be left to the credit funds and banks, for to do so is to be more concerned about maximising profits!
please go to www.kelvynrichards.com
Social Ecology - a new morality....alternative choices.
Recommend Recommended by 2 Readers 138.HIGHLIGHT (what's this?) ZonieArizona
April 14th, 201011:43 am As usual, you start off trying to lift a person out of poverty and on to prosperity and walla the big corporations smell green and take over. But all the righties and conservatives say "NO REGULATIONS". And why is that? It's because they "are" the big corporations! There is nothing new here, it's been going on for centuries and will for centuries more. The greedy and immoral will take advantage of anyone, anywhere, and at anytime. The poor and uneducated are just the low hanging fruit. It's up to the lefties and liberals to stay and fight for the poor and uneducated, knowing that we will never win but will fight the good fight.
Recommend Recommended by 1 Reader 152.HIGHLIGHT (what's this?) Pierce RandallAtlanta, GAApril 14th, 201011:52 am I read that some are skeptical about whether microcredit gets people out of poverty at all. This is, of course, right--it won't, in and of itself. What microcredit does is ease the inequalities of liquid capital. You still need macroeconomic factors, like positive GDP growth, to improve per capita GDP in poor countries. So looking at microcredit in countries like Kenya is problematic, for the same reason their macro situation (not being normative here) is problematic. Microcredit is a way to get liquidity to the poor. It's not going to sew entrepreneurs from whole cloth--you need increased aggregated demand for that. It will democratize the system by which people can attain wealth, however.
Isn't that called loan sharking?
Recommend Recommended by 55 Readers 2.HIGHLIGHT (what's this?) dgWind Point, WI April 13th, 20106:23 pm It's a mistake to even refer to these predatory lending practices as "microcredit". The spririt of microcredit is to lift the poor out of poverty. The big banks could care less if their customers are poor now, or if the bank's actions force the customers into generational poverty.
Recommend Recommended by 95 Readers 3.WhateverAustin, Texas April 13th, 20106:23 pm
All right, everybody, go up to a poor person and say, "We hate you. We hate you, and your life can never change." Clearly, that is the only message we know how to send, and I say it's time to send that message loud and clear.
Jerks.
Recommend Recommended by 35 Readers 4.MartinPortland, OR April 13th, 20106:23 pm
Where is this going to end with these banks? Slave trade? Why does our society allow these institutions to exist? Just when you thought you would get a break from hearing about the evil that these institutions do; here comes something else.
Recommend Recommended by 122 Readers 5.dbrainPensacola April 13th, 20106:23 pm
One of the evil practices of greedy professionals had been prevented by USUARY LAWS being some of the ones eliminted by so-called Rrepublican reforms of "out-dated regulations".. OF COURSE , it would be very simple to return to the books ALL those modified and repealed acts that had held back these evil exploitations of the masses by the predators. I am sure the Reps will holler and scream and turn loose their tea-baggers BUT sooooo WHAT = RECONCILE !!!!
Recommend Recommended by 55 Readers 6.jeromeeast hampton,NY April 13th, 20106:23 pm
making money on the back of the poor,i mean,if it truly goes that route......we are really a despicable race and one can only hope for a catastrophe to eradicate such a monstrous financial system.maybe we should have let it all collapse after all,suffer heavily collectively,punish the rich,oligarchs etc... and through the dreadfull experience,learn enough so that we would change forever our present damned course.who knows ??
Recommend Recommended by 84 Readers 7.Jimmy Hwangsomerset April 13th, 20106:23 pm
Government should enforce usury law
Recommend Recommended by 81 Readers 8.newthoughtsOcean City April 13th, 20106:23 pm
Do you really want to change the way banking does business around the world? Do you want to see real competition come to banking?
Let Wal-Mart compete in banking. How do you think the 5 largest banks in America would view a company that uses “continually falling prices” as a core operating philosophy? Do you think that Wal-Mart would pass along to the public the immense savings from the automation of financial transactions?
Take a look at the productivity changes in the world of Banking. We now have electronic funds transfers, vast networks of ATM machines and other card payment systems. Very few employees even handle money anymore. Billions of transactions are handled each day by computers and no human hands are used. Yet, banking costs and banking compensation continue to rise? Why? NO COMPETITION.
The world of banking is the largest oligarchy in the world. It makes more money than the oil cartel. It is time to let a new philosophy enter the world of banking. Let’s see how they like competing with a company that will ruthlessly attack costs and pass on those savings to the public. I say, it is time to let Wal-Mart and Wal-Mart styled cost oriented companies into the banking sector. What about you?
Recommend Recommended by 53 Readers 9.hmmmHawaii April 13th, 20106:23 pm
Thank you for enlightening me about Kiva. I saw some American asking for a loan for her clothing design business on there, lol. Does anyone have suggestions as to what they consider a good micro-lending org to donate or lend to? Ideally, one that helps poor entrepreneurs start a business, but doesn't make them functionally existant on greater and greater loans?
