Could microlending develop the world?


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Welcome to Stuff You Should Know from HowStuffWorks.com.

Josh Clark

Hey, and welcome to the Josh and Chuck electric freak-out featuring Matt -

Chuck Bryant

Guest producer Matt.

Josh Clark

- standing in. You may also know it as Stuff You Should Know.

Chuck Bryant

Right, Matt of Lions and Scissors band fame.

Josh Clark

Yeah, playing soon.

Chuck Bryant

Killer band.

Josh Clark

They have a MySpace page, right, Chuck?

Chuck Bryant

Yes.

Josh Clark

Yeah.

Chuck Bryant

We plugged it before.

Josh Clark

Yeah.

Chuck Bryant

So are we gonna do it again?

Josh Clark

No, which I think we just did though, buddy.

Chuck Bryant

That's right.

Josh Clark

Chuck, I don't know if you were paying attention or not, but the United States pretty much dominated the 20th century in every way conceivable.

Chuck Bryant

USA, USA.

Josh Clark

Exactly. That was chanted quite a bit.

Chuck Bryant

Um hm.

Josh Clark

You remember Rocky?

Chuck Bryant

Oh, yeah.

Josh Clark

Beat the Russian guy.

Chuck Bryant

Yeah, sure, in -

Josh Clark

That was just one accomplishment of many.

Chuck Bryant

- Rocky IV, V - Rocky IV, right.

Josh Clark

So, yeah, we successfully fought just about every war we engaged in.

Chuck Bryant

Yeah.

Josh Clark

Our economy just thrived. Did you know that the per capita GDP in 1900 for the United States was $4,096.00?

Chuck Bryant

Not bad.

Josh Clark

Not bad.

Chuck Bryant

For then.

Josh Clark

By 1999, it was $9,671.00. Doesn't seem like that much of an increase -

Chuck Bryant

No, not for that time.

Josh Clark

- but think about the population increase.

Chuck Bryant

Ah.

Josh Clark

So actual GDP in 1900 was $28.6 billion.

Chuck Bryant

Wow.

Josh Clark

In 1999, it was $9.268 trillion dollars.

Chuck Bryant

Wow.

Josh Clark

Yeah. So basically, we rocked the hizzy during the 20th century, right?

Chuck Bryant

Yeah.

Josh Clark

Now, it's 2009.

Chuck Bryant

It is.

Josh Clark

We're engaged in land wars with insurgent groups in Iraq and Afghanistan.

Chuck Bryant

Yes, we are, still.

Josh Clark

And I guess you could replace engaged with mired maybe.

Chuck Bryant

Mired.

Josh Clark

The dollar is being abandoned or considered being abandoned as the universal currency in favor of a basket of currencies -

Chuck Bryant

Right.

Josh Clark

- which spells trouble.

Chuck Bryant

A cornucopia.

Josh Clark

Yeah, that's another way to put it, buddy. And our housing market caused a worldwide financial collapse.

Chuck Bryant

Yes.

Josh Clark

So America's not looking quite as bright as shiny as we used to.

Chuck Bryant

Well, it had a lot to do with it. Before we get tons of emails saying, "It wasn't just that," it was. It had a lot to do with it.

Josh Clark

So this has caused a lot of people to wonder whether the turn of the 21st century was actually the end of the American century, you know, especiallywith the rise of BRIC, Brazil, Russia, India and China, and specially India and China. Their enormous development has made people think, well, China's the next United States.

Chuck Bryant

Right. Well, I know everyone always thinks that it's hard to not be in the moment and realize that the greatest civilizations always fall at some point. Sure, it's gonna happen. I mean, it may not be any time soon, but fast forward 1,000 years, and America might be a barren wasteland like the Matrix or something.

Josh Clark

Was it a barren wasteland? I don't recall -

Chuck Bryant

Yeah, remember when he showed him on TV, and it was this destroyed - Matt is nodding with approval.

Josh Clark

Matt's agreeing with you, yeah. I'll go with you, too. I'll go with the general consensus.

