C'da
>Payday loans, as predatory as they are, also are something that many >poor people depend on to deal with sudden needs of cash, or between two >paychecks, in emergencies.
That is obvious - the Govt. can't help them so they go to the private sector.
>As long as it does not become an ongoing burden
Which it most often does - because of the excessvily high rates. Very few of the poor really get out of that cycle - paycheck-moneylender-paycheck.
>And it is for this reason Congress would not outlaw it. In fact the poor >themselves resist abolishing it.
C'da - I am surprised. Even you would agree that an average rate charged by these lenders is 390% (let alone the 800% max). No one is asking that private money lending be abolished - just that they have the mooring right. Supernormal profits by any standards or excuses are just rank bad for the society.
BTW the Congress doesn't want to outlaw it because remember "let the markets decide" is the centerpiece of many of this country's policies.
On 9/29/06, Chan Mahanta <[EMAIL PROTECTED]> wrote:
--and worst part is, the military personnel were the main targets. Now with the new law/bill, only millitary personnel will only pay a max of 36% (a real giveaway rate if you ask me), while the rest of the poor may as well go to India and borrow at lower rates (comparitively).>If you read this report, India looks almost saintly.
*** There is yet another nuance that you miss Ram.
Payday loans, as predatory as they are, also are something that many poor peopledepend on to deal with sudden needs of cash, or between two paychecks, in emergencies. As long as it does not become an ongoing burden, it is a lifesaver. And it is for this reason Congress would not outlaw it. In fact the poor themselves resist abolishing it.
At 1:30 PM -0500 9/29/06, Ram Sarangapani wrote:I don't know why writers always give interest rate charged as just 20% when in GOI report on Vidharba gave the figure to be as high as 5% per month to even 1.5% per day. World Bank report of 2003 ( Report No. 25797-IN) also state that interest rate charged from farmers and SME is 36% to 120% per year.C'da,Obviously this is predatory lending and the poor are getting hurt (badly). I just wanted to forward this other piece from the AP. Now, this news report in no way belittles the World Bank 2003 report on Micro Credit (or India) - but it might do the WB some good to also read this AP report too.BTW the AP report is NOT talking about rural India, but the good 'ole USA.The WB says in India the rates are "36% to 120% per year."The "Kabulis" in the US call themselves payday lenders. These guys were charging up to 800% - until our able Congress came in and said its got to be 36%. Which, I suppose is a great deal (compared to 800)--and worst part is, the military personnel were the main targets. Now with the new law/bill, only millitary personnel will only pay a max of 36% (a real giveaway rate if you ask me), while the rest of the poor may as well go to India and borrow at lower rates (comparitively).If you read this report, India looks almost saintly. I know you keep saying that all this is about the broken system in India. Now, we all know, unlike India (which is rife with mal-governance, corruption etc), the US is much better governed, a great demokrasy and the system ain't broken.How do you explain this in a well-oiled, functioning country like the US?Here is the AP report - highlights mine.--Ram__________________________________Lawmakers to limit military loan ratesBy Sam Hananel, Associated Press Writer | September 29, 2006WASHINGTON --Interest rates on payday loans to military service members would be limited under an agreement reached Friday between House and Senate Republicans.The measure imposing a 36 percent cap on the annual interest rate for payday loans to service members or their spouses will be included in the defense authorization bill, which Congress was expected to approve later Friday."We need to enact these new protections for our troops and their families because a growing predatory lending problem has impacted our operational readiness," said Sen. Jim Talent, R-Mo., who pushed the measure in the Senate.Talent and other lawmakers charged that payday lenders target military personnel, offering quick cash advances at outrageously high interest rates that trap unsavvy borrowers in a cycle of debt.Payday lenders offer short-term loans against borrowers' paychecks and charge fees. Borrowers that cannot repay the loan by the next payday often "roll over" the loan repeatedly, leading to more charges.The average annual percentage rate for payday loans is about 390 percent, and as lending fees add up, borrowers can end up paying an annual percentage rate of 800 percent or more .The Defense Department strongly supported the rate cap measure after issuing a report earlier this year finding many payday lenders are clustered around military bases.Industry officials say payday loans provide financial assistance to soldiers in need and claim military personnel will be forced to seek high-cost loans from unregulated Internet lenders.Pentagon officials said the problem was becoming an issue of military readiness, with spiraling debt causing service members to lose security clearances or become distracted from their missions.Consumer protection advocates, who have long criticized payday lenders for preying on poor communities, also backed the measure."It's important for this to be in federal law because it will provide a base line of protection regardless of where you're stationed and regardless of what form of loan you're getting," said Jean Ann Fox, director of consumer protection for Consumer Federation of America.The bill number is H.R. 5122.
