Related: I know a guy who, after working on reputable micro-credit schemes overseas, tried to replicate the program in Detroit (where he is from).
When he handed out the micro-loans in Detroit (adjusted for local purchasing-power), people just pocketed it and walked without any consideration of paying back the loan. Hopefully, like in the article, they spent it mostly on useful things for themselves, like food or toothpaste.
He had several possible explanations for why they didn't keep with the program. One was cultural differences in entrepreneurship between the poor communities in the developing world vs those in the US.
But a more interesting reason I thought of is that there may not be much room for micro-financeable cottage industries in the US (like raising chickens for egg distribution, etc).
Mass produced (and lower quality) food and other goods are so cheap here that it's not clear how a micro-financed business could compete at the low end of the market like they potentially can overseas in a less developed society.
In fact, I think most cottage industries I've seen exclusively cater to the high end (maca root chocolate truffles made in handmade in Marin county, anyone?)
I agree that in the USA "there may not be much room for micro-financeable cottage industries".
The closest we have around here is "very small business owners". I see landscaping, housekeeping, small restaurants (e.g. yogurt shops), food carts, etc. They all involve a lot of hard work for relatively low pay!
It's possible to start a landscaping business with a microloan. But most other small businesses require more capital than that. Even a food cart requires thousands of dollars in equipment.
From the way you described it, it sounds there weren't any consequences to not paying back. In that case, paying back is a waste of money. Maybe the people overseas paid back because they had been taught to be more obedient to authority than people in Detroit.
Perhaps it's not an issue of "more obedient to authority". Instead, at least some microloans overseas succeed because of "solidarity lending" [1], which involves "peer pressure, mutual support and a healthy culture of repayment".
But not here: "Efforts to replicate solidarity lending in developed countries have generally not succeeded."
I think it could work here among the right groups. E.g. in the last century credit unions were very popular. These weren't just formed by employers and unions, but also by various immigrant groups in the big melting pot cities like New York. Those immigrants weren't desirable customers by existing banks, and so they were forced to form their own banks for both deposits and loans. And were quite successful.
What "qroup" did the borrowers in Detroit belong to?
When he handed out the micro-loans in Detroit (adjusted for local purchasing-power), people just pocketed it and walked without any consideration of paying back the loan. Hopefully, like in the article, they spent it mostly on useful things for themselves, like food or toothpaste.
He had several possible explanations for why they didn't keep with the program. One was cultural differences in entrepreneurship between the poor communities in the developing world vs those in the US.
But a more interesting reason I thought of is that there may not be much room for micro-financeable cottage industries in the US (like raising chickens for egg distribution, etc).
Mass produced (and lower quality) food and other goods are so cheap here that it's not clear how a micro-financed business could compete at the low end of the market like they potentially can overseas in a less developed society.
In fact, I think most cottage industries I've seen exclusively cater to the high end (maca root chocolate truffles made in handmade in Marin county, anyone?)
EDIT: wording