
Perpetual Debt in the Silicon Savannah - huihuiilly
https://bostonreview.net/class-inequality-global-justice/kevin-p-donovan-emma-park-perpetual-debt-silicon-savannah
======
coldtea
> _Kenyns were the first to benefit from digital loan apps–now they call it
> slavery_

That's like saying: "Kenyans were the first to enjoy cigarettes, now they call
them harmful", and wanting to imply that they are somehow hypocritical or
crazy to do so.

Just because you run to adopt something, doesn't mean it is good for you. You
might find out that it's cancer (in the case of the cigarettes) or slavery (in
the case of the digital loan apps).

The word "benefit" in the title is a weasel word, that presupposes what the
article should instead prove. They might had first used such apps, but whether
they "benefitted" from them, and even more especially, benefitted long term,
remains to be proved...

~~~
wutbrodo
> wanting to imply that they are somehow hypocritical or crazy to do so.

There's no such implication in that line, especially in the context of the
rest of the article, unless you're straining for a reason to be offended.
"They did it first" reads just as easily as "they have more experience with it
and this is how it developed over time for them".

~~~
coldtea
> _" They did it first" reads just as easily as "they have more experience
> with it and this is how it developed over time for them"._

Only, as I already pointed out, the title is not merely "they did it first",
but that they were "the first to benefit".

~~~
wutbrodo
My point didn't hinge on what the "it" in "they did it" was.

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033803throwaway
The Kenyans are right.

What they need is money, not loans, and, in particular, not loans against
consumption rather than production, which is what broadly available credit
inevitably devolves into. (Look at college loans, which started off ostensibly
as an investment in productive assets and has devolved into financing four
years of heavily curated consumption followed by crushing student debt.)

Even loans against production are dangerous and eventually lead to debt
peonage and wealth concentration, as we have seen time and time again, from
roman times onward.

The problem is usury, and there is a long, historical argument about it that
is completely ignored in the west. This is because history is written by the
victors, and the usurers won. We are all usurers (or aspiring usurers) now.

~~~
saas_sam
Don't downvote me here please. Honest question. If you want some of my money,
and I am willing to give it to you if you pay me back with a little extra due
to compensate for my worry that you'll not pay me back... what's wrong with
that? Why am I a bad person for agreeing to it?

~~~
samschooler
So you’re not a bad person. If you design it like a bank, charge a reasonable
interest rate, deny people you know can’t pay you back, and give up on getting
a return on people who legitimately can’t pay you back for unforeseen reasons.
That would be fine.

But what these companies are doing is essentially giving a loan to anyone, at
an incredibly high interest rate, to pretty much anyone who applies. If they
can’t pay back, they keep increasing interest, charging fees and if it get
really bad, they will make claims on the victim’s future wages.

You’re a bad person if this is how you do it.

~~~
zornado
The high interest rate is for the high risk. If anyone who could qualify for a
lower interest rate, wouldn't go and borrow at the higher interest rate.

~~~
ohazi
High interest is only for high risk when the lender is forgiving more of their
loans. That's the risk - too much forgiving means they need to make up the
difference with a higher rate for the fewer people who do pay it back.

The parent is arguing (correctly) that you can't have both high interest rate
_and_ a low/zero rate of loan forgiveness while claiming to be ethical.

~~~
ryan_j_naughton
That's treating delinquency and default as the same thing. Even if your debt
isn't forgiven, if you repay late, then the present discounted value of that
future money is worth less to the creditor than had it been paid on time.

Tala, Branch, and all these fintech firms are taking out debt themselves in
order to lend to these individuals. Thus, they are paying interest. If you are
late in your payments, they are floating you on their debt lines for longer.

Thus, even without loan forgiveness, a higher interest rate make sense to
account for the risk if delinquency.

Secondly, even if they don't forgive the loan formally, internally it will
eventually be taken as a writedown. You can default on a loan and they never
get the money back without loan forgiveness existing. That again affects their
rate of return and thus needs to affect their interest rate.

If instead they shouldn't be allowed to charge above a certain interest rate,
then that will internet come with denying credit to a lot of the population.

People always want to have it both ways: don't discriminate against poor
people by denying them credit but don't charge them the interest rates that
are required to offer them credit. It's why people simultaneously complain
about how sub-prime was predatory but also complain that the banks aren't
doing enough to get low income people into home ownership. You can't have it
both ways.

I'm not saying that there shouldn't be regulation limiting the types of loans
allowed, interest rates, etc. Uneducated people in developing countries are
probably not the best rational actors when it comes to making complex
financial decisions. Some regulatory paternalism (and even libertarian
paternalism by the govt through forcing clearer information on loan terms) is
definitely warranted.

My point is fundamentally you can't have it both ways. Interest rates are a
reflection of risk. And the result would be denying people access to financial
services. We should be honest ourselves about these tradeoffs instead of
pretending we can simply have our cake and eat it too.

There is only so much philanthropy money from the Gates Foundation, World
Bank, etc. The rest of the capital to fund development ultimately comes from
the private sector wherein there must be a sufficient return on that capital
to justify its use in that scenario. Otherwise, the capital will simply just
go elsewhere.

