September 10, 2009 • 27 mins
Microlending is a practice that provides funds for entrepreneurs in developing countries who couldn't normally get loans. Tune in as Josh and Chuck discuss the pros and cons of microlending in this podcast from HowStuffWorks.com.
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Speaker 1 (00:00):
Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you welcome to Stuff you Should Know
from House Stuff Works dot Com? Hey, and welcome to
the Josh and Chuck Electric freak Out featuring the Matt
(00:20):
guest producer Mad and standing in. You may also know
it as Stuff you Should Know Matt of Lions and
Scissors and Playing Soon. They have a MySpace page Red Chuck. Yeah,
we plugged it before. Yeah, so we're not doing again,
which I think we just did that, buddy. That's all right, Chuck. Um.
I don't know if you're paying attention or not, but
(00:40):
the United States pretty much dominated the twentieth century and
every way you can see what USA USA exactly that
that was chanted quite a bit. Remember Rocky Oh yeah,
beat the Russian guy? Yeah? Um that was just one
accomplishment of minute four five Rocky four right. Um? So yeah,
(01:00):
we we uh successfully fought just about every war we
engaged in. Our economy just thrived. Did you know that
the per capita GDP and nineteen hundred for the United
States was four thousand, ninety six dollars? Not bad by
nine It was nine thousand six hundred seventy one dollars
(01:21):
doesn't seem like that much of an increase. I think
about the population increase. So actual g d p UH
in nineteen hundred was twenty eight point six billion dollars.
In nine it was nine point to six eight trillion dollars. Yeah,
So basically we rocked the hissy during the twentieth century.
Right now it's two thousand nine. We're engaged in land
(01:44):
wars with insurgent groups in Iraq and Afghanistan, and I
guess you could replace engaged with mired maybe. Um, the
the dollar is being abandoned or considered being abandoned as
the universal currency in favor of a back skit of currencies,
which spells trouble at cornucopia. Yeah, that's another way to
(02:05):
put it, buddy, uh. And our housing market caused a
worldwide financial collapse, so America is not quite as bright
as we used to before. We get tons of emails
saying it wasn't just that it was um with it.
So this is this has caused a lot of people
to wonder whether the turn of the twenty one century
(02:27):
was actually the end of the American century, you know,
especially with the rise of Brick, Brazil, Russia, Indian, China,
and specifically India and China. Their enormous development has made
people think, well, China is the next United States. Right, Well,
I know everyone always thinks that it's hard to not
be in the moment and realized that the greatest civilizations
(02:49):
always fall at some point. Sure, it's gonna happen. I mean,
it may not be anytime soon, but fast forward a
thousand years and America might be a barren waste land
like the Matrix or something was there? Was it a
barren waste lane. I don't remember when he showed him
on TV and it was this, you know, destroyed Madison
with the general consent. This is the real world, that's right, Yeah, yeah, yeah, yeah. Anyway, Um,
(03:13):
but we'll well, we'll have our day. I say, I'm
with you. I say that the United States century, the
American century, is not over yet. I agree. And the
reason why is I think that during the twentieth century,
the American dream this this idea that everyone has an
equal shot at um pursuing his or her own goal
(03:35):
under the free market capitalist system, which is not true,
but it's a nice thought, I think. But I think
that thought the American dream, whether it's possible to realize
it or not, was so successfully packaged that it was
able to be exported to the rest of the world.
That kind of caught up. Have you ever heard of
Thomas Friedman's Golden Arches theory of conflict prevention didn't have
(03:55):
to do with McDonald's. Yeah, then I have heard of it.
So yeah, the the the back four I think the
Balkan War, uh no, two countries that both had a
McDonald's engaged in armed conflict against one another after the
point that both of them had the McDonald's until until
the Balkans because they were pretty stoked about their fries
(04:16):
and their big Max. You could say that. You could
also say that cause correlation does not prove causation. But
still it's pretty interesting and it makes a good point
that it's a symbol actually more than anything. It is
just like a coke machine. Like you can find coke
machines in the most remote countries areas of the world,
and you can say that that's basically your exporting democracy
through successful capitalism, right, happy juice. That's also going on
(04:40):
right now, that that continued export um with this thing
called micro lending that's the longest s up we've ever done. Yeah,
but dude, it was good. Yeah, micro lending is pretty cool.
It's a good article, dude, Thank you, well done. Thanks
a lot, buddy. So Josh, as you know because you
wrote it. Micro lending doesn't necessarily refer to the size
of a loan. It's not necessarily itty bitty loans the
(05:02):
size of the loan. It's how you use it, right,
It's a that's actually very true. Thanks. Um. It's uh.
It refers to the the qualifications of the borrower, right,
although it usually is a small loan. Right. One of
the big flaws in that American dream, that capitalist free
market system where supposedly everybody has an equal opportunity at
obtaining success that their own hard work, is that you
(05:25):
usually need startup capital. Right, even if you're selling hot
dogs on the street, you gotta buy the car. You
gotta buy the dogs. Like my bloody Mary stand last
year at the golf tournament. I was not there for that.
I invited. I had to to my front yard. I
had to invest in the Oh yeah, that's the one
where the cops came and busted it up. I lost
(05:46):
all that money that I invested in the bloody Mary.
That's what happens when the fuzz turns up. But startup cost, sure, yeah,
the thing is is where do you go for startup costs?
Generally go to a bank, and well, banks are run
by capitalists themselves. They're looking to turn a buck, of course,
so they have certain criteria that people have to meet
to to to be accepted for a loan application, right, right,
(06:10):
So the problem is is that there's huge masses of people,
generally the working poor, who are usually excluded from this.
They don't have collateral course not um, they might not
have an education to back up this entrepreneur, probably credit
history or loan history. So they're not meeting the criteria,
they can't get the loan, and therefore they can't obtain
self sufficiency through their own hard work or achieve the
(06:32):
American dream. It's a it's a flaw, it's a caveat
to that that system. Right. So what micro lending does
is it kind of fills that gap between these excluded
groups and self sufficiency by loaning to people who I
put it in the article that traditional lenders would consider
are are mindlessly risky. You know, these loans are mindlessly risky.
