Wednesday, July 3, 2013

shysters or sponsors?

The village-based system of System D money lenders is so embedded in Cambodian culture, the Phnom Penh Post asserts, that it is blunting attempts of formal banks and microfinance institutions to spread around the country.

Bun Mony, president of the Cambodia Microfinance Association (CMA), told the paper that informal lending was widespread before banks and microfinance institutions began sprouting up all over the country. “So it became . . . the culture of Cambodian people.”

“Borrowers and money lenders know each other on a first name basis, residence, credit history, etc, and do not require borrowers to fill out application forms,” Kang Chandararot, director of the Cambodia Institute of Development Study, added.

Informal loans can carry an interest rate of 10 percent per month, the paper reports. That's usury, I agree.

Still, despite the eye-popping interest rates, there's a larger point here. The traditional system works, albeit with problems. So why must we force people to adopt the western, formal, arms-length  transactions of banking? Why do economists and politicians continually deride traditional ways of doing business that have worked reasonably well for people for decades? Why do they insist on stripping away relationship models of business? Why can't banks organize village cooperatives, which function like System D lenders, making handshake deals based on firm and longstanding relationships of trust, but with less onorous rates?

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