And again there could be other solutions. A massive overhaul to tax policy
worldwide could provide a massive new source of capital to solve the problems
of economic development. But I'm not holding my breath for such changes in a
world where the super rich have only become more adept at tax evasion.

Disclaimer: I worked in online lending at Avant. I know some of the Tala guys
as I live in Santa Monica. And my wife works at the World Bank in
international development.

~~~
human20190310
> The rest of the capital to fund development

The article mentions "...high rates of borrowing on weekend nights as evidence
that loans are marketed and taken in moments of inebriated revelry."

Assuming that's true, and considering all the data these fintech operations
are collecting, surely they can't believe they're funding development rather
than consumption.

~~~
wutbrodo
> high rates of borrowing on weekend nights as evidence that loans are
> marketed and taken in moments of inebriated revelry."

Is it evidence that they're marketed as such?

------
gumby
> For ages, friends, family, and colleagues have lent and borrowed from each
> other, but what differs today is a lack of reciprocity. In peer-to-peer
> credit, everyone is eventually likely to be a debtor and a creditor; terms
> can be reworked according to timelines and margins that are subject to
> negotiation. In contrast, the fintech industry envisions ordinary Kenyans as
> first and foremost borrowers, leading many Kenyans to describe their
> predicament as a form of servitude

Is it any different in the USA?

~~~
jalgos_eminator
Many parents give their children money, but I think its most often just a
gift. Other than that, I have never heard of anyone lending more than $100 or
so to another person that isn't in their immediate family.

~~~
scarejunba
Expat Asian families do this a lot because the relationship is buttressed by a
secondary relationship in the old country. It's not uncommon to see Indian
tech workers lend each other six figures here in the Bay Area.

A friend just got his downpayment from his friends.

~~~
novok
In the USA? Often they don't count those gifts for mortgage downpayments
unless you are blood related.

~~~
scarejunba
In the Bay Area and it does work. Don't know if that's changes recently. I
observed three years ago.

------
Simulacra
Debt is the same no matter where you go. You borrow, you pay, and if you don’t
like the terms, borrow from somewhere else. You can’t eat your cake and have
it too.

~~~
dumbfoundded
These are unregulated payday loans. They only exacerbate a troubling
situation. It turns desperation into debt.

Debt only really seems to work as an investment or to solve liquidity issues.
The problem sounds like these debtors never had investments they were looking
to finance or wanted liquidity for capital assets. They are just poor people
who struggle to get by.

You may criticize someone for going to debt in such short term thinking but
it's hard not to empathize. If you were about to be homeless or go a day
without a meal, would you take a loan?

------
cptroot
It's worth noting that these are predatory lending apps, not microfinance
loans from places like Kiva [0].

[0] [https://www.kiva.org/about](https://www.kiva.org/about)

~~~
UnFleshedOne
Last time I looked into kiva, I found it was not doing the last mile lending,
and companies it was using for last mile charged big interest. So charity
provided original capital, then local sharks distributed it further. I guess
it is a nice job creation program (for the loan sharks).

------
bobloblaw45
Something interesting I learned was one of the lesser known things that's good
about America is how easy it is to wipe your hands of insolvency. Bankruptcy
is often seen as an "end of the world" type of situation but in the grand
scheme of things it's really a new beginning and a chance to try again.

It's interesting after looking it up that Kenya passed some sort of
"Insolvency Act" in 2015 which did some bankruptcy reforms. It apparently made
it more difficult to qualify for bankruptcy which might explain what's going
on here.

------
DoreenMichele
This is akin to how homelessness causes social death.[1] Poor Kenyans are seen
as a debt market, not whole people who both can and need to contribute
productively and get money back for their efforts.

This is why I'm against UBI. This is why I'm trying to figure out how to help
poor Americans, including homeless Americans, access ability to earn an
income.

This is why I'm trying to figure out how to start a pilot program in my small
town, which has a huge homeless problem for such a tiny berg.[2]

I don't know how we solve it globally, but I can see a path forward for some
portion of the problem in the US. I just don't know how to get buy-in.

[1]
[https://streetlifesolutions.blogspot.com/2019/09/homelessnes...](https://streetlifesolutions.blogspot.com/2019/09/homelessness-
as-social-death.html)

[2] [https://streetlifesolutions.blogspot.com/2019/08/a-small-
tow...](https://streetlifesolutions.blogspot.com/2019/08/a-small-town-with-
big-city-problems.html)

------
pinkfoot
"necessary contributions to extended kin networks"

There is the root cause. Its simply not mathematically possible for a single
salary in a competitive global economy to support more than an immediate
family.

~~~
ryacko
It is possible to save money without spending it.

Potatoes are still available, eggs are still available. Buying the cheapest
available food, buying devices used, etc, can allow people to live an
uncomfortable but low time preference life.

------
alephnan
> sometimes as much as 100 percent annualized.

Is APR normalized for the inflation rate ?

------
kevin_b_er
Nothing's changed. The usurers aren't better because they're app based.

