Moneylenders and thier ways:- shocking

One of the ironies of the financial industry is the fact that the most profits are made out of the poor. Because the poor are seen as a higher risk (ie-they are perceived as having less ability to pay back loans), higher interest fees are charged every time they take out a loan.

My thinking about money lenders is probably a little confused. On a personal, moral level, I dislike the tactics used by money lenders. It's like the money lenders make it a point to keep people in debt. The people in debt are often the people who are least able to be in debt and in the third world, these people often spend generations paying off a never ending debt, which once started out as a simple issue.

But then again, how bad are money lenders, when compared to legal banks? If you think about it, they're doing exactly the same thing, the only difference being that the law is on the side of the banks. Yes, money lenders charge userous interest rates - in Singapore illegal money lenders charge some 20 per cent per week. By comparison, credit cards charge a mere 24% a year.

Having said that though, you have to ask yourself if the credit card companies are really behaving better than the money lenders. The patterns of behaviour are pretty similar. They encourage you to spend beyond your means and use heavy handed techniques to get you to pay up.

Then you have to look at the root of the problem. Why do money lenders exist? The reason is simple - the banks would not touch their customers. The poor actually have very few avenues to finance and quite often the money lender or the pawn shop becomes a viable alternative, even if interest rates are outrageously high. Business is about charging what you can charge and the money lenders charge what they do because they can. There's no competition for their market. In short, the money lender is only behaving as you would expect him or her to behave, given the market they operate in.

Furthermore, many of the people who borrow money from loan sharks and money lenders are actually major financial risk - namely the people who gamble, smoke or have drug habits. I have a personal acquaintance who borrowed money at 20% a week to buy lottery tickets.

So, the key is not throwing the money lender in jail but creating a legal frame work for banks to provide banking to the poor and educational authorities to provide "financial" education to people.

What you say makes a lot of sense and is right. However the part that the moneylenders dont let the people get out of thier debt when they can is outrageous. This policy of thiers is something which I ws trying to highlight. Thanks for posting. Cheers

I think one of the things about debt is that people become quite immune to it or rather they tend to forget that debt is not a bad thing but you must know how to use it. I think the financial industry makes it a point to keep people ignorant about debt so that they can keep themselves in a job. Like you, I think both the legitimate and underground financial system have moral issues in the way they work to keep people in debt.

I suspect the main difference between a bank and a money lender is the method in which they work to keep you in debt. The money lender's techniques are more crude - they have very high interest rates and they use fear an intimidation to ensure you keep paying but cannot get out of debt. The banks are more subtle - they sell you the image of a lifestyle you would like to achieve. You see images of happy people who can afford things because they have easy access to cash. Of course, what they don't tell you is the fact that if you don't upkeep the payments to them, they will take legal action against you and kill your access to conventional funds.

Once again, I may be wrong about this, but I remember reading somewhere which said that banks get very upset with customers that make advance payment on their monthly installment plans (mortgages and car loans in particular) because they lose interest income. It's strange that so much of the modern economy depends on people being in debt.

I am surely amazed by the way you have put it across. Is Finance your speciality.Thanks again

Are you an Economist or something my dear TT? Your elaborateness and richness of ideas has taken away my breathe-Thanks a bunch for the BR!

Mimpi, This is actually a locality in the heart of my city. The sharks have the cops in thier pocket and operate freely. While banks today charge upto 24% on an annual basis (upt 2% on amonthly basis, these guys charge upto 10% on a monthly basis. Five times more the interest rates. Unfortunatley the people who have got stuck, never semm to get out and often have to resort to outside intervention to resolve this. I do fully agree that the responsibility to pay back lies with the borrower, ubt i can't help but feel sorry for them when i see them falling for this trap.

Thanks for the response

You mean per month!? That's shocking! People are being extorted like anything. With no intervention from government and other bodies, this is crude capitalism!
Shocking indeed! I just hope this has stopped now.

Yes Mimpi, 10% a month. Although there were a lot of people who were aware of this and it was brought to the spotlight by the media around the time i started this discussion .But knowing how these people operate, i am sure they would have kept a low profile for sometime and would be back to thier old ways now.

It is indeed extremely shocking.

This is just one secluded case. The possibility of such icidents in the rural places is predominant and I fear the bitter extortions there! Ignorance isn't a bliss!

They exist a great deal too in the rural places, and it's only the lack of it being brought properly into the limelight and insuffecient attention to it by the govt. that allows this practise to go on unchecked.

That's so off putting!

Indeed it is. I do hope something happens about it pretty soon. Can't see the life of people being sucked out in this way.

Echart Tolle. You can download it from mininova.org. I did that.

Sorry, messed up!!

That is ok. Happens

I most certainly agree with your point of view. Place and people who do this need to be checked and stopped.

Thanks