Are you already aware of the Grameen Bank? This bank provides small-scale loans to poor people. Surprisingly, these poor people have higher payback rates than much wealthier people (e.g. Americans). So one interesting question is why the payback rate is higher. Is it the social pressure involved in micro loans (knowing that when […]
Written on Saturday, August 9th, 2008 by lowellpatrick :: 0 comments to this post
Are you already aware of the Grameen Bank? This bank provides small-scale loans to poor people. Surprisingly, these poor people have higher payback rates than much wealthier people (e.g. Americans).
So one interesting question is why the payback rate is higher. Is it the social pressure involved in micro loans (knowing that when you pay back the money it may go to someone else in your community)? Is it that the money goes to productive uses, not vacations and luxury cars? Or something else?
You have an opportunity to serve 2 useful purposes here — encouraging more micro loans, and also helping reduce the default rate in loans here in the U.S. (and elsewhere). I assume that you already know that there are a lot of behind-schedule housing (and other) loans in the U.S., due to recklessness on the part of both lenders (banks etc.) and borrowers (who borrowed more than they could afford, took out loans with “teaser rates” that rose later, etc.) A better understanding of why micro loans have better payback rates than bigger loans might lead U.S. lenders and borrowers to be less reckless.
Another relevant topic is how to measure risk among micro-borrowers cheaply. If you’re only loaning $100, you can’t spend much money measuring risk.
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