Recommend Recommended by 21 Readers 10.MikeNJ April 13th, 20106:23 pm
Interest is the "price" a place of business (bank or other lending institution) charges to those who wish to rent (borrow) from their product inventory (money/funds), correct? So then, does or does not a place of business have the right to charge whatever it wants for selling or loaning out IT'S OWN product? If the price is too high, their business will suffer, right? If it's too low, their bottom line will suffer, right? Is that not a decision they, and they alone have the right to make? So these institutions are charging 'high interest rates'. So what? If it's too high, don't borrow the money. Besides, shouldn't the bank be free to decide for itself what interest rate is commensurate with the risk it's incurring? Should the auto companies - including OM (Obama Motors) - be forced to sell their products at a lower price so that everybody can afford them? Are we going to scour the Constitution to find a penumbra containing a right to luxury automobiles and the funds with which to purchase them? Chil' plzzz...
Recommend Recommended by 9 Readers 11.NormChicagoApril 13th, 20106:23 pm
Gee, never saw that coming.
Recommend Recommended by 19 Readers 12.Thomas PearlNew YorkApril 13th, 20106:23 pm
What a misleading headline!
Recommend Recommended by 4 Readers 13.LVNew JerseyApril 13th, 20106:23 pm
At first glance, this seemed to be another article riding an irrational backlash against anything that says "big" and "bank"? Is there a real story here?
My intuition tells me, that microfinance pioneers should be proud of their own success. The key is to keep records on the volume and perfomance of these loans and the rates people are being charged. Laws on usury should be enforced, though I think the bigger problem is too rapid credit creation that leaves people temporarily better off but more vulnerable to economy shock.
Countries can and should monitor the lending data and restrict excessive lending once they see danger. The experience of the US with mortgages will hopefully have teached, for a generation, that government needs to step in when households are not dangerously levered.
Recommend Recommended by 8 Readers 14.Gene BradyNew JerseyApril 13th, 20106:23 pm
What else is new??? The Financial Industry is the enemy of the people of America and need to be taken down and replaced.
Recommend Recommended by 53 Readers 15.RosetexasApril 13th, 20106:23 pm
Where is Robin Hood when you need him?
Recommend Recommended by 44 Readers 16.dbrainPensacolaApril 13th, 20106:24 pm
Any interest rate of over 25% charged to any poor person is usury and unhealthy for ALL concerned. The mere fact of describing the person as being poor means there is no way that person can repay the loan nor use the funds in such a way as to earn or receive a benefit from it to justify such charges, Any attempt to rationalize such a practice is dishonest even criminal. It is the grossest misconduct and mistreatment of a fellow being and is contemptable. Any article reporting otherwise is not journalism but mere enablers and abetters equally contemptable people !!!!
Recommend Recommended by 50 Readers 17.mr.independentMAApril 13th, 20106:24 pm
That figures, the big banks will suck this country dry.
Wheres my garlic?
Recommend Recommended by 23 Readers 18.HIGHLIGHT (what's this?) Domingo33Rome, Italy April 13th, 20106:24 pm
The answer to all in this article seems so simple... Regulation, regulation, and.. regulations. In Italy, anything above a certain percentage is considered.. usury. So why this whole article call into question such outrageous percentages, instead of calling them under their name: usury? It is up for each country to set the red line, for the banks to abide, and for the abusers to be punished.
Recommend Recommended by 79 Readers 19.onderayMelbourne, AustraliaApril 13th, 20106:24 pm
Correction to Article - I use Kiva microcredit and i earn no interest/profit, soo all the money i lend out comes back - no more, no less!
Recommend Recommended by 1 Reader 20.leNYCApril 13th, 20106:24 pm
Why is this a surprise? Banks are loan sharks taking advantage of the poor.
Recommend Recommended by 28 Readers 21.BabNYApril 13th, 20106:46 pm
unlike kiva, microplace returns your money along with interest. so technically not a donation site.
Recommend Recommended by 1 Reader 22.JeffArlington, TXApril 13th, 20106:46 pm
I have a lot more respect for big financial players who figure out an ongoing way to profitably lend money to cash-starved businesses in poor countries than I do for rock stars who fly to the Third World in a private jet, have their pictures taken with some locals, and then lift-off a few hours later for their next gig. Charity doesn't lift societies out of poverty, an expanding business community does.
Recommended by 14 Readers 23.David G.Cleveland, OH April 13th, 20106:46 pm
Another candidate for the Nick Kristoff award to 'compassionate capitalists' saving the world poor.
Recommend Recommended by 8 Readers 24.JackIllinois
April 13th, 20106:46 pm I have always used one guide when I shopped for my banking services. Find the smallest one in town. I have to say that I have almost always been a satisfied customer. I began doing this thirty years ago.
Recommend Recommended by 26 Readers 25.CharlesCairoApril 13th, 20106:46 pm
Small loans to the poor at ridiculously high interest rates to people who don't know any better? Sounds like Cash Advance/Pay-Day Loans to me. Same predatory practices, but magnified to a global scale.
Subscribe to:
Posts (Atom)