Chuck Bryant

It's, like, destroyed buildings. This is the real world.

Josh Clark

That's right, yeah, yeah, yeah, yeah, okay.

Chuck Bryant

Anyway, but we'll have our day.

Josh Clark

I say I'm with you. I say that the United States century, the American century is not over yet.

Chuck Bryant

I agree.

Josh Clark

And the reason why is I think that during the 20th century, the American dream, this idea that everyone has an equal shot at pursuing his or her own goal under the free market capitalist system -

Chuck Bryant

Which is not true, but it's a nice thought.

Josh Clark

- 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, and it kind of caught on.

Chuck Bryant

Right, sure.

Josh Clark

Have you ever heard of Thomas Friedman's "Golden Arches Theory of Conflict Prevention"?

Chuck Bryant

Does it have to do with McDonalds?

Josh Clark

Yeah.

Chuck Bryant

Then I have heard of it.

Josh Clark

So, yeah, back before, I think, the Balkan War, no two countries that both had a McDonalds engaged in armed conflict against one another -

Chuck Bryant

That's great.

Josh Clark

- after the point that both of them had the McDonalds until the Balkans.

Chuck Bryant

Do you know why? Because they were pretty stoked about their fries and their Big Macs!

Josh Clark

You could say that. You could also say that correlation does not prove causation -

Chuck Bryant

Right.

Josh Clark

- but still, it's pretty interesting, and it makes a good point that -

Chuck Bryant

It's a symbol actually, more than anything.

Josh Clark

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 you're exporting democracy through successful capitalism, right?

Chuck Bryant

Right, happy juice.

Josh Clark

That's also going on right now, that continued export with this thing called microlending.

Chuck Bryant

That's the longest setup we've ever done.

Josh Clark

Yeah, but, dude, it was good.

Chuck Bryant

Yeah, microlending's pretty cool. This is a good article, dude.

Josh Clark

Thank you.

Chuck Bryant

Well done.

Josh Clark

Thanks a lot, buddy.

Chuck Bryant

So, Josh, as you know, because you wrote it, microlending doesn't necessarily refer to the size of a loan. It's not necessarily an itty-bitty loan.

Josh Clark

It's not the size of the loan; it's how you use it.

Chuck Bryant

Right. That's actually very true.

Josh Clark

Thanks.

Chuck Bryant

It refers to the qualifications of the borrower -

Josh Clark

Right.

Chuck Bryant

- although it usually is a small loan.

Josh Clark

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 through their own hard work -

Chuck Bryant

Right, sure.

Josh Clark

- is that you usually need startup capital, right?

Chuck Bryant

Right.

Josh Clark

Even if you're selling hotdogs on the street -

Chuck Bryant

You've got to buy the dogs and buns.

Josh Clark

- you've got to buy the cart, you've got to buy the dogs, you know.

Chuck Bryant

Like my Bloody Mary stand last year at the golf tournament.

Josh Clark

I was not there for that, and I wasn't invited, if remember correctly.

Chuck Bryant

To my front yard?

Josh Clark

Yeah.

Chuck Bryant

I had to invest in the -

Josh Clark

Oh, yeah, that's the one where the cops came and busted it up.

Chuck Bryant

True.

Josh Clark

Yeah.

Chuck Bryant

And I lost all that money that I invested in the Bloody Mary supplies, yeah.

Josh Clark

That stinks. That's what happens when the fuzz turns up.

Chuck Bryant

But startup costs, sure.

Josh Clark

Yeah. The thing is, is where do you go for startup costs? You generally go to a bank. And, well, banks are run by capitalists themselves. They're looking to turn a buck.

Chuck Bryant

Of course, as they should.

Josh Clark

So they have certain criteria that people have to meet -

Chuck Bryant

Right.

Josh Clark

- to be accepted for a loan application, right?

Chuck Bryant

Right.

Josh Clark

So the problem is, is there's huge masses of people, generally the working poor, who are usually excluded from this. They don't have collateral.

Chuck Bryant

Of course not.

