Predatory Face of Microlending Becoming Clearer

New Orleans        ACORN International has done several reports over the years stating our position clearly:  microfinance is not a poverty reduction program.  Doing so, we knew we were running way outside the herd of the prevailing donor-based and donor-funded consensus, but facts are facts.  Debt doesn’t reduce poverty.  Maybe you buy a job for a bit, but it’s the exceptions that bust out, not the rule.  Furthermore, our reports argued, the collection system is relentless, abusive, and unsustainable.  The interest rates are usurious.  The more you look and listen, the harder it is to believe microfinance and microlending is a solution for anything.

All of which made me read a piece in The Economist on the microloan crisis in Sri Lanka very closely.  The Organizers’ Forum was originally slated to visit the island this year, but the political situation deteriorated and the terrorism was intimidating.  When we go, we’ll dig deeper on this issue, but these reports are shocking even though we were already prepared for the worst.

Sri Lanka’s finance minister has “accused microfinance companies of ruining Sri Lanka’s financial sector and of creating a ‘sadistic situation’ in which loan officers, when unable to extract repayment, solicit sexual favors.”  Whoa, nelly, how did it get this bad?!?

Part of the answer is what I’ve already stated.  The principal of weekly or in some cases daily collections forces the cost up even if the amounts in the loans are tiny.  These are loans, so covering the repayment, risk, and overhead means that interest rates are atmospheric with effective rates up to 220%, and we’ve seen higher.

In Sri Lanka, like so many other lower-income countries, the microfinance industry is virtually unregulated.  The industry’s association has 66 members according to the Economist, but there are 5000 others that are escaping regulation.  In fact, without the finances or infrastructure to offset the end of the civil war and natural disasters, the government had encouraged women to take the loans to rebuilt and help get families on their feet.  One of the tenets of microfinance is that women are best with small sums of money.  There had been no limit to the number of loans or companies that were lending largely to women.  The bottom line, “In Sri Lanka, …[the loans] seem to be burying many, particularly women…” in poverty.

The government acted, kind of, after a decade and passed the Microfinance Act in 2016, but it only covered lenders that take deposits, so only three companies are currently registered under the act. The government in 2018 wrote off business loans of up to 100,000 rupees given to women in areas impacted by drought and capped interest rates at 35%.  Unfortunately, as the Economist writes, “But the relief applied only to each person’s biggest loan from a registered lender.  Enforcing the cap fell to borrowers, few of whom knew about, let alone understood, the rule.”

The vicious cycle of microfinance and of poverty itself constantly repeated:  the poor made poorer, forced to pretend that loans are the solution, and then left to their own devices to solve the mess, once again, by themselves.

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Please enjoy Interstate Love Song (Live at New Haven Veterans Memorial Coliseum New Haven CT 8/23/1994) from Purple (Super Deluxe Edition) by Stone Temple Pilots.

Thanks to KABF.

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Jobs to Move America Reminds Everyone that Accountability is Key to Agreements

New Orleans       Jobs to Move America is a Los Angeles-based nonprofit that had a fantastic idea that was as simple and straightforward as it was dynamic.

If a public agency is going to offer a contract to purchase something like major public transportation equipment, they should commit at the same time to creating jobs domestically, and even locally, in order to win the award.  And, why not?  Public dollars creating public goods.  The organization got an agreement initially from LA Metro to combine a jobs creation commitment with a purchase of rail-cars to an American subsidy of Canadian-based New Flyer Industries.  Using the model developed by Jobs to Move America, reportedly eight other agencies, including big timers in New York and Chicago and even Amtrak, have made similar deals since 2012 when LA Metro inked the first one.

The agreements weren’t haphazard promises of the kind cities too often make using Community Development Block Grant funds to pave the way for favored developers with vague commitments about job training or development.  They had the numbers on full-time jobs – and wages – that would be created.  The multiplier impact to the Los Angeles community was huge in the original agreement, as reported in the New York Times, with some $18 million, creating a significant advantage for New Flyer’s bid.

I’m not surprised since Madeline Janis, executive director of Jobs to Move America, was formerly the director and sparkplug for LAANE, the Los Angeles Alliance for a New Economy, a community-labor nonprofit that ACORN long respected and admired as a sister freedom fighter, innovator, and partner on living wage and community-benefit agreements.  Nor was I surprised to see that they had filed suit in California courts against New Flyer when they discovered that the company had underpaid the workers employed under the manufacturing contract by as much as a buck an hour.  Additionally, records reviewed by the Times and provided by the nonprofit found that the benefits package was half of what was promised.

Back in the day, I’ve sat on panels at conferences on living wages with her and other LAANE representatives, and they were always in the lead in banging the drum that an organization needs to work as hard on enforcement of an agreement as they worked to win the agreement in the beginning, which was always excellent advice, but too often either ignored or past the interest and capacity of the original campaigns.

This is a campaign that should be happening in every city.  Why not make the best deal for everyone on the front end, and then make sure the deal is honored on the back end?

No good reason that I can think of, and Jobs to Move America has already paved the road both going and coming.

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Please enjoy How Glad I Am  by Chrissie Hynde and the Valve Bone Woe Ensemble.

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