(06:56):
That's why a dude like Muhammad units Is deserve the
Nobel Peace Prize. Yeah. Time you News is a Bangladeshi
economist who founded this micro lending institution called the Gramin Bank.
Can I read his quote? Yeah? I love it, man,
it's inspiring. Uh. He said, if banks lent to the rich,
I lent to the poor. If banks lent to men,
(07:16):
I went to women. If banks required collateral, my loans
were collateral free. Here's your Nobel Prize. He also lent
to the illiterate by by not having too much paperwork
and poverty rural areas, rural areas where there were no banks.
I mean, like, think about how little access you have
to start up capital if there's no bank anywhere near you.
So he sent people out to these villages to sign
(07:38):
people up for loans. Um. And he did it pretty aggressively,
but aggressively in the favor of these other people, rather
than aggressively to make money himself. Um. So he found
Gramin Bank, I think in the nineties, and it's actually successful. Yeah.
I love the business model. It's so cool. Yeah, just
(07:58):
the whole thing you point it out about the what
he counts on to get the loan repaid is um
almost like honor. It is in traditional societies. There's a
lot of there's a lot at stake with a good name,
and when you borrow money, you're putting your good name
on the line, which is how you got the money
in the first place, usually your family name. So if
(08:19):
you don't repay it, you're basically knowing your your whole
family's image. Right, so that no, it's people'll be like, hey,
thanks for the money, so long chump. Yeah. Um, So
they use social pressure, the traditional social pressures that are
already in place to ensure loan repayment, right, which happens
(08:40):
on a weekly basis. Is that correct? Yeah, people make
weekly repayments because it's usually much more affordable. And the
do the bankers on bikes. I love that these guys
ride around bicycles and visit them and they give them,
you know, their little payment for that week. Yeah. They're
they're collection agents and they'll have maybe several in each village. Right. Ever,
so these people are also these people's neighbors. But they're
not like threatening collection agents, not necessarily. I don't think
(09:01):
with Gramming Bank it's very threatening. Um, but yeah, So
imagine a guy who's a collection agent that's also your
neighbor who works for a lending institution that you borrowed from,
showing up at your front door every week in a
society where you're good names on the line, you're gonna
make those repayments. And it's successful. Actually, um, not just
Gramming Bank, but across the board with micro lenning in general.
(09:24):
They have a ninety seven percent rate of repayment, which
is which seats traditional banks. It's proof that it works.
It is proof that it works at the time. So
let's talk about how it works. The you know, Gramming
Bank and other micro lending institutions aren't running around and
just grabbing like you know Pedro and and um Showshana
off the street. These are just two names that came
(09:46):
up with about searching. They don't grab them and and
say hey, here's some money, take some money. You know,
these people actually have to have you know, business plans
or at least ideas of what they're going to use
the entrepreneurs without an opportunity basically, and so what it
is is they're funding people in developing countries, which, as
I said before, is kind of an extension of the
(10:07):
entrepreneurial spirit that the US has founded on, and it's
happening overseas now, right, spreading a little bit a bit
of that capitalist love worldwide, which is love love. So Chuck,
like I said, let's talk about how it works. If
you wanted to go and and and make a loan,
how would you do this? Would you go to Gromming Bank,
fly to Bangladesh, go here's some money, give this to
(10:30):
this person. You need to get alone and get the
plane ticket though, right, yeah, now you would go online.
Um is one way to do it. And I like
the model used that. Well, there's two ways. There's the
not for profit model, in the in the profit model.
But should we talk about kiva dot com first? Yeah,
that's a good one. That's the not for profit model, correct, right,
And basically you you will present your business plan as
(10:50):
an applicant UH from places like Lebanon, Tatzikistan, Molly, all
over the place, all over the place. Nicaragua has a
lot of people on there. And then there's users on
the other end that that sign up and actually contribute
toward this loan UH and good faith that you have
a ninety seven percent chance of getting your money back
(11:11):
with no profit attached. But it's it's a good will
gesture and basically they people contribute as little as twenty
five dollars until that loan amount is uh full. Right,
So it'll be like you know, somebody's picture, and then
like the name of their business, and then like what
their business does. It's like adopting a person in a
foreign country, very much like that actually, and you're kind
(11:32):
of you're kind of adopting their business temporarily, right. So,
so it'll also have a description of what they plan
on using that specific loan for. Right, So it'll be
like maybe purchasing timber for resal er um, purchasing agricultural
supplies like seed or whatever. Um, And it has like
a little bar and it has the loan amount, the
total what they need at the end, and then it
(11:53):
will fill up as people contribute, So a lot of
different people can contribute to a single loan. Then it
reaches add percent. And in a lot of cases that
a site like kiva um will use a third party
lending institution like maybe Gromming Bank in Bangladesh, but a
local community bank usually actually issue the loan, right, Yeah,
(12:13):
you can't just send him a check because they wouldn't
have anything to do. You know, sometimes they do. Sometimes
some some sites actually do issue um these loans themselves,
but for the most part, they'll they serve as a
intermediary between you or I who's contributing our money and which,
of course which we could though, I'm just kidding. Um.
(12:34):
And actually, the cool thing about Kiva is that you
can contribute as little as twenty five bucks. I'm gonna
sign up for this and also check. They have gift
certificates too, So the cool thing about the gift certificate
is is like, let's say you give a gift certificate
to me, and what you've done is you've made it.
You bet her do this. Um, you've contributed twenty five
(12:54):
bucks basically in my name to this this Whoever's business
in Nicaragua. Yeah, and I get the bucks back, I
don't think so, Okay, if you do your cheap bastard um.
The distinction is that you don't get any extra money back. Well, no,
(13:15):
there's no interest return on your investment. No there isn't.
