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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The Transparent Cynicism of Medicaid Work Requirements

Little Rock    Every spring soon or later I sit down for an annual cup of coffee with Ernie Dumas, former editorial writer for the Arkansas Gazette and currently still an op-ed columnist for the weekly Arkansas Times, but mainly an old friend from “back in the day” where we mark the ways our paths have crossed for decades and continue to do so.  There is an order to our conversations.  First, we usually comment on how “bad” it has become.  Then we talk about how we continue in our various ways to pound our heads against the wall, no matter what we just said in the first instance.

I brought up a squib I had seen in the local paper that morning about the new work requirements that the conservative Republican governor of Arkansas had mandated for Medicaid recipients in the state.  Dumas mentioned that he had just written a piece about just how Catch-22 bizarre these new rules were in the last issue of the Arkansas Times.  He jumped up and found one in the coffeehouse still, and I promised I would read it later.

Lordie!  If anything, Dumas might have soft pedaled how draconian these new, first-in-the-nation Medicaid work requirements really are.  It’s one thing to talk about Scrooging up the requirements and pretending that there are a bunch of scofflaws trying to dodge paying labor in order to be provided by the government.  This is the ideological myth of the “able-bodied” that tries to fog over the fact that the overwhelming majority of Medicaid recipients are children, the infirm or incapacitated, or older people caught in poverty before they qualify for Social Security.  The Arkansas plan is not about being tough and doing a search-and-save mission to find the able-bodied and require them to provide 80 hours per month of some kind of labor or volunteer work in order to maintain qualifications for Medicaid, although ostensibly that’s the actual requirement.  No, the Arkansas plan is clearly only about one thing only:  forcing people off of Medicaid.

Here’s the real story in Dumas’ own words:

“Governor Hutchinson will institute big cuts in medical insurance for poor adults this spring my making Medicaid enrollees get on their laptops every two months and prove they are working at least 80 hours a month….If they can’t do that they lose their health care for the year.  Wait:  They probably don’t have computers or email accounts, would have a clue about how to use them or to build the evidence needed to keep their insurance, and may not live someplace with easy broadband coverage.  The state’s answer:  This will give them the energy to join the digital society.”

According to Public Integrity’s study Arkansas ranked 49th in the country for the lowest level of internet subscriptions and the worst digital divide for the poor in the country.  Even arch conservative Arkansas Senator Tom Cotton and the current head of the FCC have pointed out the deficiencies in internet access particularly in rural Arkansas.

Cynically, Arkansas politicians will go to war on the poor by claiming they are helping them join the modern technological world.  This is a mandate to work coupled with an unfunded mandate to buy a computer and pay for wireless.

This one is easy.  It’s not about rewarding work.  It’s about punishing the poor for their poverty.

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Please enjoy Land of Greed by Miss Emily featuring Gord Sinclair & Rob Baker.

Thanks to KABF.

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