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Fascism and Big Business by Daniel Guerin

Sunday, May 2, 2010

Tired of selling vacuum cleaners door-to-door?

‘Microlenders’ spin massive
web of debt slavery

The practice of loaning relatively small amounts to “entrepreneurs” in underdeveloped countries, referred to as microcredit, has for decades been peddled as a “humanitarian” activity that reduces poverty. Today microloans have become increasingly prolific and predatory, expanding a massive web of debt slavery to tens of millions with the lowest incomes.

The concept is credited to Muhammad Yunus, an economics professor from Bangladesh. In 1976 he established Grameen Bank, “rural bank,” as a research project. It requires no collateral and will loan to anyone, including those who beg on the street to get by. Grameen boasts a recovery rate of nearly 97 percent.

Today the bank has 8 million borrowers, 97 percent of whom are women. Its 2,500 branches service 81,000 villages, nearly all of those in Bangladesh. The annual interest rate for income-generating loans is 20 percent, and last year’s revenue was $210 million.

The bank’s Web site claims 65 percent of its borrowers’ economic status has improved. Yunus and the Grameen Bank were awarded the $1.4 million Nobel Peace Prize in 2006. Last August President Barack Obama gave Yunus the Presidential Medal of Freedom.

Following the Grameen Bank example, “nonprofit” organizations soon began to get involved in peddling credit to those in extreme poverty. Banks and finance firms followed the money as well and today account for 60 percent of all microloans. Rural banks like Grameen serve about 5 percent, with nongovernmental organizations taking the rest.

The New York Times provides an example of the shift toward mainstream banks. CARE, an Atlanta-based nonprofit charitable organization, started a microcredit institution in Peru about 13 years ago. The initial investment was $3.5 million, which included $450,000 in government funds. Last year it sold it to Banco de Credito, one of Peru’s largest banks, for $96 million, of which the nonprofit pocketed $74 million.

With total assets of some $60 billion worldwide, microfinance has rapidly expanded and become a very lucrative field of investment. Last August the Wall Street Journal pointed out that during the 12 preceding months microfinance funds returned 4.5 percent to investors. During this same period Standard and Poor’s 500 stock index declined 22 percent.

In India, average household debt to microlenders increased from about $27 to $135 between 2004 and 2009. During that same period the number of people in the country living under $1.25 per day rose from 300 million to 410 million. In some communities such as Remanagaram in southern India, a revolt against payment has developed.

Interest rates vary widely, averaging about 37 percent annually in interest and fees. With high demand, some institutions are charged interest rates of more than 100 percent, according to the Times. Compartamos (let’s share) in Mexico started as a “nonprofit.” Today it’s the largest microfinance institution in the Americas. It charges an average of 82 percent annual interest. Another Mexican microlender, Te Creemos (we believe in you), charges 125 percent.

Kiva is a well-known U.S. nonprofit microlender that claims to “connect people, through lending, for the sake of alleviating poverty.” It generates capital through soliciting loans on its Web site from individuals as a type of charitable cause that unlike direct aid promotes “dignity” and “accountability.”

Kiva then provides capital to microfinance firms in underdeveloped countries such as the Lift Above Poverty Organization in Nigeria (LAPO). Kiva disclosed to the Times that LAPO charges 83 percent annual interest. In order to conceal the actual amount it filches from working people, the company imposes a compulsory savings of 20 percent on each loan. Borrowers pay interest on the entire amount, bringing the real rate to well over 100 percent.

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