But these people are paying interest the average uh, the
average interest on a micro loan worldwide. It's about does
that just keep the whole thing afloat is that what
they use that money for. Supposedly. We'll get to that
in a second, because there's actually criticism of micro lending,
believe it or not. So that's the not for profit
(13:36):
when it's really just a socially responsible investment where you
can usually expect to get your full amount back but
not any interest. Then there's the for profit model, right yes,
like micro place dot com that's pretty much the that's
on par with Kivas like those are the two big
micro lending sites. And this isn't a bad thing because
people are trying to make a profit and it still
works out great. They get their money and um, you
(13:58):
can get a yield as high as five percent it
which I was reading an article and some guy was saying,
compare that to c ds. You know, you you get
a CD. That's that's giving you three percent interest. You've
got a great CD right there. And a CD doesn't
give some poor Bangladeshi a leg up, No, it doesn't
his petticab business, although there are If you have UM
four oh one k and you start looking around, more
(14:18):
and more investment banks are creating mutual funds that loan
to micro lenders like grab me bank, that kind of thing.
A personal story about this, actually, I want to hear it. Buddy.
You didn't know this, did you. I worked on a
I did a voiceover for a friends documentary he did
about the tsunami survivors and he works for a nonprofit
agency like missionary work type thing, and I did the
(14:41):
narration for it. And one of his uh, one of
the guys he focused on like four different stories. One
of his stories was a guy who had a petticab,
you know the little bicycle cabs, and he got a
micro loan I don't remember who it was from after
the tsunami to buy a second and third petticab, and
then the money he got from that, he opened a
little or like a little small hut store. But the
(15:02):
dude was able to build a house and like restart
his family has lost his whole family. He met another
woman and they ended up having kids and just like
the coolest story. And I don't think he had to
borrow more than like a hundred bucks or something. Man, Well,
that's that's a point. Actually, um bucks. I think in
the article I compared it to the the Peruvian sola
(15:24):
um so twenty five bucks. On August two thousand nine,
when I wrote this article, the exchange rate was I
think seven U s dollars to seventy three Peruvian soul as, right,
So I mean if you if if somebody gets a
thousand dollar loan, that's almost three grand and soul as,
which that's a that's a ton of cats. You can
buy a lot of timber in petticabs. I have a
(15:47):
personal story about micro lending. Really, I borrowed some money
from my dad once and I still have an outstanding balance.
Is how your leg is broken? Yeah, well my thumb.
And that's funny. You should bring that up, my friend.
That was a great set up. You may notice that
this is actually it bears a striking resemblance to loan sharking,
which still exists in a lot of countries. And actually
(16:07):
I read that micro lenders are starting to give loan
sharks a run for their money because there is no
attendant threat of violence driving the amount of business, and
their interest rates are much much lower. Yea, what is it?
I looked it up. Actually I couldn't find what a
loan shark rate might be. Oh often like a thousand
percent three Yeah, just astronomical amountain. Yeah, and you you
(16:28):
will have your legs broken. Yeah, yeah, they don't. You
know Mohammed Unus he won the Nobel Peace Prize. He's
not really into late breaking, I don't think anymore. And
you can tell look at him. Did you see him
in the article. He's got his little Nahru jacket on
and he just looks like, you can trust me. I
helped the poor. Here's go build a business. Yeah. So yeah,
that that that little amount that you contribute really has
(16:50):
a huge effect in the developing world, right right. Um,
so that's pretty much the nuts and bolts of how
it works. Like I said, there's mutual funds, right and supposedly, um,
it actually does have an impact a lot of people.
As we were saying that export of capitalism of the
(17:10):
American dream. Yeah, I like to tie you made there
or that other people have made that you highlighted. Well,
there's a there's a theory that um globalization prevents war
that hasn't been fully panned out yet. A lot of
people thought that that the interdependent economies of the nineteen
twenties and thirties would prevent war, and we still had
World War two. Um, so that's that that that kind
(17:34):
of undermine that I personally think that we just weren't
at the stage of globalization yet that we are now,
and that I think globalization can prevent We're just because
money Trump's ideology any day, Especially if you are in
such a position of power, um that you are commanding
(17:54):
armies or economies or nations or whatever you're You're probably
gonna go with your economy over idea. Right, I got
another quote from your own article. Well, this kind of
backs that. This is what the Nobel Committee said when
they awarded units the prize and oh six lasting piece
cannot be achieved unless large population groups find ways in
which to break out of poverty. And dude, that's pretty succinct. Yeah,
(18:18):
a lot of people were surprised when UNUS won the
Nobel Prize. Yeah, but how can you break out of
poverty is by getting a microlone starting own business. There's
a there's another theory that um poverty or terrorism is
bred by poverty rather than um religious ideology or dogma.
I could be down with that. So yeah, you go, whoa, whoa, whoa, whoa.
(18:38):
Let's stop this gehad and maybe we can explore some
business opportunities instead, Like wouldn't you rather open up a
jihad stand then blow yourself up in the middle of
that market? Right yeah? Um, And if you have a
stand in that market, you're not gonna want suicide bombers.
There's bad for business. Um. Well. A lot of people
say there's not a lot of evidence though, right on
(18:58):
the other side of the coin. Yeah, there's a eleconomists
I quote in this saying there we we are utterly
devoid of evidence. And there's some there's some studies that
have shown that it doesn't necessarily help. Um. These people
may repay it, but there there there's no follow through
on them actually using the loan for what they say
they're going to. You know, I mean like if you
(19:18):
suddenly have three thousand soul as, um, yeah, you could
easily do that, or you could, you know, pay rent
or something like that. There's things come up. You know,
how much money have you spent that was marked for
something more important but you had to deal with something
that was an emergency that came up, right, or if
(19:39):
you know, someone knows, if your neighbor knows you got
a loan and you get robbed or something. I'm sure
other things happen. And apparently Michael Lending is still young
enough that it requires injections of capital. Like these lending
institutions themselves to stay afloat, they themselves aren't self sufficient,
which you have to have that self sufficiency to help
other people become self sufficient. I think the jury is
(19:59):
very much still out and and just the theoretically, it's
such a noble idea that I can't imagine it won't
be given more and more slack or whatever it needs
to continue. And a rate, I mean, you can't argue
with that. No, and that rate though has actually led
to some really um despicable plots. Yeah. That the Mexican banks. Yeah,
(20:25):
the Grommin Bank has actually pointed out that this vastly
overlooked segment of the population are dependable to repay loans.
