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Micro Credits – A Solution For Poverty?

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By Viktor Persson

After the Norwegian Nobel prize committee decided to give the United States president Barack Obama the peace price, a president that later came to continue to war in Iraq, and also fund insurgents in Syria, I seriously started to doubt the reasoning skills of the members of this Nobel Prize committee. And after having watched the documentary ‘The Micro Debt’ by Tom Heinemann, I have concluded that the Nobel Prize committee (at least those handing out the peace prize) do not know anything about what it means to create actual peace in this world. Because when they decided to give Muhammad Yunus the peace price, for having founded the Grameen Bank, and invented the concept of micro loans, and for thereby apparently having found a solution to poverty, they were obviously not using basic mathematics to assess the outflows of such loan methods.

YunusThough, before we dive into the basic mathematics of Micro Debt and whether this can be a solution for poverty or not, let me share the story of Muhammad Yunus, his bank, and the stories that has begun to surface about his money lending practices. It begins in 1976 when Yunus (supposedly) found out that small loans could make a disproportionate difference in a poor person’s life. According to Wikipedia, the first loans Yunus gave, made it possible for the borrowers to profit. Yunus business expanded, and by July 2007, his bank had issued around US$6.38 billion to 7.4 million borrowers.

As mentioned above, Yunus was awarded the peace price in 2006 for his efforts to create economic and social development. However after the release of the documentary ‘The Micro Debt’ the Bangladeshi government decided to review Yunus bank, and Yunus himself was removed as Managing Director of his bank. This is not particularly strange considering the claims that are made in the documentary, and the compelling evidence that it presents, that the micro debt is not at all a solution for poverty, but rather a trap, making the large amount of borrowers worse off than before.

Though in this blog I am not going to focus on Yunus and whether the claims made against him are true or not. My focus will instead be the concept of micro credits and whether these loans makes any sense; is it really possible to remove poverty through debt? The Micro Credit concept is not unique to Bangladesh; it has also become popular in South Africa, where it has created the opposite of poverty reduction. The following quote gives a stark description of the situation that unfolded.

”The microcredit-induced problems that emerged in South Africa are two-fold. First, microcredit per se is actually an “anti-developmental” intervention. For one thing, it exists on paper to support the smallest income-generating activities, but in practice is increasingly all about supporting consumption spending. In South Africa, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.

With few poor individuals possessing a secure income stream that might ensure full repayment of a microloan – unemployment is now higher than it was under apartheid – many of the poorest individuals have been forced to repay their microloan by selling off their household assets, borrowing from friends and family, as well as simply taking out new microloans to repay old ones. For far too many now “financially included” individuals in South Africa, using microcredit to support current spending has been a disastrous and irreversible pathway into chronic poverty.”

Milford Bateman, Microcredit has been a disaster for the poorest in South Africa, http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster (2015-09-25)

 

Euros - MicrocreditAcademics and other proponents of the Micro Credit as a way out of poverty makes the assumption that the money lent will be used by the borrower to further his business. This however, is just that, an assumption. Most poor people are just as middle class people, not entrepreneurs, and do not have a very entrepreneurial relationship with money. The loan will be used to buy goods for immediate consumption, and will only serve to put more pressure on the debtor. In worst-case scenario, this will lead the already poor person, to loose the little safety they do have, when they are forced to sell their house to meet interest and installment payments.

Further, those borrowers that are indeed entrepreneurs, and that do invest their money in a business, there is nothing that says that these businesses will be able to profit. Nine out of ten startups fail – and that number will probably be even higher when not only you, but also all of your neighbors, decide to go out on the streets and sell the same thing – which did happen in South Africa.

Then we have the big problem when it comes to Micro Credits, the interest rates. On some of the Micro Loans that interest rate will be at 100 % or more. There is no startup that yields a sufficient profit to cover such a high interest rate. Conveniently for the creditors, most of the debtors are not proficiently literate, and will thus not really understand what they are signing.

Yunus was applauded when he was able to offer loans to poor people that cannot offer any securities in case they would forfeit on their installments. However, to ensure repayment of the loans, Yunus bank have developed a system of “solidarity groups”. It is these small informal groups that together apply for loans and its members act as co-guarantors of repayment and support one another’s efforts at economic self-advancement. Hence Yunus use the psychology of group pressure to ensure that the poor people are sufficiently motivated to pay back their loans. And even though this might seem innocent, in reality it has lead to the most horrific of consequences. One woman that was unable to pay her loan was pressed by her co-guarantors to take up prostitution as a way to meet her installment payment. That woman later poured kerosene on herself, and lit herself on fire. That is the effectiveness of group pressure when survival is in the picture.

