It is better to criticise than to offer solutions.
This view puts me at odds with my peers, my parents, and a few other people I know.
You see, for the past fifty years, India has experimented with “financial inclusion” or the policy of providing access to deposits and loans to rural areas. There is always debate on the methods, but not on whether this is any kind of useful goal.
I tell some people, “Look. It’s more expensive to do business in rural areas. It’s riskier to do business in rural areas. The cost and risk is so high, there will never be any long-run or short-run benefit from it that could cover them. So nobody will provide banking services in mountain or forest villages. Ever.”
They could rub my nose in the dirt a few years when they told me about for-profit private sector schemes called microfinance which provided lots of loans to the poor, saw negligible default rates, and billions of dollars in revenues. But alas, it has surfaced that a) they send thugs to extort money through violence and blackmail, b) they have low default rates because borrowers take other loans to repay them, and c) they just throw away loans for consumption purposes and collect them back by force and by hoping other moneylenders lend to them to get back their money.
Then the other vindicated group will write columns about how it is time to revisit public sector banks in villages, except those banks do nothing but lose billions of dollars in bad loans given at low rates and long periods of repayment, and have been going this path for 40 years. Indian banks don’t know moral hazard and adverse selection.
And then they both will look at me and ask for what I think the solutions are. I tell them there is no solution, because it is too expensive to business in poor areas, it was too expensive for German bankers to do business in Morroco 100 years ago, and if anybody starts a successful finance business for financing and enriching the poor in rural areas, he will set a precedent unknown in the past 700 years of humanity.
What do you say?
I say, stop casting pearls before swine.
The credit system is a racket for enslavement, this is why it gets pushed on people even when it does not work, and is not in their best interest. You should know by now that just because something violates every notion of sound economics, doesn’t mean people won’t practice it as policy, or endorse it as a layman.
People want to believe noble lies, let them.
It’s not that people are swine.
It’s just that moral hazard and adverse selection are as difficult for them to understand as it was for me, and even I was once prone to thinking that a little loan that is to be paid back anyway could not hurt the poor or the lender.
See, a problem of being a free marketer is that you question intentions before you question results. For example, if you were ever asked, “How will the free market remove income inequality?”, you’d likely respond, “Who said anything about removing inequality?”
This issue is similar, but I think reality has convinced people better about the failure of financial inclusion than I ever could. Microfinance companies have seen a plummet in their share prices, governments are investigating into their thug-like practices, and there is still a lot of rotten disgust in the typical Indian about public sector bank loans have been given away wastefully in the past. It’s all slowly narrowing down to the last remaining conclusion, and there is some sign that financial inclusion will be discarded as a goal forever. Although the central government merely wants to “regulate” a thuggish enterprise like microfinance, the state government of Andhra Pradesh intends to put an end to it forever, “financial inclusion” be damned. So people don’t always believe noble lies, especially not the policemen in AP.
well capitalism in general is not that easy of a subject to preach about… if someone asked me how i felt about the minimum wage five years ago, i would have said that it was a good policy and a policy such as the minimum wage might even sound reasonable at first glance… but it is not until you actually study on the theory that you see the flaws of the theory… i used minimum wage as an example but this same way of thinking is relevent to your situation… it takes a lot of studying to fully understand economics and/or capitalism… if you are talking about capitalism/economics to people that wont even bother picking up a basic book on economics, you are wasting your breath
Financial inclusion as you call it will never be removed as a policy because policy is not about what works and what does not work. Or at least, policy does not work for reason or humanity or constituents or any other noble lie. Policy serves a very select group, regardless of the consequences of that policy.
The Soviets didn’t give up communism. They killed 10s of millions to keep trying to make it work. Think about that.
The real problem for rural finance has nothing to do with costs, risks and what not. It has everything to do with the US Government-Federal Reserve banking cartel. It is very difficult for entrepreneurs to satisfy the demand for loans in rural areas in the current regulatory environment that funnels trillions to the central banking - central govenrment complex.