No blog post for a week, perhaps I am not as self important or tenacious as I think I am.
I have been meaning to read Muhammad Younus’s book “Banker to the Poor” for a while, I had not heard of him till he won the Nobel Peace Prize. He helped found the Grameen Bank, a bank that lends small amounts of money to poor people in Bangladesh who have no collateral (called Microfinance for obvious reasons), and later the Grameen Foundation. Access to collateral is obviously really significant in your success; I know a great way to have a guaranteed income of 80k a year (less tax), put a million quid in a savings account at 8%.
Peer Lending is another topic that is becoming popular, particularly as we experience the so called credit crunch. Zopa in the Uk and Prosper.com in the US are interesting ways for lending and borrowing money. This is often described as “cutting out the middle man” but obviously this is just being a middleman that skims rather than grabs. Sometimes you directly loan money to an individual, sometimes the risk is spread for you. This risk spreading reminds me of Collateralized Debt Obligations; the source of much of the cheap credit now available and an accelerant of the recent crunch, also claimed to be a big factor in the supposed Great Moderation we are experiencing (along with supply chain innovations like Just In Time Inventorying). The web is obviously an enabler for this sort of idea and I think the market forces mean users are getting a better deal than they otherwise would. This happened in gambling with BetFair and SpreadFair (which is owned by Cantor Fitzgerald and run out of Canary Wharf, a very good friend of mine works there).
Markets are good (at least sometimes).
A more traditional way for people to access capital and services are non profit organisations like credit unions and friendly societies. I recently joined the Leeds City Credit Union and am pleased to say I got a loan off them at 9% APR to consolidate the credit card debt I still have from my time at university, debt free in 5 years (I am going to overpay and try and clear it in 3). You can access cheaper credit if your credit history is pristine, but my time in India at the beginning of the year after quitting teaching made mine a little tarnished and I do not begrudge them the small difference as all profits are given to members as dividends. They provide a much needed service to less well off people banks could not care less about and help them avoid horrendous door-to-door lenders like Provident. “The Provvy” absolutly disgust me; I got a letter through the door with a picture of a christmas tree and an offer of £500 for only £15 per week. This is for 56 weeks though, so you pay them £840, which is an APR of 183.2% which they are not shy (due obviously to regulation) about telling you on their site. My first instinct was to feel sympathy for people for whom this is the only option, but clearly it never is; go to the credit union or start saving in June for Christmas. I am back onto my standard rant about whether people are undereducated or wilfully careless about their own wellbeing in the long-term in favour of instantaneous gratification, which I hope should stop in adulthood. One shit year while you paid off your loan and one shit year while you saved would allow you to spend twice as much each year, to me that is a no-brainer.
Quite link heavy today, may save you some googling.