Malcolm,
As ever the reality check and point well taken. Its hard and expensive to lend money. See page 190 of Roodman's Due Diligence. Out of 10 talking a payday loan 3 will renew 5 or more times. I think we can do better. The German credit unions of 150 years ago had a good answer. The Susu collectors of Ghana provide a service at less cost.
Jeff
Jeffrey Ashe
jaashe@aol.com
-----Original Message-----
From: Malcolm Harper <malcolm.harper@btinternet.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Sun, Jan 5, 2014 2:29 pm
Subject: Re: [MFP] proposed changes to South African National Credit Act
Thanks Jeff, words can mean different things to different people.
But I happen to know someone who works in a fairly senior position for one of the 'worst offender' money shop type lenders in the UK. A single mother, immigrant, hard working and clear thinking, she is a good spokesperson for the business. It's not easy. It costs a fair bit of money to lend someone $100 for a week, 'transaction costs', risk costs, and so on, and some profit, never mind the cost of funds, it's hard to see how it can be done for less than ten dollars. "Outrageous, 10% a week, 500% a year", we say, and more if its compounded.
But it's really just a matter of fixed and variable costs; when you rent a house, or a car, there is often a high initial fee followed by a lower per period cost. Why not the same for renting money ? Maybe they should charge nine dollars fixed and a dollar a week to cover the cost of money and risk. The APR, effective interest rate, whatever, would still be 'outrageous' for one week money, but would actually be reasonable. Would the payday lenders accept something of the kind ? Has anybody asked them ?
Malcolm
Sent: Sunday, January 05, 2014 6:36 PM
Subject: Re: [MFP] proposed changes to South African National Credit Act
Malcolm,
Good point. However you cut it a lot of money to service debts. Should be interesting to come up with a workable, low cost, scaleable alternative. Getting financial institutions to reform insanely profitable products is difficult as the efforts to reform the banking industry in the USA has shown.
Jeff
-----Original Message-----
From: Malcolm Harper <
malcolm.harper@btinternet.com>
To: MicrofinancePractice <
MicrofinancePractice@yahoogroups.com>
Sent: Sun, Jan 5, 2014 1:27 pm
Subject: Re: [MFP] proposed changes to South African National Credit Act
Thank you Jami, interesting, maybe the UK government (and others too) could learn from what the SA government is trying to do. But 'disposable income' can be defined as what is left after paying taxes, or as what is left after paying for essentials such as food, housing, utilities and so on. It would be interesting to know which of these two meanings was intended in this article.
Malcolm
Sent: Sunday, January 05, 2014 2:12 PM
Subject: [MFP] proposed changes to South African National Credit Act
fyi article contains from very interesting stats from South Africa which you may recall has the credit legislation in place that bans 'reckless lending,' which is apparently easier said than done because they give the stats that 76% of consumers' household disposable income is being used to service debts, and more than 20% of credit active population (estimated to be 20m persons) is more than 3 mos. in arrears on loans.
Best,
Jami
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