Josh Clark

They might not have an education to back up this entrepreneurial spirit.

Chuck Bryant

Right, probably no credit history or loan history to begin with.

Josh Clark

Right. 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.

Chuck Bryant

Or achieve the American dream.

Josh Clark

It's a flaw. It's a caveat to that system, right?

Chuck Bryant

Right.

Josh Clark

So what microlending does is it kind of fills that gap between these excluded groups and self-sufficiency by loaning the people who - I put in the article that traditional lenders would consider mindlessly risky, you know, these loans are mindlessly risky.

Chuck Bryant

Yeah, that's why a dude like Muhammad Yunus deserved the Nobel Peace Prize big time.

Josh Clark

Yeah, yeah. Yunus is a Bangladeshi economist who founded this microlending institution called the Grameen Bank.

Chuck Bryant

Can I read his quote?

Josh Clark

Yeah.

Chuck Bryant

I love it, man. It's inspiring. He said, "If banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks required collateral, my loans were collateral-free."

Josh Clark

Right.

Chuck Bryant

Here's your Nobel Prize.

Josh Clark

He also lent to the illiterate by not having too much paperwork.

Chuck Bryant

Yeah, poverty, rural areas.

Josh Clark

Rural areas where there were no banks. I mean, like, think about how little access you have to startup capital if there's no bank anywhere near you. So he sent people out to these villages to sign people up for loans, and he did it pretty aggressively, but aggressively in the favor of these other people rather than aggressively -

Chuck Bryant

Trying to make money himself.

Josh Clark

Right.

Chuck Bryant

Right.

Josh Clark

So he founds Grameen Bank, I think in the '90s, and it's actually successful.

Chuck Bryant

Yeah, I love the business model. It's so cool.

Josh Clark

Yeah.

Chuck Bryant

Just the whole thing you pointed out about what he counts on to get the loan repaid is almost like honor.

Josh Clark

It is. In traditional societies, there's a lot at stake with a good name, and when you borrow money, you're putting your good name on the line -

Chuck Bryant

That's right.

Josh Clark

- which is how you got the money in the first place, usually your family name.

Chuck Bryant

Right.

Josh Clark

So if you don't repay it, you're basically -

Chuck Bryant

Tarnishing your family name.

Josh Clark

- damaging your whole family's image, right?

Chuck Bryant

Yeah.

Josh Clark

So he uses -

Chuck Bryant

That doesn't go over so well here, I bet.

Josh Clark

No.

Chuck Bryant

Then we'd be like, "Hey, thanks for the money."

Josh Clark

"So long, chump," yeah. So they use social pressure, the traditional social pressures that are already in place to ensure loan repayment, right?

Chuck Bryant

Right, which happens on a weekly basis; is that correct?

Josh Clark

Yeah, people make weekly repayments because it's usually much more affordable.

Chuck Bryant

Yeah. And the dude, the bankers on bikes - I love that. These guys ride around on bicycles and visit them, and they give them their little payment for that week.

Josh Clark

Yeah. They're collection agents, and they'll have maybe several in each village or whatever. So these people are also these people's neighbors.

Chuck Bryant

Right, but they're not, like, threatening collection agents. That sounds - it has a bad name.

Josh Clark

Not necessarily. I don't think with Grameen Bank, it's very threatening.

Chuck Bryant

Right.

Josh Clark

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 your good name's on the line, you're gonna make those repayments. And it's successful actually, not just Grameen Bank, but across the board, with microlending in general, they have a 97 percent rate of repayment, which is -

Chuck Bryant

That's awesome.

Josh Clark

- which beats traditional banks.

Chuck Bryant

It's proof that it works.

Josh Clark

It is proof that it works, right?

Chuck Bryant

At least 97 percent of the time.

Josh Clark

So let's talk about how it works. You know, Grameen Bank and other microlending institutions aren't running around and just grabbing, like, Pedro and Shoshanna off the street - those are just two names I came up with -

Chuck Bryant

I could tell you were flailing about, searching.

