It's not just a mad dash for houses and cars that people can't afford that can produce a credit crisis. India is proving you can achieve the same results one $125 vegetable cart investment at a time. Once viewed as possibly the only population on Earth courteous enough to repay borrowed money, microlending recipients are demonstrating their ability to quickly come up the learning curve on fraud and snowballing debt creation.
"I took from one bank to pay the previous one. And I did it again," says Ms. Taj, 46 years old. In four years, she took a total of four loans from two microlenders in progressively larger amounts -- two for $209, another for $293, and then $356. At the height of her borrowing binge, she says, she bought a television set."
Still, folks in the developing world have a long way to go before they reach the pinnacle of reckless lending behavior. For starters, people need to learn that admitting you lied on a loan application is a no-no.
They came to Ms. Sharma's door, too. She borrowed $126. Under the loan's terms, she said she would use it to finance a small business -- a snack stand she runs with her husband. Many microfinance providers require loans to be used to fund a business.
But Ms. Sharma, a 29-year-old mother of three, acknowledges she lied. "You have to mention a business to get a loan," she says. "There was no other way to get the money." She used it to pay overdue bills and to buy food for her family.
With a quick lesson in semantics, Ms. Sharma could change her vicious lie into a loan complying endeavor. By replacing 'buy(ing) food for her family' with 'established small restaurant with loyal customer base focusing on regional cuisine', her problem is solved.
A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum [WSJ]