tag:blogger.com,1999:blog-8165892822285174098.post3882765799236991918..comments2015-12-28T09:38:31.267-05:00Comments on Change Charity: Profit From the PoorJeff Raderstronghttp://www.blogger.com/profile/15026834425072998182noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8165892822285174098.post-58795993566047097202010-05-06T13:46:33.958-04:002010-05-06T13:46:33.958-04:00Adam,
You make a good point. The assumption of &q...Adam,<br /><br />You make a good point. The assumption of "perfect information" is a pretty hefty assumption. As is in the case with sub-prime mortgages, regulation is good when suppliers fail to be up front with their interest rates and what else is out there.<br /><br />I think the argument against regulation on microloans is that it might actually take a very high interest rate to maintain a MFI in certain areas. Closing out high interest rates might close out MFIs, which could still be offering lower rates than the other alternative, like loan sharks explicitly extorting the poor.<br /><br />But, those MFIs could also be extorting the poor and only undercutting the loan sharks by a small amount, reaping high profits. You can't really blame them for this, as they are offering a better service, just not the best. In an ideal world, more MFIs would show up and keep undercutting until an affordable rate is set, but barriers to entry in emerging markets prevents that from happening. <br /><br />So, I think the answer to these questions is: It's complicated. You will have to look at each MFI on a case by case basis. Some oversight is probably needed, (not necessarily regulation of interest rates), to ensure that Goldman Sachs-like MFIs don't start preying on the less-informed.Jeff Raderstronghttps://www.blogger.com/profile/15026834425072998182noreply@blogger.comtag:blogger.com,1999:blog-8165892822285174098.post-58671873256885391562010-05-04T16:29:15.179-04:002010-05-04T16:29:15.179-04:00My question is, when people take out extraordinari...My question is, when people take out extraordinarily high-interest loans, do they know that that's what's going on? And do they know of alternatives that may be out there?<br /><br />Think about the subprime mortgage mess in the States. Some argue that these mortgages increase housing opportunities for lower-income borrowers, which is a good thing. In a free market, people will choose the product (or in this case the loan) that fits within their budget and is best for them.<br /><br />But if the person doesn't really know what he/she is getting into, how can he/she make a decision about what is best? For example, if a person thinks she is taking out a loan with a 3% interest rate but doesn't realize that rate is going to balloon to 10% later on, can she really make an informed decision about whether that loan is a good product?<br /><br />The same is true for a microloan- do customers know what they're getting themselves into? If so, companies should be able to maximize their profits off of those loans. If not, high-interest microloans are just another subprime mortgage-esque scam designed to profit from ignorance. That's not what the "free market" is supposed to be about.Anonymoushttps://www.blogger.com/profile/04022464974936649600noreply@blogger.com