Josh Clark

They don't grab them and say, "Hey, here's some money. Take some money," you know.

Chuck Bryant

Right.

Josh Clark

These people actually have to have business plans or at least ideas of what they're gonna use the money for.

Chuck Bryant

These are entrepreneurs without an opportunity basically.

Josh Clark

Exactly. 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 entrepreneurial spirit that the US is founded on, and it's happening overseas now, right?

Chuck Bryant

Spreading a little bit of that capitalist love worldwide.

Josh Clark

Right, which is love, love? So Chuck, like I said, let's talk about how it works. If you wanted to go and make a loan, how would you do this? Would you go to Grameen Bank, fly to Bangladesh, go, "Here's some money. Give this to this person."?

Chuck Bryant

Yeah, you need to get a loan to get the plane ticket though.

Josh Clark

Right, yeah.

Chuck Bryant

No, you would go online is one way to do it, and I like the model you used. Well, there's two ways. There's the not-for-profit model and the profit model.

Josh Clark

Right.

Chuck Bryant

But should we talk about Kiva.com first?

Josh Clark

Yeah.

Chuck Bryant

That's a good one. That's the not-for-profit model, correct?

Josh Clark

Right.

Chuck Bryant

And basically, you will present your business plan as an applicant from places like Lebanon, Tajikistan, Mali.

Josh Clark

All over the place.

Chuck Bryant

All over the place.

Josh Clark

Nicaragua has a lot of people on there.

Chuck Bryant

Yeah, Nicaragua. And then there's users on the other end that sign up and actually contribute toward this loan in good faith that you have a 97 percent chance of getting your money back with no profit attached, but it's a goodwill gesture. And basically, people contribute as little as $25.00 until that loan amount is full.

Josh Clark

Right. So it will be like, you know, somebody's picture and then, like, the name of their business and then, like, what their business does.

Chuck Bryant

It's almost like adopting a person in a foreign country.

Josh Clark

It's very much like that actually, and you're kind of adopting their business temporarily, right?

Chuck Bryant

Yeah, it's so cool.

Josh Clark

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 resale or purchasing agricultural supplies, like seed or whatever. And it has, like, a little bar, and it has the loan amount, the total, what they need at the end, and then it'll fill up as people contribute. So a lot of different people can contribute to a single loan, and it reaches 100 percent. And in a lot of cases, a site like Kiva will use a third-party -

Chuck Bryant

Yeah, a bank.

Josh Clark

- lending institution, like maybe Grameen Bank in Bangladesh, but a local community bank usually -

Chuck Bryant

Yeah, that's kind of necessary.

Josh Clark

- to actually issue the loan, right?

Chuck Bryant

Yeah, you can't just send them a check because they wouldn't have anything to do, you know.

Josh Clark

No, sometimes they do.

Chuck Bryant

Oh, really?

Josh Clark

Some sites actually do issue these loans themselves -

Chuck Bryant

Oh, okay.

Josh Clark

- but, for the most part, they serve as an intermediary between a you or I who's contributing our money and, you know, the bank.

Chuck Bryant

Which, of course, we don't do.

Josh Clark

Which we could though.

Chuck Bryant

I'm just kidding.

Josh Clark

And actually, the cool thing about Kiva is that you can contribute as little as 25 bucks.

Chuck Bryant

Yeah, I'm gonna sign up for this.

Josh Clark

And, also, Chuck, they have gift certificates, too. So the cool thing about the gift certificate is, like, let's say you give a gift certificate to me, and what you've done is you've made a -

Chuck Bryant

It'll never happen.

Josh Clark

You better do this. You've contributed 25 bucks basically in my name to this, whoever's business in Nicaragua. And I get the 25 bucks back.

Chuck Bryant

Oh, really? Can I write it off?

Josh Clark

I don't think so.

Chuck Bryant

Oh, okay.

Josh Clark

If you do, you're a cheap bastard. The distinction is that you don't get any extra money back.

Chuck Bryant

Well, no. There's no interest return on your investment.