So as a result, some banks have come up to
create to issue micro loans, but not to help poverty,
but to make money specifically lent to the poor. Though.
(20:48):
Still Yeah, there's a guy in Mexico who owns the UM.
They were kind of like the Walmart of Mexico UM
And I can't remember his name, but he's just multi
BILLI a their business guy. And he said that his
father taught him, if you want to make money, sell
to the poor, mainly because there's so many of them. Right,
(21:09):
So he started his business and made a bunch of
money selling to the poor, selling you know, cheap consumer
products through his retail stores. Well, he founded a bank
very much like Walmart. He founded a bank called Banko
as Teca two. Yeah, they are a micro lending institution
that this guy owns, and they issue these small loans
(21:31):
to the poor, the working poor, um, but at really
astronomical interest rate. Yeah, they drive him further into debt
instead of pulling them out of the meyer in the monk, right,
and they're still issuing these loans in these traditional societies
that have these social pressures, they also use a lot
of um micro lending practices like bankers on bicycles. But
(21:52):
these guys are the ones who come into your house
and right down the serial numbers on all of your
stuff until we'll repossess this, and they do um. And
it's just it's a perversion of micro lending. It's exploitation. Yeah. Yeah,
a p R is up to you said more than sometimes.
So if you borrow a thousand dollars, you pay back
(22:14):
two thousand dollars. And the problem is is um Banko
has Teca specifically lobbied the Mexican government to be exempt
from having from a law that forces lenders to state
the terms of their loan, including the interest rate on
the loan on the loan before they issue it. So
a person goes up and goes and wander thousand dollars
(22:34):
the the the bank issues it, and the person walks
away with their thousand dollars with no idea how much
they actually owe. Legally, they don't have to do an
arm And you could make an argument either way, right
who was responsible with for those arms that you just mentioned.
Was it the aggressive predatory lenders? Was it the people
(22:54):
who were greedy and said, wow, I can afford a
six d thousand dollar house even though I only make
of the year the terms of their loan close enough.
It's everyone's to blame. Everyone is to blame, but Muhammed Unus.
But I did want to point out it's not just Mexico.
We're not picking on Mexico. This is happening in other
places too. It is happening in other places, and there's
a lot of companies that you know we're familiar with,
(23:16):
like um City Group, uh, HSBC Holding, Zurich Financial. Uh.
And I guarantee you a lot of the people who
run those mutual funds that are heavily invested in these
micro lending institutions that are for profit and exploitative. So
I think if you, uh, if this has piqued your
interest in micro lending and you want to go on
(23:36):
and maybe contribute a few bucks, do a little extra
research to find out exactly what the terms are for
the for repayment of those loans, who they're going to,
who they're going through, right, uh and if especially if
you're gonna do it through a mutual fund or something
like that. Yeah, yeah, I love it. I'm going to
script together twenty five bucks. You can do that. Yeah,
I'll script together fifty paid twenty five to my father
(24:00):
and then give you only know your dad bucks. No,
but it's something I got you. Yeah. You can find
this article how micro lending works in a whole bunch
of We have some really cool economics articles on the second.
You know that we do just we do. I wrote
a lot of them. I did, so did Jay McGrath
kicked it on Money for a while um, you can
(24:20):
find those by typing in probably economics in the handy
search bar how stuff works dot com, which, of course, friends, neighbors,
loved ones leads us to listener mail. So, Josh, this
listener mail is actually very relevant. I saved it for
this episode. Our buddy Stephen, who sent us our signs. Folks,
(24:40):
we have people that are actually sending us things now.
It's awesome. We've gotten some beer. We have beer from
a micro brewery and uh sat Arnold's Brewery in Houston.
Oh god, that was it was really really good. And
we've gotten some little gifts here and there, and of
course fan art is always coming in, but tangible things
have been sent to us and we're very grateful for that.
I got a Michael Jackson shirt from Ben Ivy that
(25:03):
you designed. Really it was cool. You show me that.
I'll show jerk. So Stephen, I'm gonna go ahead say
his name because he wanted me to. Stephan Bram. He
is in Newark, Delaware, and he and his wife are
a two person team and opened up their own small
business in January oh nine, called Alliteration A L L
(25:24):
E T T E R A T I O N
nice spelling. Thank you, you've forgotten to finish it with alliteration.
Alliteration and he he sent used these signs to go
on our studio has our studio name, and underneath one
of him it says where Twinkies are revered and moonshine
is respected, which we thought was great and I think
his daughter helped him come up with that. And then
(25:44):
the other one says, uh, where badass knowledge happens and
where We've got both of these hung up on our
studio and they look awesome. And we just wanted to
thank Stephen and say good luck with your business. Yeah,
big thanks Stephen and his daughter and heed to us
and um he uh he said that they He also
wanted us to mention if we could, that they try
to use recycled um, recycled wood and stuff to make
(26:08):
it a more green business. And these signs we're actually
taken from like a children's bed or something like that.
Poor kids. But now his daughters in the floor. He's
like Josh and Chucker. If you want to support Stephen,
he says, his website isn't completely finished. Um, you can
go to alliteration dot et s y dot com or
email him at info at alliteration dot com. It's two wells,
(26:31):
two teas, and Stephan is a great guy. You wish
them all the luck in the world, quality business. Well, Chuck. Also,
you open this up for me to say this. If
you want to send me and Chuck some cool stuff,
you can get our information by sending us an email,
or you can just say hi, Unicorn's torpedo or whatever.