On 9/28/06, Chan Mahanta <[EMAIL PROTECTED]> wrote:
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Date: Wed, 27 Sep 2006 16:01:50 -0700 (PDT)
Subject: [WaterWatch] Death by Micro Credit-2
Reply-To: [EMAIL PROTECTED]Death by Micro Credit-2I don't know why writers always give interest rate charged as just 20% when in GOI report on Vidharba gave the figure to be as high as 5% per month to even 1.5% per day. World Bank report of 2003 ( Report No. 25797-IN ) also state that interest rate charged from farmers and SME is 36% to 120% per year.Access to Rural Credit - Page 108! of WB- 25797- IN[3 .8 1 India has a wide network of rural finance institutions (RFIs), but a large number of the rural poor remain under-served or completely left out of the formal financial system. There are over 30,000 commercial bank branches, over 14,000 regional rural banks (RRBs), and over 100,000 rural credit cooperatives (RCCs) in addition to several non-bank financial institutions. This translates to about 4,700 people served by each RFI outlet. However, the last available rural household survey (Reserve Bank of India 1991) found that only about one-sixth of rural households borrowed from formal RFIs. Non-institutional sources accounted for as high as 52-62% of household outstanding debt. The rural non-farm sector also faces constraints to accessing finance. A recent study covering some 20 million small-scale rural enterprises (in the unorganized sector) found that commercial banks reportedly meet merely 4% of the credit needs of this sector, and micro-finance sources provide another 3% of their credit needs.Various estimates suggest that India's rural poor rely almost entirely on informal sources (money lenders, traders, commission agents, etc.) to meet their consumption credit needs, at annual interest rates ranging from 36% to 120% per annum.]My uncle told me the standard procedure in Ludhiana, Punjab is moneylenders give a loan ! of say Rs.1,00,000/- on stamp paper. Actual money released is 85% or Rs. 85,000/- and the loan is payable at Rs.1000 per day or 1% per day from day one.Compounding of 15% alone comes to 66% annually but again Rs.1000/- returned per day lend at same rate shall also fetch similar return therefore actual interest rate may come close to 100%.Supply of spurious seeds, pesticides and fertilizers, very low MSP and takeover of farm produce by moneylenders at harvest time when prices are at it lowest compounded with draught or unseasonal rain destroying crops, lack of! public healthcare all at add up to the financial burden.Farmers are forced to sell their land to pay for treatment of their family members or to get them admissions to schools and colleges in mushrooming private hospitals and educational institutions.Ravinder SinghSeptember28, 2006[EMAIL PROTECTED], [EMAIL PROTECTED]From: sudhirendar < sudhirendar@ bol.net.in >Date: Sep 26, 2006 3:13 PM
Subject: Micro-Credit
To: krishnagreen@ gmail.com(from The Times of India, Sept 16, 2006)Death by Micro creditSudhirendar SharmaThe tragic suicides by more than 60 self-help group members in Andhra Pradesh during April this year may have been subsumed under the unending spate of farmer suicides in the Vidharba region of Maharashtra but the hidden dimension of micro-credit revolution in the country has only begun to surface. Reports indicate that the actual number of suicides may exceed 200 in the SHG-saturated districts of Krishna, East Godavari, Guntur and Prakasam where intimidation of families by the Micro-Finance Institutions (MFI) against reporting the matter to police had surfaced.Following protests staged by mourners and enraged borrowers, ! the district authorities closed down 50 branches of two major microfin ance institutions in the state. The erring MFIs were charged with exploiting the poor with `usurious interest rate' and intimidating the borrowers by `forced loan recovery' practices, combined effect of which drove debt-ridden poor to embrace death. An anguished Chief Minister Y S Rajasekhara Reddy had lashed out: `MFIs were turning out to be worse than moneylenders by charging interest rates in excess of 20 per cent.'As the government began in-depth enquiry into suicide deaths and the MFIs launched themselves into damage control measures, many affected families were left wondering if the government had not played ignorant to the modus operandi of MFIs. The fact that micro-credit loans earned interest in excess of 20 per cent has been no secret. Borrower