Josh Clark

No, there isn't, but these people are paying interest. The average interest on a microloan worldwide is about 31 percent.

Chuck Bryant

Does that just keep the whole thing afloat? Is that what they use that money for?

Josh Clark

Supposedly. We'll get to that in a second.

Chuck Bryant

Okay.

Josh Clark

Because there's actually criticism of microlending -

Chuck Bryant

Yeah, I saw that.

Josh Clark

- believe it or not. So that's the not-for-profit one. It's really just socially responsible investment where you can usually expect to get your full amount back, but not any interest.

Chuck Bryant

Right.

Josh Clark

Then there's the for-profit model, right?

Chuck Bryant

Yes, like Microplace.com.

Josh Clark

Yeah, that's pretty much the - that's on par with Kiva. It's like those are the two big microlending sites.

Chuck Bryant

Right. And this isn't a bad thing because people are trying to make a profit either. It still works out great. They get their money, and you can get a yield as high as 5 percent, not bad.

Josh Clark

Which I was reading an article, and some guy was saying, "Compare that to CDs."

Chuck Bryant

I know.

Josh Clark

You know, you get a CD that's giving you 3 percent interest, you got a great CD right there.

Chuck Bryant

And a CD doesn't give some poor Bangladeshi a leg up -

Josh Clark

No, it doesn't.

Chuck Bryant

- for his petty cab business.

Josh Clark

Although there are - if you have a 401k and you start looking around, more and more investment banks are creating mutual funds that loan to microlenders, like Grameen Bank, that kind of thing.

Chuck Bryant

Right. I have a personal story about this actually.

Josh Clark

I want to hear it, buddy.

Chuck Bryant

You didn't know this, did you?

Josh Clark

No.

Chuck Bryant

I worked on a - I did a voiceover for a friend's documentary he did about the tsunami survivors, and he works for a non-profit agency, like missionary work type thing. And I did the narration for it.And one of the guys - he focused on, like, four different stories - one of his stories was a guy who had a petty cab, you know, the little bicycle cabs. And he got a microloan - I don't remember who it was from - after the tsunami to buy a second and third petty cab. And then the money he got from that, he opened a little store, like a little, small hut store. But the dude was able to build a house and, like, restart his family. He lost his whole family. He met another woman, and they ended up having kids.Josh Clark: Cool.

Chuck Bryant

It's, like, the coolest story.

Josh Clark

It is a great story.

Chuck Bryant

And I don't think he had to borrow more than, like, $100.00 or something, man.

Josh Clark

Well, that's a point actually.

Chuck Bryant

Yeah, it goes a long way.

Josh Clark

The 25 bucks, I think in the article I compared it to the Peruvian sole. So 25 bucks on August 10, 2009 when I wrote this article, the exchange rate was, I think, 25 US dollars to 73 Peruvian soles, right?

Chuck Bryant

Yeah.

Josh Clark

So, I mean, if somebody gets $1,000.00 loan, it's almost 3 grand in sole, which - that's a ton of cash. You can buy a lot of timber.

Chuck Bryant

Yeah, and petty cabs.

Josh Clark

I have a personal story about microlending.

Chuck Bryant

Really?

Josh Clark

I borrowed some money from my dad once, and I still have an outstanding balance.

Chuck Bryant

Is that why your leg is broken?

Josh Clark

Yeah, well, my thumb. That's funny you should bring that up, my friend.

Chuck Bryant

Loan sharks?

Josh Clark

That was a great setup.

Chuck Bryant

Yeah.

Josh Clark

You may notice that this is actually - it bears a striking resemblance to loan sharking -

Chuck Bryant

Right.

Josh Clark

- which still exists in a lot of countries. And actually, I read that microlenders are starting to give loan sharks a run for their money because there is no attendant threat of violence.

Chuck Bryant

Driving them out of business.

Josh Clark

And their interest rates are much, much lower.

Chuck Bryant

Yeah. What is - I looked it up actually. I couldn't find what a loan shark rate might be.

