Failed Micro lending Sectors and Possible impact to the Economy
I might be accused to being a prophet of doom. This article should only be used a precautionary piece to ensure as a country and continent we do not commit the same mistakes that have been committed before in other countries and regions. I want to assure you the consequences of a failed micro lending system are ruthless.
A failed micro lending sector in one line; will erode TRUST which is the main pillar for personal, family, professional and any other kind of relationship.
Credit goes to Milford Bateman, Visiting Professor of Economics at the University of Juraj Dobrila, Pula, Croatia , who informed my opinion through his great article on Lse.ac.uk
Milford writes about the tragedy of microcredit in Bosia (New Balkan Tragedy? The Case of Microcredit in Bosnia. Published 2014)
Jumping from poverty into debt
Is it true the micro credit facilities are addictive? Do you use micro credit service? Do you have an outstanding loan at Branch, Tala, Mshwari, Jisort ?
Of course you are in charge of your own finances, I don’t doubt that; but do you remember any 4 month period that you didn’t borrow after getting started on these services..?
We say they are addictive – that is why it is hard to go for 6 months without getting a small ka-loan from these providers.
How about these services dent your financial position – the more you borrow the bigger the hole – even though you always pay.
Elsewhere, research shows that 28% of all Micro credit clients were found to be ‘seriously indebted or over-indebted’, of which around three-fifths of these were in a situation where their monthly repayment exceeded their total household disposable income.
Nearly 60% of borrowers were found to have more than one microcredit account outstanding.
Shocking 9% having more than five microcredit contracts outstanding.
Whenever borrowed sum are used for consumption and not gainful productions it created poverty.
Let’s just follow the economists – they know more
Some economists believed in this Say’s law (supply creates its own demand), a few have differed and on this particular case of micro credit I differ. It is expected Micro Credit Services to credit numerous informal enterprises and entrepreneurship in the market and therefore creating a lot of employment. This line of thought was led by founder of the modern microcredit industry, 2006 Novel Peace Prize laureate, Dr Muhammad Yunus. Yunus’s misunderstanding here is on record with his famous claim that:
[a] Grameen-type credit program opens up the door for limitless self-employment, and it can effectively do it in a pocket of poverty amidst prosperity, or in a massive poverty situation.”
This could be correct, but in an idealistic world. In our world it’s different, otherwise its more than 3 years since Mshwari and Branch launched, we’re supposed to have at least a million enterprises due to increased micro credit supply. How much of the borrowed micro credit funds is used for business functions – very little and therefore how do we expect a growth where there is no investments.
We are living the better times – unending job creation
Could we soon start see start see effect of job churn..?. In Bosnia this happened really fast – will this happen in Kenya and Africa.
Could this be true, Micro credit services are busy killing our young enterprises – contrary to the popular belief of micro credit accelerating growth of young enterprises.
Young enterprises have been somehow surviving even before the emergence of microcredit – of course it is tough, they have been moving from one paycheck to another.
Don’t you think that this experience (tough experience) is special in creating tomorrow’s giant enterprise? The tough experience teaches frugality which is a priceless quality in business.
The business and all involved persons including employees get to understand that consumption come after production – a month of zero sales means a month of zero remuneration.
Micro credit services soon changes this – when a client delays some check, – just borrow and process the remunerations and other bills – in any case you will pay as soon as the client pays.
Over time the young enterprise stop moving from paycheck to paycheck but from a micro credit facility or overdraft to overdraft. – is this sustainable..?
Of course we believe a good day is around the corner, when we can clear all the debts and stay off debt. What if in the middle of this borrowing cycle something unfortunate happened and the enterprise is unable to settle the micro credit or overdraft facility – death will come in the morning.
Surely the thought and appearance of unending job creation is an illusion.
Get milked and Sell out the Trust
In Bosnia, Bateman notes that huge payment packages for Micro Credit bosses and their investors created a picture that micro credit is ploy by the rich to get richer.
Let’s look what is happening here.
Several micro credit services including Branch, Tala, Haraka are internationally owned, they are heavily funded from low interest, low tax haven countries. – Direct foreign investments we boast.
How do they spend their investors’ funds – after obtaining cheap funding have they cut the lending rates..?
They would rather spend more money to ensure you are hooked to the service at those high interest rates.
They have always been keen to ensure there are no new entrants to the market who would drive the competition and lead to lower lending rates – what is evil about this – this is business.
Does the economy gain from these high returns by these internationally owned and registered Plc companies? – Of course not – they pay no tax.
Shareholders are laughing all the way as the milk the cow as long as the milk last. As soon as our Kenyan and Africa market will have nothing to offer these international money men will relocate to a new market leaving trouble and problems for population that sold out its trust.
Is it true you were borrowing and paying small monies from family and friends before you discovered Jisort, Mshwari, Branch and Tala?
Why should you beg people for money – while you can just install an app and access instant monies?
One sport bet company in Kenya has close to 20 percent of Kenya population as their esteemed clients.
Getting started on betting platforms has never been easier, just borrow from Jisort, Mshwari, Tala and Branch and start betting.
Isolated cases of sport betting jackpots have driven an entire population nuts – all ages, all genders are now betting. What does this do to the spirit of hard work and productivity in the economy?
Is this sustainable..? How long can we survive this..?
Primitivization and Juakali-zation of the Economy
Just like Bateman highlights growth of microenterprise may not result to sustainable development, the contrary is possibly true.
Sustainable development require scarce financial resources being channeled to the highest productive applications such as enterprises with great efficiency coupled with technology and high level skills for highest possible productivity.
Most application of micro credit is into activities of low productivity in the economy.
Micro credit encourages informal microenterprises and self-employment ventures which lead to disindustralizations, informalization, primitivitaziton of our economies.
Kenya is already becoming a one man guitar economy – everyone can do a bit of something and no one can do anything serious
Good Morning Kenya, Good morning Africa.