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From The Socialist newspaper, 21 April 2010
Banks use microloans to fleece poor
MICROLOANS ARE small loans to people who would otherwise not have access to finance, they are often for amounts of around $20. What was supposed to have been an opportunity to help some of the poorest people in the world start up a small business has become just another way for the banks and finance institutions to earn a quick buck.
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. "We created microcredit to fight the loan sharks; we didn't create microcredit to encourage new loan sharks," said Mr Yunus.
Some are charging interest rates of 100% or more. In Mexico the average interest rate is around 70%, compared with a global average of about 37% in interest and fees.
An early sign that there was money to be made was CARE, an Atlanta-based humanitarian organisation. It started a microfinance institution in Peru in 1997. The initial investment was around $3.5 million, including $450,000 of taxpayer money. But last year, Banco de Credito, one of Peru's largest banks, bought the business for $96 million, of which CARE pocketed $74 million.
The microfinance industry, with over $60 billion in assets, has outgrown its charitable roots. Banks and finance firms serve 60% of all clients, non-governmental organisations (NGOs) 35%, and credit unions and rural banks 5%.
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 non-profit organisation, generated $458 million selling shares in 2007, that they got a whiff of what profits could be made.
"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."
Socialists would agree with that. Socialists call for the nation-alisation of the banks and finance industry under democratic control. Small businesses and the self-employed could then be given affordable credit at reasonable rates and not be at the mercy of profit-hungry private banks.
In addition, small businesses should be protected from the big suppliers who are, next to banks, the bane of small businesses. They should have access to guaranteed supplies at agreed prices.
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In The Socialist 21 April 2010:
Stop these savage cuts: support the socialist alternative
Youth fight for jobs
Young people facing a fight for their future
National Union of Students conference: Campaign needed against fees and cuts
Socialist Party editorial
Left candidates excluded from media
Big business as usual for Liberal Democrats
TV debate - Party leaders compete for the same policies
Volcanic eruption brings travel chaos: Planned and integrated transport system vital
Planes, trains and automobiles
Socialist Party news and analysis
Cameron turns back clock on women's rights
Banks use microloans to fleece poor
Socialist Party election campaign
Doncaster - Jarvis's vicious sackings and workers' fightback
Portsmouth North: "An ordinary guy to represent ordinary workers"
Lewisham councillors' record
Trade Unionist and Socialist Coalition
Coventry: Standing up for public services
Colne Valley / Huddersfield: Kirklees' only fighting councillor
Spelthorne: "The trade union candidate guy"
A chance to put your questions to your local Trade Unionist and Socialist Coalition candidates.
Why the BNP offers no way forward for working class people
International socialist news and analysis
Progressive Workers Federation of Pakistan founded
Sri Lanka parliamentary elections: Rajapaksa's clan consolidates its rule
Socialist Party features
National Care Service - fact or fiction?
1936 - A play about the Olympics
Socialist Party workplace news
Vote to boycott SATs
Civil service dispute continues
Fighting cuts at Coventry council
Strike ballot at Manchester Metropolitan University
Unison health conference
Laundry workers fight closure
Dover trade unions against privatisation
National Shop Stewards Network 2010 conference:
The Socialist 21 April 2010 |
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