Josh Clark

Oh, often, like, 1,000 percent, 300 percent.

Chuck Bryant

Are you serious?

Josh Clark

Yeah, just astronomical amounts.

Chuck Bryant

That's unreal.

Josh Clark

Yeah. And you will have your leg broken.

Chuck Bryant

Yeah.

Josh Clark

Yeah. They don't, you know, Muhammad Yunus, he won the Nobel Peace Prize. He's not really into leg-breaking, I don't think.

Chuck Bryant

Right, not any more.

Josh Clark

No. And you can tell, look at him. Did you see him in the article? He's got his little Nehru jacket on.

Chuck Bryant

I didn't see that.

Josh Clark

And he just looks like, "You can trust me. I help the poor."

Chuck Bryant

"Here's $25.00. Go build a business."

Josh Clark

Yeah. So, yeah, that little amount that you contribute really has a huge effect in the developing world, right?

Chuck Bryant

Right.

Josh Clark

So that's pretty much the nuts and bolts of how it works. Like I said, there's mutual funds -

Chuck Bryant

Right that back these.

Josh Clark

Right. And supposedly, it actually does have an impact. A lot of people, as we were saying, that export of capitalism, of the American dream -

Chuck Bryant

Yeah, I like the tie you made there or that other people have made and that you highlighted.

Josh Clark

Well, there's a theory that globalization prevents war. It hasn't been fully panned out yet. A lot of people thought that interdependent economies of the 1920s and '30s would prevent war, and we still had World War II.

Chuck Bryant

Sure.

Josh Clark

So they kind of undermine that. I personally think that we just weren't at the stage of globalization yet that we are now, and I think globalization can prevent war just because money trumps ideology any day, especially if you are in such a position of power that you are commanding armies or economies or nations or whatever, you're probably gonna go with your economy over ideology, right?

Chuck Bryant

Yeah. I got another quote from your own article.

Josh Clark

Let's hear it.

Chuck Bryant

Well, this kind of backs that. This is what the Nobel Committee said when they awarded Yunus the prize in '06: "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty." And, dude, that's pretty succinct.

Josh Clark

Yeah, a lot of people were surprised when Yunus won the Nobel Prize.

Chuck Bryant

Yeah. But how can you break out of poverty is by getting a microloan and starting your own business.

Josh Clark

Yeah. There's another theory that terrorism is bred by poverty rather than religious ideology or dogma.

Chuck Bryant

I could be down with that.

Josh Clark

So, yeah, you start -

Chuck Bryant

Makes sense.

Josh Clark

You go, "Whoa, whoa, whoa, whoa. Let's stop this Jihad, and maybe we can explore some business opportunities instead."

Chuck Bryant

Right. Wouldn't you rather open up a Jihad stand?

Josh Clark

Than blow yourself up in the middle of that market?

Chuck Bryant

Right.

Josh Clark

Yeah. And if you have a stand in that market, you're not gonna want suicide bombersthere. It's bad for business.

Chuck Bryant

Yeah, sure. Well, a lot of people say there's not a lot of evidence though, right, on the other side of the coin?

Josh Clark

Yeah, there's a Yale economist I quote in this saying we are utterly devoid of evidence.

Chuck Bryant

Right.

Josh Clark

And there's some studies that have shown that it doesn't necessarily help. These people may repay it, but there's no follow-through on them actually using the loan for what they say they're going to.

Chuck Bryant

Right, right.

Josh Clark

You know, I mean, like, if you suddenly have 3,000 soles -

Chuck Bryant

You blow it on [bleep].

Josh Clark

Yeah, you could easily do that, or you could pay rent or something like that. Things come up.

Chuck Bryant

True.

Josh Clark

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?

Chuck Bryant

Or if, you know, someone knows, if your neighbor knows you got a loan, and you get robbed or something. I'm sure other things happen.

Josh Clark

Um hm. And, apparently, microlending's still young enough that it requires injections of capital, like these lending institutions themselves, to stay afloat, and they themselves aren't self-sufficient.

