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Microfinance as a game of exploitation
  Business      Economics      Ethics      Innovation     Expert Nonprofit    

Muhammad Yunus won the Nobel Peace Prize in 2006 for his work in microfinance loans. Investment loans were given to poor people with no assets who otherwise do not qualify for for credit. Today nobody talks of these loans as salvation of the poor anymore. The internet site microfinanceschool.com wants the viewer to reflect on this tool against poverty. The idea of giving people loans as means to realize their business idea sounds logical, but loans always come with a price. A client must never forget that loans must be paid back with interests and that there is never a guarantee for success. But in pursuit of prosperity there are always temptations. Creditors can get rich of their, clients and clients can run away from their commitments. When moral fails, the question remains: Who will exploit whom?


The monetary source of the microfinance loans have different origins. Wealthy contributors donate aid to be channeled into these loans. This type of aid does need to have the ambition of accumulating a profit. These microfinance aidcreditor can therefor keep an artificially low interest rate and even accept loss. When they do the difference between loans and aid become blurry. Not claiming a loan repaid is money donated to the good of the client. On the other hand, and in an unknown magnitude, there are the private creditors that operate in the same market as Yunus who has been accused of profiting off the poor.


Local and private entrepreneurs take up loans themselves and redistribute the money into loans to those who do not qualify for credit anywhere else because of their lack of assets. These entrepreneurs must pay their own loans and interest. They calculate with profit margins and need to have their own expenses paid. How is this done? There are two possibilities. The first is to reduce risk by having higher interest rates on all loans given. This way one missed payment by one lender is covered by the payments made by all those who pay. In this way, people with the least amount of money and the smallest chance of repaying is given the highest interest rates. The second way to retain the money is through force. The transformation of a good deed to become shady business is not necessarily long. People who has lost everything in bad investments are easy targets for those who choose to use force. Success in business is not only hard work. It is also dependent on luck.


Economic prosperity comes with risk. The clients' success depends on factors that can not be controlled or fixed. Education and training can reduce, but never eliminate the chance of failure. Demand and profit is not guaranteed, but they are necessary to pay back loans and interest rates. Clients' investments can fail and they can fall deeper into poverty with each missed payment. With no means to pay there is no way out of this economic catastrophe. With no way to pay the loans, running away from the creditors becomes a highly considerable possibility. Hiding from creditors depends on the creditors will to get his money back. Who gives up first, creditor or client?


Microfinanceschool.com presents success stories and failures. The financing of a business by money belonging to others must go one of the two ways. High rates to people without assets sounds like a script for a Hollywood gangster movie. The slippery slope can easily be exploited. If the aidcreditor will not put force behind their claim, why pay back at all? If the lender can not pay back his loan, how much force is necessary for him to do so? Will the lender exploit the client or the client exploit the lender?


Microfinaceschool offers shortfilms concerning different issues of microfinance. Visit the site to learn more about the facts and issues of this financial service.

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