Or buy the website and clicking on the contact button
at the bottom and it has the addressed and you
(26:54):
can just send it straight to us. But we won't
hear from him. Then they can include a written note
and written note in a glossy photo. You know. Well,
then I have to still have to give the email here, Chuck,
all right, whatever, If you want to say hi or whatever,
to send an email to stuff podcast at how stuff
works dot com. For more on this and thousands of
(27:18):
other topics, visit how stuff works dot com. Want more
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Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you welcome to Stuff you Should Know
from House Stuff Works dot Com? Hey, and welcome to
the Josh and Chuck Electric freak Out featuring the Matt
(00:20):
guest producer Mad and standing in. You may also know
it as Stuff you Should Know Matt of Lions and
Scissors and Playing Soon. They have a MySpace page Red Chuck. Yeah,
we plugged it before. Yeah, so we're not doing again,
which I think we just did that, buddy. That's all right, Chuck. Um.
I don't know if you're paying attention or not, but
(00:40):
the United States pretty much dominated the twentieth century and
every way you can see what USA USA exactly that
that was chanted quite a bit. Remember Rocky Oh yeah,
beat the Russian guy? Yeah? Um that was just one
accomplishment of minute four five Rocky four right. Um? So yeah,
(01:00):
we we uh successfully fought just about every war we
engaged in. Our economy just thrived. Did you know that
the per capita GDP and nineteen hundred for the United
States was four thousand, ninety six dollars? Not bad by
nine It was nine thousand six hundred seventy one dollars
(01:21):
doesn't seem like that much of an increase. I think
about the population increase. So actual g d p UH
in nineteen hundred was twenty eight point six billion dollars.
In nine it was nine point to six eight trillion dollars. Yeah,
So basically we rocked the hissy during the twentieth century.
Right now it's two thousand nine. We're engaged in land
(01:44):
wars with insurgent groups in Iraq and Afghanistan, and I
guess you could replace engaged with mired maybe. Um, the
the dollar is being abandoned or considered being abandoned as
the universal currency in favor of a back skit of currencies,
which spells trouble at cornucopia. Yeah, that's another way to
(02:05):
put it, buddy, uh. And our housing market caused a
worldwide financial collapse, so America is not quite as bright
as we used to before. We get tons of emails
saying it wasn't just that it was um with it.
So this is this has caused a lot of people
to wonder whether the turn of the twenty one century
(02:27):
was actually the end of the American century, you know,
especially with the rise of Brick, Brazil, Russia, Indian, China,
and specifically India and China. Their enormous development has made
people think, well, China is the next United States. Right, Well,
I know everyone always thinks that it's hard to not
be in the moment and realized that the greatest civilizations
(02:49):
always fall at some point. Sure, it's gonna happen. I mean,
it may not be anytime soon, but fast forward a
thousand years and America might be a barren waste land
like the Matrix or something was there? Was it a
barren waste lane. I don't remember when he showed him
on TV and it was this, you know, destroyed Madison
with the general consent. This is the real world, that's right, Yeah, yeah, yeah, yeah. Anyway, Um,
(03:13):
but we'll well, we'll have our day. I say, I'm
with you. I say that the United States century, the
American century, is not over yet. I agree. And the
reason why is I think that during the twentieth century,
the American dream this this idea that everyone has an
equal shot at um pursuing his or her own goal
(03:35):
under the free market capitalist system, which is not true,
but it's a nice thought, I think. But I think
that thought the American dream, whether it's possible to realize
it or not, was so successfully packaged that it was
able to be exported to the rest of the world.
That kind of caught up. Have you ever heard of
Thomas Friedman's Golden Arches theory of conflict prevention didn't have
(03:55):
to do with McDonald's. Yeah, then I have heard of it.
So yeah, the the the back four I think the
Balkan War, uh no, two countries that both had a
McDonald's engaged in armed conflict against one another after the
point that both of them had the McDonald's until until
the Balkans because they were pretty stoked about their fries
(04:16):
and their big Max. You could say that. You could
also say that cause correlation does not prove causation. But
still it's pretty interesting and it makes a good point
that it's a symbol actually more than anything. It is
just like a coke machine. Like you can find coke
machines in the most remote countries areas of the world,
and you can say that that's basically your exporting democracy
through successful capitalism, right, happy juice. That's also going on
(04:40):
right now, that that continued export um with this thing
called micro lending that's the longest s up we've ever done. Yeah,
but dude, it was good. Yeah, micro lending is pretty cool.
It's a good article, dude, Thank you, well done. Thanks
a lot, buddy. So Josh, as you know because you
wrote it. Micro lending doesn't necessarily refer to the size
of a loan. It's not necessarily itty bitty loans the
(05:02):
size of the loan. It's how you use it, right,
It's a that's actually very true. Thanks. Um. It's uh.
It refers to the the qualifications of the borrower, right,
although it usually is a small loan. Right. One of
the big flaws in that American dream, that capitalist free
market system where supposedly everybody has an equal opportunity at
obtaining success that their own hard work, is that you
(05:25):
usually need startup capital. Right, even if you're selling hot
dogs on the street, you gotta buy the car. You
gotta buy the dogs. Like my bloody Mary stand last
year at the golf tournament. I was not there for that.
I invited. I had to to my front yard. I
had to invest in the Oh yeah, that's the one
where the cops came and busted it up. I lost
(05:46):
all that money that I invested in the bloody Mary.
That's what happens when the fuzz turns up. But startup cost, sure, yeah,
the thing is is where do you go for startup costs?
Generally go to a bank, and well, banks are run
by capitalists themselves. They're looking to turn a buck, of course,
so they have certain criteria that people have to meet
to to to be accepted for a loan application, right, right,
(06:10):
So the problem is is that there's huge masses of people,
generally the working poor, who are usually excluded from this.
They don't have collateral course not um, they might not
have an education to back up this entrepreneur, probably credit
history or loan history. So they're not meeting the criteria,
they can't get the loan, and therefore they can't obtain
self sufficiency through their own hard work or achieve the
(06:32):
American dream. It's a it's a flaw, it's a caveat
to that that system. Right. So what micro lending does
is it kind of fills that gap between these excluded
groups and self sufficiency by loaning to people who I
put it in the article that traditional lenders would consider
are are mindlessly risky. You know, these loans are mindlessly risky.