Chuck Bryant

Right, right.

Josh Clark

But you have to have that self-sufficiency to help other people become self-sufficient.

Chuck Bryant

Yeah.

Josh Clark

I think the jury's very much still out, 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 -

Chuck Bryant

To grow, sure. And at a 97 percent rate, I mean, you can't argue with that.

Josh Clark

No. And that 97 percent rate though has actually led to some really despicable plots, I guess.

Chuck Bryant

Oh, yeah, the Mexican banks?

Josh Clark

Yeah. Grameen Bank has actually pointed out that this vastly overlooked segment of the population are dependable to repay loans. So, as a result -

Chuck Bryant

People take advantage.

Josh Clark

- some banks have come up to create - to issue microloans, but not to help poverty, but to make money.

Chuck Bryant

Right, specifically lent to the poor though still.

Josh Clark

Yeah, there's a guy in Mexico who owns the - they were kind of like the Wal-Mart ofMexico. And I can't remember his name, but he's this multibillionaire 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?

Chuck Bryant

Right, right.

Josh Clark

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 -

Chuck Bryant

Like Wal-Mart.

Josh Clark

Very much like Wal-Mart. He founded a bank called Banco Azteca.

Chuck Bryant

Right. That's one of two, right that does this?

Josh Clark

Yeah. They are a microlending institution that this guy owns, and they issue these small loans to the poor, the working poor, but at really astronomical interest rates.

Chuck Bryant

Yeah. They drive them further into debt instead of pulling them out of the mire and the muck.

Josh Clark

Right. And they're still issuing these loans in these traditional societies that have these social pressures. They also use a lot of microlending practices, like bankers on bicycles, but these guys are the ones who come into your house and write down the serial numbers on all of your stuff -

Chuck Bryant

And say, "We'll repossess this."

Josh Clark

And they do.

Chuck Bryant

Right.

Josh Clark

And it's just - it's a perversion of microlending. It's exploitation.

Chuck Bryant

Right. It's preying on the poor.

Josh Clark

Yeah.

Chuck Bryant

That APR is up to 100 percent, you said, or more than 100 percent?

Josh Clark

More than 100 percent sometimes. So if you borrow $1,000.00, you pay back $2,000.00. The problem is, is Banco Azteca has specifically lobbied the Mexican government to be exempt from a law that forces lenders to state the terms of their loan, including the interest rate on a loan, on the loan before they issue it. So a person goes up and says, "I want $1,000.00," the bank issues it, and the person walks away with their $1,000.00 with no idea how much they actually owe. Legally, they don't have to do that.

Chuck Bryant

Kind of like an arm.

Josh Clark

And you could make an argument either way, right?

Chuck Bryant

Right. And it's not just Mexico though.

Josh Clark

Who is responsible for those arms that you just mentioned? Was it the aggressive, predatory lenders? Was it the people who were greedy and said, "Wow, I can afford a $600,000.00 house even though I only make $40,000.00 a year."?

Chuck Bryant

And to read the terms of their loan close enough. Everyone's to blame.

Josh Clark

Everyone is to blame, but Muhammad Yunus.

Chuck Bryant

Right. 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.

Josh Clark

It is happening in other places, and there's a lot of companies that we're familiar with, like Citigroup, HSBC Holdings, Zurich Financial, and I guarantee you a lot of the people who run those mutual funds that are heavily invested in these microlending institutions that are for-profit and exploitative.

Chuck Bryant

Yeah.

Josh Clark

So I think if this has piqued your interest in microlending, and you wanna go on and maybe contribute a few bucks, do a little extra research to find out exactly what the terms are for repayment of those loans, who they're going to, who they're going through, and especially if you're gonna do it through a mutual fund or something like that.

Chuck Bryant

Yeah.

Josh Clark

Yeah.

Chuck Bryant

I love it. I'm gonna do it.

Josh Clark

I'm gonna scrape together 25 bucks.

Chuck Bryant

You can do it.

