Could microlending develop the world?

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 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, 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 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 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

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 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 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, 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 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 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 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 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 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 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 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, 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 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. 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, 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 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 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 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 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

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. 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 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 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 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 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 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 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 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, 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. 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 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,

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 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 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 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 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 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 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 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 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

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

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 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 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 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, 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. 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 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 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 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 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, 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. 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, 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 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 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

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 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 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, 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 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 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 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, 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 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 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 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 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, 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 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

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