The Ugly Side of Microlending

image source: Keith Epstein

The Ugly Side of Microlending, the top story of “business week” this week. It describes the dark side of Mexico Microfinace. It also reminds me of the Mexican trip one year ago, so i am very interested in it.

With no legal limits on interest levels and little government oversight are the main reasons that lead to poor borrowers get trapped in a maze of debt. The correspondent illustrated the situation with buying of plasma TV. The 32-inch LG plasma TV with a price tag of $957 can ultimately cost as much as $1,474, thanks to a 52-week payment plan that carries an annual percentage rate (APR) of 86%. 86%, How can the Banco did that? What did the Mexico government do? Why didn’ thay protect their people?

Besides, the Bancos also make good use of low-income Mexicans’ anxieties, losing reputation. The Mexican will try their best to pay back their borrowing regardless of the hardship. I think it will have the negative cycle that make the working poor poorer.

Reference: Business Week