(06:56):
That's why a dude like Muhammad units Is deserve the
Nobel Peace Prize. Yeah. Time you News is a Bangladeshi
economist who founded this micro lending institution called the Gramin Bank.
Can I read his quote? Yeah? I love it, man,
it's inspiring. Uh. He said, if banks lent to the rich,
I lent to the poor. If banks lent to men,
(07:16):
I went to women. If banks required collateral, my loans
were collateral free. Here's your Nobel Prize. He also lent
to the illiterate by by not having too much paperwork
and poverty rural areas, rural areas where there were no banks.
I mean, like, think about how little access you have
to start up capital if there's no bank anywhere near you.
So he sent people out to these villages to sign
(07:38):
people up for loans. Um. And he did it pretty aggressively,
but aggressively in the favor of these other people, rather
than aggressively to make money himself. Um. So he found
Gramin Bank, I think in the nineties, and it's actually successful. Yeah.
I love the business model. It's so cool. Yeah, just
(07:58):
the whole thing you point it out about the what
he counts on to get the loan repaid is um
almost like honor. It is in traditional societies. There's a
lot of there's a lot at stake with a good name,
and when you borrow money, you're putting your good name
on the line, which is how you got the money
in the first place, usually your family name. So if
(08:19):
you don't repay it, you're basically knowing your your whole
family's image. Right, so that no, it's people'll be like, hey,
thanks for the money, so long chump. Yeah. Um, So
they use social pressure, the traditional social pressures that are
already in place to ensure loan repayment, right, which happens
(08:40):
on a weekly basis. Is that correct? Yeah, people make
weekly repayments because it's usually much more affordable. And the
do the bankers on bikes. I love that these guys
ride around bicycles and visit them and they give them,
you know, their little payment for that week. Yeah. They're
they're collection agents and they'll have maybe several in each village. Right. Ever,
so these people are also these people's neighbors. But they're
not like threatening collection agents, not necessarily. I don't think
(09:01):
with Gramming Bank it's very threatening. Um, but yeah, So
imagine a guy who's a collection agent that's also your
neighbor who works for a lending institution that you borrowed from,
showing up at your front door every week in a
society where you're good names on the line, you're gonna
make those repayments. And it's successful. Actually, um, not just
Gramming Bank, but across the board with micro lenning in general.
(09:24):
They have a ninety seven percent rate of repayment, which
is which seats traditional banks. It's proof that it works.
It is proof that it works at the time. So
let's talk about how it works. The you know, Gramming
Bank and other micro lending institutions aren't running around and
just grabbing like you know Pedro and and um Showshana
off the street. These are just two names that came
(09:46):
up with about searching. They don't grab them and and
say hey, here's some money, take some money. You know,
these people actually have to have you know, business plans
or at least ideas of what they're going to use
the entrepreneurs without an opportunity basically, and so what it
is is they're funding people in developing countries, which, as
I said before, is kind of an extension of the
(10:07):
entrepreneurial spirit that the US has founded on, and it's
happening overseas now, right, spreading a little bit a bit
of that capitalist love worldwide, which is love love. So Chuck,
like I said, let's talk about how it works. If
you wanted to go and and and make a loan,
how would you do this? Would you go to Gromming Bank,
fly to Bangladesh, go here's some money, give this to
(10:30):
this person. You need to get alone and get the
plane ticket though, right, yeah, now you would go online.
Um is one way to do it. And I like
the model used that. Well, there's two ways. There's the
not for profit model, in the in the profit model.
But should we talk about kiva dot com first? Yeah,
that's a good one. That's the not for profit model, correct, right,
And basically you you will present your business plan as
(10:50):
an applicant UH from places like Lebanon, Tatzikistan, Molly, all
over the place, all over the place. Nicaragua has a
lot of people on there. And then there's users on
the other end that that sign up and actually contribute
toward this loan UH and good faith that you have
a ninety seven percent chance of getting your money back
(11:11):
with no profit attached. But it's it's a good will
gesture and basically they people contribute as little as twenty
five dollars until that loan amount is uh full. Right,
So it'll be like you know, somebody's picture, and then
like the name of their business, and then like what
their business does. It's like adopting a person in a
foreign country, very much like that actually, and you're kind
(11:32):
of you're kind of adopting their business temporarily, right. So,
so it'll also have a description of what they plan
on using that specific loan for. Right, So it'll be
like maybe purchasing timber for resal er um, purchasing agricultural
supplies like seed or whatever. Um, And it has like
a little bar and it has the loan amount, the
total what they need at the end, and then it
(11:53):
will fill up as people contribute, So a lot of
different people can contribute to a single loan. Then it
reaches add percent. And in a lot of cases that
a site like kiva um will use a third party
lending institution like maybe Gromming Bank in Bangladesh, but a
local community bank usually actually issue the loan, right, Yeah,
(12:13):
you can't just send him a check because they wouldn't
have anything to do. You know, sometimes they do. Sometimes
some some sites actually do issue um these loans themselves,
but for the most part, they'll they serve as a
intermediary between you or I who's contributing our money and which,
of course which we could though, I'm just kidding. Um.
(12:34):
And actually, the cool thing about Kiva is that you
can contribute as little as twenty five bucks. I'm gonna
sign up for this and also check. They have gift
certificates too, So the cool thing about the gift certificate
is is like, let's say you give a gift certificate
to me, and what you've done is you've made it.
You bet her do this. Um, you've contributed twenty five
(12:54):
bucks basically in my name to this this Whoever's business
in Nicaragua. Yeah, and I get the bucks back, I
don't think so, Okay, if you do your cheap bastard um.
The distinction is that you don't get any extra money back. Well, no,
(13:15):
there's no interest return on your investment. No there isn't.
