The Problem with micro lenders
South African is be one of the top developing nations in the world, and small businesses are always in need of loans from those who can lend a hand, the problem with micro lenders is the actual structures of these deals and how they affect the poor in our country. Microlending can be defined as "The process and business (or charity) of making of small loans to poor people to enable them to start a business, esp. to help people in developing countries escape poverty."

Another serious problem is how desperate many of these blue-collar workers are, most people who have a steady job may not ever need a R10,000 loan but for someone in a serious financial hole this may be the difference between life and death, this often causes the poor to become exploited and they often seek these kinds of loans even when they dont understand what they are getting themselves into.

High interest loans

The high price paid for borrowing money from these institutions can become rather worrisome, there is also a very high initiation fee that one has to pay and they may also have to pay many other hidden charges. There are many cases of people having detachment orders placed against them when they cannot afford to pay back these high interest loans. These payments could add up to as much as 80 percent interest.

Banks wont give loans to high risk individuals

Many micro-lenders would argue that without them, many people would struggle to obtain finance since many large banks refuse to pay out money to high risk individuals. There have been studies that indicate that low income people pose and equal risk to banks than higher earning individuals.

Many banks have said that they are not willing to lend money to somebody who cannot pay them back, "We are a business, and this business cannot afford to constantly loose money on bad debt!"

People are being setup to fail

A person may be loaned R10,000 and lets say the repayment was R980 per month and the repayment period would be 18 months, so you would effectively pay back R19,000 rand on that loan. These is no way this person "on a low salary" could afford paying back R980 pm and this is when a debt collecting attorney comes to put the nails in the coffin.

One could remain optimistic if these people were purchasing a motor-vehicle of something else of value but most often these are loans needed to service other debt, so they are borrowing from one lender to pay off another. The sad reality is that once these people are stuck in the circle of debt there is no easy way out.
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