What are we then able to conclude from all of this? One thing is clear: We cannot trust academics to know what is right! Even though they have a degree in economics, and even though they have received the Nobel peace price, that does not mean they actually understand how reality operates. Academics have their nose buried in deep books and because of that they will many times miss what is right before their eyes. Hence, we have to educate ourselves, and take responsibility. We cannot rely on a small intellectual elite to know how to solve such things as poverty – this is a problem that involves, and touches all of us, and accordingly it is everyone’s responsibility.

Then, the second thing we can learn: Change cannot come through DEBT. The very reason why we are living in a world where money is increasingly more difficult to obtain is because of DEBT. We live in a debt based system, and this forces us to work more – and even still there will/must be a loser. With debt, someone always loses; someone must be that poor guy that has to pay back the interest.

Real change will come through changing the structural design of the economic system – because only through changing the rules of the game are we removing this incessant fear of survival that is currently holding the entire human race in its grip. That structural change must involve giving all human beings a dignified life, real security, real safety, and easy access to money. This cannot come from debt, as debt is the very instigator of fear, anxiety and stress.

Hence, if you are interested in solving poverty, I suggest that you investigate the Living Income Guaranteed. This is an economical system that will revolutionize the way we think about money – and that is precisely what we need. We need something new, a brand new way of looking at things – a fresh start – free from debt and the old pessimistic ideas that apparently, poverty is unable to be removed from the face of this earth.

 

For more reading:

http://www.marlenvargasdelrazo.com/the-micro-debt-the-nefarious-business-on-poverty/#

http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster

 

Watch the documentary ‘The Micro Debt’

https://www.youtube.com/watch?t=791&v=yoAGKFaqwjM

https://www.youtube.com/watch?v=M6KHa4omGG8

https://www.youtube.com/watch?v=FdmXLpjykNk

https://www.youtube.com/watch?v=ncBXy_AvNUY

 

Investigate the Living Income Guaranteed Proposal

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Life Isn’t Supposed to be this Hard

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By Cerise Poolman

Labor force South Africa Living Income Minimum WageI have had many conversations with people, mostly people who are in low-paying jobs without much prospects for advancement, conversations about life. The thing that everyone agrees on is that life shouldn’t be this hard. Sometimes someone might say something like “I don’t know what we can do, maybe just pray harder.” To this I will respond with something like I think that what will be more effective than prayer to make a difference is action. If we all take action together, united in the goal of making life better, then we will see great changes – and everyone agrees to this logic. I have not met one person who says “NO, action won’t change anything!” The worst thing within all of this is that this life is difficult because we make it so. The worst part is that we could change the world if we took action, but we don’t.

One of the most popular excuses I hear is that it’s “other peoples’ faults”. The world is horrible and I have a crap life because of all the a-holes in the world. There are too many people who won’t change. The world will never change when there are so many bad people. This excuse is used to justify our own inaction – because apparently any effort we make would have no results and so it’s not even worth the effort. It’s as if we’re waiting for guaranteed paths of action, unwilling to move until we are absolutely sure that what we do will actually work. In a way this is the easy way out, because standing for change means going out into the unknown, no certainty as to what lies ahead.

Here in South Africa a very large part of the workforce survives on minimum wage, well below the poverty line. A large number of people live in illegal or government housing (which doesn’t appear to be very different when you put the two next to each other). These are the people who are hurt the most by this world, who are the most vulnerable. At this stage the only ways that they can try to bring about change is through protests, sometimes violent and sometimes not. At this stage there is a diminished level of understanding as to how change can be brought about – not only by impoverished people, but by most people.

There is a serious hole in the understanding of the average citizen Joe of how the system works, and more importantly, the power that each person has. Back to South Africa, what can the impoverished and vulnerable do to change their lives? They have minimal support from public (government) and community structures – dealing with the government is like pulling teeth, but pulling the wrong one each time. These people do not know how to ask the right questions, most of the time they do not even know what their rights are and what support structures are available to them. What then can they do? They often have only limited skills in reading and writing and, if any, very limited access to public sources of knowledge such as the internet. To add to this, the leaders they are most likely to choose are the ones who stir passion in their hearts, whether the message they are giving makes sense or not. Then there is the question of those who are more privileged – how far does their responsibility extend to the underprivileged?

I would say that where one has the ability and understanding to support another then they also have the responsibility to do so. What defines ‘ability’? Resources, skills, knowledge – but to what degree? Well, let me put it this way: If you know that you can help, then it becomes your responsibility to do so. Waiting for someone else to come along and help so that you don’t have to is an abdication of your responsibility to your community – and I don’t mean ‘community’ in the smallest sense of the word, I mean it in the largest sense, the global sense.