Josh Clark

Yeah. I'll scrape together $50.00, pay $25.00 to my father, and then give $25.00 on Kiva.

Chuck Bryant

You only owe your dad 25 bucks?

Josh Clark

No, but it's something.

Chuck Bryant

Oh, gotcha.

Josh Clark

Yeah. You can find this article, "How Microlending Works," and a whole bunch of - we have some really cool economics articles on the site. Did you know that?

Chuck Bryant

We do.

Josh Clark

Yes, we do.

Chuck Bryant

You wrote a lot of them.

Josh Clark

I did. So did Jane McGrath. She kicked it -

Chuck Bryant

Yes, Jane did.

Josh Clark

- on money for a while. You can find those by typing in probably "economics" in the handy search bar at HowStuffWorks.com, which, of course, friends, neighbors, loved ones, leads us to what's in our mail.

Chuck Bryant

So, Josh, this listener mail is actually very relevant. I saved it for this episode. Our buddy, Stefan, who sent us our signs! Folks, we have people that are actually sending us things now.

Josh Clark

It's awesome.

Chuck Bryant

We've gotten some -

Josh Clark

Beer.

Chuck Bryant

We got beer from a microbrewery, Saint Arnold's Brewery in Houston.

Josh Clark

Oh, God, that was good.

Chuck Bryant

It was really, really good.

Josh Clark

Yeah.

Chuck Bryant

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.

Josh Clark

I got a Michael Jackson shirt from Ben Ivy that he designed.

Chuck Bryant

Really?

Josh Clark

It was cool.

Chuck Bryant

You didn't show me that.

Josh Clark

I'll show it to you.

Chuck Bryant

Jerk. So, Stefan - I'm gonna go ahead and say his name because he wanted me to - Stefan Braham, he is in Newark, Delaware, and he and his wife are a two-person team and opened up their own small business in January '09 called Alletteration, A-L-L-E-T-T-E-R-A-T-I-O-N.

Josh Clark

Nice spelling.

Chuck Bryant

Thank you.

Josh Clark

You forgot to finish it with, "Alletteration."

Chuck Bryant

Alletteration. And he sent us these signs to go in our studio. It has our studio name, and underneath one of them, it says, "Where Twinkies are revered and moonshine is respected," which we thought was great.

Josh Clark

Darn tooting.

Chuck Bryant

And I think his daughter helped him come up with that.

Josh Clark

Yeah.

Chuck Bryant

And then the other one says, "Where bad-ass knowledge happens."

Josh Clark

Yeah.

Chuck Bryant

And we've got both of these hung up in our studio, and they look awesome. And we just want to thank Stefan and say good luck with your business.

Josh Clark

Yeah, big thanks, Stefan, and his daughter and his wife.

Chuck Bryant

It means a lot to us, and he said that they - he also wanted us to mention, if we could, that they try to use recycled wood and stuff to make it a more green business, and these signs were actually taken from, like, a children's bed or something like that. That's what he said.

Josh Clark

Poor kids.

Chuck Bryant

Now his daughter's on the floor.

Josh Clark

I know. She's, like, "I hope Josh and Chuck are happy."

Chuck Bryant

If you want to support Stefan, he sayshis website isn't completely finished. You can go to alletteration.etsy.com or email him at information@alletteration.com. That's two Ls, two Ts. And Stefan's a great guy. We wish him all the luck in the world.

Josh Clark

Yeah.

Chuck Bryant

Quality business.

Josh Clark

Well, Chuck, also, you opened 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, unicorns, torpedo," whatever.

Chuck Bryant

Or go to the website and click on the contact button at the bottom, and it has the address, and you can just send it straight to us.

Josh Clark

Yeah, but we won't hear from them then.

Chuck Bryant

They can include a written note, a handwritten note and a glossy photo.

Josh Clark

Okay. You know, well then I still have to give the email here, Chuck.

Chuck Bryant

Go ahead.

Josh Clark

All right, whatever. If you want to say hi or whatever, just send an email to stuffpodcast@howstuffworks.com.

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