But these people are paying interest the average uh, the
average interest on a micro loan worldwide. It's about does
that just keep the whole thing afloat is that what
they use that money for. Supposedly. We'll get to that
in a second, because there's actually criticism of micro lending,
believe it or not. So that's the not for profit
(13:36):
when it's really just a socially responsible investment where you
can usually expect to get your full amount back but
not any interest. Then there's the for profit model, right yes,
like micro place dot com that's pretty much the that's
on par with Kivas like those are the two big
micro lending sites. And this isn't a bad thing because
people are trying to make a profit and it still
works out great. They get their money and um, you
(13:58):
can get a yield as high as five percent it
which I was reading an article and some guy was saying,
compare that to c ds. You know, you you get
a CD. That's that's giving you three percent interest. You've
got a great CD right there. And a CD doesn't
give some poor Bangladeshi a leg up, No, it doesn't
his petticab business, although there are If you have UM
four oh one k and you start looking around, more
(14:18):
and more investment banks are creating mutual funds that loan
to micro lenders like grab me bank, that kind of thing.
A personal story about this, actually, I want to hear it. Buddy.
You didn't know this, did you. I worked on a
I did a voiceover for a friends documentary he did
about the tsunami survivors and he works for a nonprofit
agency like missionary work type thing, and I did the
(14:41):
narration for it. And one of his uh, one of
the guys he focused on like four different stories. One
of his stories was a guy who had a petticab,
you know the little bicycle cabs, and he got a
micro loan I don't remember who it was from after
the tsunami to buy a second and third petticab, and
then the money he got from that, he opened a
little or like a little small hut store. But the
(15:02):
dude was able to build a house and like restart
his family has lost his whole family. He met another
woman and they ended up having kids and just like
the coolest story. And I don't think he had to
borrow more than like a hundred bucks or something. Man, Well,
that's that's a point. Actually, um bucks. I think in
the article I compared it to the the Peruvian sola
(15:24):
um so twenty five bucks. On August two thousand nine,
when I wrote this article, the exchange rate was I
think seven U s dollars to seventy three Peruvian soul as, right,
So I mean if you if if somebody gets a
thousand dollar loan, that's almost three grand and soul as,
which that's a that's a ton of cats. You can
buy a lot of timber in petticabs. I have a
(15:47):
personal story about micro lending. Really, I borrowed some money
from my dad once and I still have an outstanding balance.
Is how your leg is broken? Yeah, well my thumb.
And that's funny. You should bring that up, my friend.
That was a great set up. You may notice that
this is actually it bears a striking resemblance to loan sharking,
which still exists in a lot of countries. And actually
(16:07):
I read that micro lenders are starting to give loan
sharks a run for their money because there is no
attendant threat of violence driving the amount of business, and
their interest rates are much much lower. Yea, what is it?
I looked it up. Actually I couldn't find what a
loan shark rate might be. Oh often like a thousand
percent three Yeah, just astronomical amountain. Yeah, and you you
(16:28):
will have your legs broken. Yeah, yeah, they don't. You
know Mohammed Unus he won the Nobel Peace Prize. He's
not really into late breaking, I don't think anymore. And
you can tell look at him. Did you see him
in the article. He's got his little Nahru jacket on
and he just looks like, you can trust me. I
helped the poor. Here's go build a business. Yeah. So yeah,
that that that little amount that you contribute really has
(16:50):
a huge effect in the developing world, right right. Um,
so that's pretty much the nuts and bolts of how
it works. Like I said, there's mutual funds, right and supposedly, um,
it actually does have an impact a lot of people.
As we were saying that export of capitalism of the
(17:10):
American dream. Yeah, I like to tie you made there
or that other people have made that you highlighted. Well,
there's a there's a theory that um globalization prevents war
that hasn't been fully panned out yet. A lot of
people thought that that the interdependent economies of the nineteen
twenties and thirties would prevent war, and we still had
World War two. Um, so that's that that that kind
(17:34):
of undermine that I personally think that we just weren't
at the stage of globalization yet that we are now,
and that I think globalization can prevent We're just because
money Trump's ideology any day, Especially if you are in
such a position of power, um that you are commanding
(17:54):
armies or economies or nations or whatever you're You're probably
gonna go with your economy over idea. Right, I got
another quote from your own article. Well, this kind of
backs that. This is what the Nobel Committee said when
they awarded units the prize and oh six lasting piece
cannot be achieved unless large population groups find ways in
which to break out of poverty. And dude, that's pretty succinct. Yeah,
(18:18):
a lot of people were surprised when UNUS won the
Nobel Prize. Yeah, but how can you break out of
poverty is by getting a microlone starting own business. There's
a there's another theory that um poverty or terrorism is
bred by poverty rather than um religious ideology or dogma.
I could be down with that. So yeah, you go, whoa, whoa, whoa, whoa.
(18:38):
Let's stop this gehad and maybe we can explore some
business opportunities instead, Like wouldn't you rather open up a
jihad stand then blow yourself up in the middle of
that market? Right yeah? Um, And if you have a
stand in that market, you're not gonna want suicide bombers.
There's bad for business. Um. Well. A lot of people
say there's not a lot of evidence though, right on
(18:58):
the other side of the coin. Yeah, there's a eleconomists
I quote in this saying there we we are utterly
devoid of evidence. And there's some there's some studies that
have shown that it doesn't necessarily help. Um. These people
may repay it, but there there there's no follow through
on them actually using the loan for what they say
they're going to. You know, I mean like if you
(19:18):
suddenly have three thousand soul as, um, yeah, you could
easily do that, or you could, you know, pay rent
or something like that. There's things come up. You know,
how much money have you spent that was marked for
something more important but you had to deal with something
that was an emergency that came up, right, or if
(19:39):
you know, someone knows, if your neighbor knows you got
a loan and you get robbed or something. I'm sure
other things happen. And apparently Michael Lending is still young
enough that it requires injections of capital. Like these lending
institutions themselves to stay afloat, they themselves aren't self sufficient,
which you have to have that self sufficiency to help
other people become self sufficient. I think the jury is
(19:59):
very much still out and and just the theoretically, it's
such a noble idea that I can't imagine it won't
be given more and more slack or whatever it needs
to continue. And a rate, I mean, you can't argue
with that. No, and that rate though has actually led
to some really um despicable plots. Yeah. That the Mexican banks. Yeah,
(20:25):
the Grommin Bank has actually pointed out that this vastly
overlooked segment of the population are dependable to repay loans.