harassment by MFIs hasn't been uncommon either. Having been in the business of creating self-help groups and promoting micro-credit institutions, the government cannot absolve itself from being in the thick of the fatal crises.Given the fact that the commercial banking system has little regard to the bottom-of-the- pyramid group as being creditworthy, the MFIs have enjoyed unrestricted political patronage in extending credit services to the poor. The Reserve Bank of India statistics indicate that micro-credit constitute no more than 15 % of all commercial bank lending, leaving MFIs to cover a clientele of over 200 million families in the rural areas. Taking shelter behind these numbers, the MFIs have requested the government not to pursue the matter further as it was detrimental to the interests of the poor!Are MFIs genuine in catering to the interests of the poor? So it may seem as easy credit in rural areas has brought about significant turnabout in lifestyle, however, at the cost of plunging poor households under debt. The latest National Sample Survey Organisation (released in Dec 2005) survey reveals that rural households account for 63 per cent of the country's overall aggregate outstanding debt of Rs 177,000 crore. The incidence of indebtedness was reported to be about 27 per cent among rural households, predominantly being in the rural areas of Andhra Pradesh, Kerala, Rajasthan and Karnataka.There are number of cases which suggest that a large proportion of micro-credit clients are worse off after accessing loans. Since higher interest rates on micro-credit do not provide scope for savings as also for investing in insurance, the dominant risk-covering factors for the poor, micro-credit seldom propels poor out of poverty. Further, there are no businesses that can generate profit after paying an interest of 24-36 per cent on capital investment. Else, why after mobilizing more than Rs 5 billion the average saving per member of the SHG is a pitiable Rs. 377 in Andhra Pradesh?MFI pay little attention to the core concerns of the poor. For them the critical concern is to sustain services against emerging odds. The brewing crisis in Andhra Pradesh has not only exposed the `unethical' practices by MFIs but has raised serious questions on the regulatory measures applicable to them. As the murky world of MFI operations comes to fore, the government is seized of the seriousness of the issue in the wake of an assessment report on many cases of `unnatural deaths' that has cautioned the state against `an imminent danger of more suicides in the offing'.With credit being considered the panacea to eradicating rural poverty, it is doubtful if political decisions will weigh heavy against MFIs. As poverty gets directly co-related to reduced cash flow, providing easy credit through host of lending institutions creates an illusion of `feel good' amongst the rural poor. In many ways, micro-credit justifies the ongoing processes of decentralization too. As poor take control of their destiny through soft loans, it becomes convenient for the government and the commercial banks to absolve themselves of their primary responsibility towards the poor.Micro-credit has caught on so much, courtesy the donors; that its promoters have gained immunity under a weak regulatory environment. Marlene Dietrich had rightly said: `there is a gigantic difference between earning a great deal of money and being rich'. Far from helping people generate wealth, easy credit is being used to encourage primary producers at the farm to become secondary distributors for consumer products. Howsoever lucrative, the transition has severe implications on the livelihoods security, and now on lives of poor people.As micro-credit takes its toll on the lives of poor households in Andhra Pradesh, the future of the self-help groups and the micro-finance institutions has come under scanner. However, unless the government jumps in to apply stringent regulations on MFI operations alongside throwing a safety net around the poor and the vulnerable, micro-credit related suicides will become more of a norm than exception. In a country where farmer suicides have been largely accepted, accommodating suicides of another kind may not be out of place!Formerly with the World Bank Dr Sudhirendar Sharma is a development analyst attached to the Delhi-based the Ecological Foundation. He can be reached at sudhirendar@ vsnl.net
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