[p2p-research] anti-microfinance movement in nicaragua protests usury
free.market.anticapitalist at gmail.com
Thu Nov 19 20:06:34 CET 2009
On 11/17/09, Ryan Lanham <rlanham1963 at gmail.com> wrote:
> Let's say you start a school in Kenya and borrow 1,000 euros from me to
> start it. At the time of transaction, you sign a note saying you will
> payback 10,000 Kenyan currency units rather than 1,000 euros. The interest
> rate is 20%. So, in simple interest terms, you will payback 12,000 Kenyan
> units over 12 months. In that 12 months, the Euro increases in value and is
> no longer worth 10,000 Kenyan units but 15,000 Kenyan units. You
> nevertheless pay back 12,000 units. The microfinance firm reconverts my
> payments and I receive 12/15s of 1000 euros...thus, a considerable loss.
> You won as a Kenyan if you could by something worth euros that didn't
> depreciate much...like a printing press or a pizza oven. You lost if you
> were just capitalizing stock and it is sitting on your shelves.
> Currency depreciation is a type of inflation. Debters win when inflation
> occurs. Imagine it this way...you lend me gold, and I pay you back in US
> dollars at a fixed current rate. If gold prices increase, I win. The thing
> is, developing world currencies nearly always depreciate.
So it sounds like that 20% interest rate is nominal, and would be much
lower if the rate of inflation were subtracted (same situation with
U.S. interest rates during the inflation of the late '70s).
Part of the problem, though, is that there's an "international
microfinance industry" in the first place, instead of networked credit
being used as a way for local producers to aggregate their own
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