Blog

The rich get richer, the poor get richer, the New York Times gets outraged

Blog, Resources0 comments

A great article below in response to the NYT article from last week. One thing not mentioned is that not-for-profit MFIs charge similar, if not higher, rates of interest as do for-profits. Thus, the “complaints” lobbied against the for-profits should be brought against the not-for-profits, if not more so. However, all players are significantly better for clients than local moneylenders!

.

The rich get richer, the poor get richer, the New York Times gets outraged

.
by Don Watkins on 4/23/10
.
Look out world: the rich are getting richer by helping the poor get richer. The New York Times warns us that “Big Banks Draw Profits From Microloans to Poor.”
.
According to the Times, “Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.” Now critics of these companies are complaining that the reputation of microloans will be “tarnished by new investors seeking profits on the backs of the poor…”
.
But profits aren’t made on anyone’s backs. They are made by creating value and are a sign of mutual gain. Nike profits by making great shoes. Amazon.com profits by running a quality online bookstore. McDonald’s profits by serving delicious food to anyone willing to spend a few bucks. They all profit by making us better off (otherwise we would patronize their competitors). Well, microloan companies profit by providing the poor with a service they desperately need at prices they willingly pay.
.
No, suggests the Times, those prices aren’t paid willingly: the poor are taking those loans because they are “too inexperienced and too harried to understand what they are being charged.” But the only example the Times can dredge up to illustrate this point is a Mexican entrepreneur who used microloans to successfully expand her t-shirt factory five times over, and who can now pick up the phone and get a fresh infusion of cash for her business within the span of a day. That’s not a scandal–that’s inspiring.
.
Microloan companies deserve their profits and have a moral right to every penny they can earn through voluntary trade. To succeed, they have to be willing to accept the risks inherent in making small loans to incredibly poor people in incredibly poor countries that don’t exactly regard property rights as sacrosanct. Indeed, the Times article itself grudgingly admits that these facts probably account for the relatively high interest rates microloans often carry.
.
While the Times treats news of industry profits as a shocking revelation, the only thing shocking is its shock. Why else would companies be willing to brave the vicissitudes of shyster governments and deliver capital to tiny businesses at a moment’s notice but for the profit motive?
.
Opponents of microloan companies have an answer to that. The Times quotes economist Muhammad Yunus: “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.” Read that sentence again, because what it denounces is viewing the poor as traders rather than charity cases.
.
Profit is a benevolent force that creates a harmony of interests among all producers, rich or poor–and any attempt to reduce industry profits can accomplish only one thing: to reduce the poor’s access to capital and prevent microloan companies from reaping the rewards they’ve earned.
.

Be Sociable, Share!

Comments are closed.

Leave a Reply

You must be logged in to post a comment.