So as a result, some banks have come up to
create to issue micro loans, but not to help poverty,
but to make money specifically lent to the poor. Though.
(20:48):
Still Yeah, there's a guy in Mexico who owns the UM.
They were kind of like the Walmart of Mexico UM
And I can't remember his name, but he's just multi
BILLI a their business guy. And he said that his
father taught him, if you want to make money, sell
to the poor, mainly because there's so many of them. Right,
(21:09):
So he started his business and made a bunch of
money selling to the poor, selling you know, cheap consumer
products through his retail stores. Well, he founded a bank
very much like Walmart. He founded a bank called Banko
as Teca two. Yeah, they are a micro lending institution
that this guy owns, and they issue these small loans
(21:31):
to the poor, the working poor, um, but at really
astronomical interest rate. Yeah, they drive him further into debt
instead of pulling them out of the meyer in the monk, right,
and they're still issuing these loans in these traditional societies
that have these social pressures, they also use a lot
of um micro lending practices like bankers on bicycles. But
(21:52):
these guys are the ones who come into your house
and right down the serial numbers on all of your
stuff until we'll repossess this, and they do um. And
it's just it's a perversion of micro lending. It's exploitation. Yeah. Yeah,
a p R is up to you said more than sometimes.
So if you borrow a thousand dollars, you pay back
(22:14):
two thousand dollars. And the problem is is um Banko
has Teca specifically lobbied the Mexican government to be exempt
from having from a law that forces lenders to state
the terms of their loan, including the interest rate on
the loan on the loan before they issue it. So
a person goes up and goes and wander thousand dollars
(22:34):
the the the bank issues it, and the person walks
away with their thousand dollars with no idea how much
they actually owe. Legally, they don't have to do an
arm And you could make an argument either way, right
who was responsible with for those arms that you just mentioned.
Was it the aggressive predatory lenders? Was it the people
(22:54):
who were greedy and said, wow, I can afford a
six d thousand dollar house even though I only make
of the year the terms of their loan close enough.
It's everyone's to blame. Everyone is to blame, but Muhammed Unus.
But I did want to point out it's not just Mexico.
We're not picking on Mexico. This is happening in other
places too. It is happening in other places, and there's
a lot of companies that you know we're familiar with,
(23:16):
like um City Group, uh, HSBC Holding, Zurich Financial. Uh.
And I guarantee you a lot of the people who
run those mutual funds that are heavily invested in these
micro lending institutions that are for profit and exploitative. So
I think if you, uh, if this has piqued your
interest in micro lending and you want to go on
(23:36):
and maybe contribute a few bucks, do a little extra
research to find out exactly what the terms are for
the for repayment of those loans, who they're going to,
who they're going through, right, uh and if especially if
you're gonna do it through a mutual fund or something
like that. Yeah, yeah, I love it. I'm going to
script together twenty five bucks. You can do that. Yeah,
I'll script together fifty paid twenty five to my father
(24:00):
and then give you only know your dad bucks. No,
but it's something I got you. Yeah. You can find
this article how micro lending works in a whole bunch
of We have some really cool economics articles on the second.
You know that we do just we do. I wrote
a lot of them. I did, so did Jay McGrath
kicked it on Money for a while um, you can
(24:20):
find those by typing in probably economics in the handy
search bar how stuff works dot com, which, of course, friends, neighbors,
loved ones leads us to listener mail. So, Josh, this
listener mail is actually very relevant. I saved it for
this episode. Our buddy Stephen, who sent us our signs. Folks,
(24:40):
we have people that are actually sending us things now.
It's awesome. We've gotten some beer. We have beer from
a micro brewery and uh sat Arnold's Brewery in Houston.
Oh god, that was it was really really good. And
we've gotten some little gifts here and there, and of
course fan art is always coming in, but tangible things
have been sent to us and we're very grateful for that.
I got a Michael Jackson shirt from Ben Ivy that
(25:03):
you designed. Really it was cool. You show me that.
I'll show jerk. So Stephen, I'm gonna go ahead say
his name because he wanted me to. Stephan Bram. He
is in Newark, Delaware, and he and his wife are
a two person team and opened up their own small
business in January oh nine, called Alliteration A L L
(25:24):
E T T E R A T I O N
nice spelling. Thank you, you've forgotten to finish it with alliteration.
Alliteration and he he sent used these signs to go
on our studio has our studio name, and underneath one
of him it says where Twinkies are revered and moonshine
is respected, which we thought was great and I think
his daughter helped him come up with that. And then
(25:44):
the other one says, uh, where badass knowledge happens and
where We've got both of these hung up on our
studio and they look awesome. And we just wanted to
thank Stephen and say good luck with your business. Yeah,
big thanks Stephen and his daughter and heed to us
and um he uh he said that they He also
wanted us to mention if we could, that they try
to use recycled um, recycled wood and stuff to make
(26:08):
it a more green business. And these signs we're actually
taken from like a children's bed or something like that.
Poor kids. But now his daughters in the floor. He's
like Josh and Chucker. If you want to support Stephen,
he says, his website isn't completely finished. Um, you can
go to alliteration dot et s y dot com or
email him at info at alliteration dot com. It's two wells,
(26:31):
two teas, and Stephan is a great guy. You wish
them all the luck in the world, quality business. Well, Chuck. Also,
you open this up for me to say this. If
you want to send me and Chuck some cool stuff,
you can get our information by sending us an email,
or you can just say hi, Unicorn's torpedo or whatever.
Or buy the website and clicking on the contact button
at the bottom and it has the addressed and you
(26:54):
can just send it straight to us. But we won't
hear from him. Then they can include a written note
and written note in a glossy photo. You know. Well,
then I have to still have to give the email here, Chuck,
all right, whatever, If you want to say hi or whatever,
to send an email to stuff podcast at how stuff
works dot com. For more on this and thousands of
(27:18):
other topics, visit how stuff works dot com. Want more
how stuff works, check out our blogs on the how
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