Life isn’t supposed to be this hard. We can change it. We can help each other. We can give opportunities to each other. We can support each other to be the best we can be. It’s doesn’t start with some other guys over there – it starts with YOU and ME. WE are the change, TOGETHER we are better, stronger. We have the responsibility to support solutions that will bring heaven to Earth. We may not see the full fruits of our labours in our lifetime, but maybe our children will.

 

Promotion of and Education on a Living Income Guaranteed for South Africa.

 

Investigate the Living Income Guaranteed Proposal

Living Income Guaranteed and Education

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One of the fundamental issues in the world today is that education has become irrelevant, because it is based on the value that you can give to a corporation or a business to make a profit. Therefore even your labor and your education do not belong to you and do not add value to the system and do not allow you to effectively participate in the world for the betterment of everyone.


In South Africa for instance, there’s now a point system where your education is based on a life-long learning process that accumulates points. In the Living Income Guaranteed system, education will be the enhancement of your labor value – your labor value being the capital growth that you add to the system. It will also be the way we add money to the money supply and the way we grow the economy. According to your education and the points you add to your labor value, your service and labor fees that will determine your income value will accordingly increase at a guaranteed level, as it will be a set framework that is equal for everyone.

We will be able to increase our capacity to earn by increasing our labor value through increasing our education. This is why education will be important to be at a quality and evaluation level that is equal, so that the labor value increase is equal. The form of competition within the system would then be your drive to improve your labor value through education. This will bring education back into value and it will ensure that those with effective accumulated labor value increase, as education will take prominent positions based on the quality of labor which will thus produce a new living standard within the world system: it will bring about a quality in service, a quality in the general living conditions of the human as we will have a system of education based on integrity as a result of having an economic system based on integrity.

Our labor will be worth our value, which will be important especially in terms of the Living Income Guaranteed because your service fee/labor fee will carry a value of service tax/ sales tax/ value added tax which is a form of tax value that is created through labor and not through resource, and thus will facilitate in large, the ability of the system to supply and to sustain a Living Income Guaranteed.

Equal Life Foundation Research Team

Basic Income Guaranteed and Education

Living Income Guaranteed and Human Rights

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Why are the Human Rights of every person on Earth not protected? If one takes this to the level of a parent, every parent wants for their children the best future in this world. With the current application and the implication of the way that our current system functions, it is more based on luck than on the fact that one has a birth right as a human on Earth to have a decent life with basic needs fulfilled. No one that currently has got these needs fulfilled would like to give it up and live in the conditions of those that do not have Human Rights in this polarized system between haves and have not’s.

With the Living Income Guaranteed – which is in a way positive capitalism – this problem can be resolved and a lot of unnecessary discord and wars on Earth can come to an end because we have a system that works. War has only become an easy way for the few elites to make a lot of money, utilizing people living in poverty through paying them a pittance for their patriotism to go out there and kill people. And all of this just to support an arms industry that is in its very nature of existence a violation of Human Rights in every way.

We suggest that it is important to investigate what Human Rights are for you and then to have a look if you have them. If you are lucky enough to have them, then also investigate if everybody has got them as well and if they don’t: we have the responsibility to ensure that they get them. If we are not willing to live the lives of those in poverty, then why should we keep others refrained from their right to have a dignified living? Currently we’re living in a modern day holocaust wherein capitalism and elitism have become part of our individual ideology in which we haven’t learned to care for anyone else but ourselves and where we use money as a dividing line between having Human Rights and not having Human Rights, accepting it as ‘how the world works.’

Through the correct use of democracy, there is going to be a change in the system and once we all realize that we can use politics to bring about a change, we can use democracy as the majority rule to bring about a change that is best for all. Within this there are also going to be consequences, because the violation of Human Rights will certainly be investigated – even only in a way like what happened in South Africa after the apartheid era, a forgiveness tribunal was established where what really happened was exposed, so that we all can learn from it and prevent it from ever happening again.

We suggest that we all get involved now, let’s realize that there is a change in the awareness of the human being wherein slowly but surely, we are all having the realization that we’ve been taken for a ride through propaganda and through manipulation of the mind, which is a necessary and inevitable step to finally take the veil off our eyes. Rather than waiting until it happens – which will place one squarely in a position where you may be perceived to have been part of the violation of Human Rights – we suggest to act now and take action. It’s going to take a lot of education and it’s going to take a lot of effort to help those that are stuck, which are the people with money – the rest have been stuck because they don’t have money and they have to focus on always getting money to survive day by day –  but something is certain: this will not continue the way it exists now.

Ask yourself the BIG question: why is it that everyone on Earth does not have Equal Human Rights? Why is it that Human Rights have become a commodity that can be bought with money?

Equal Life Foundation Research Team

Basic Income Guaranteed - Human Rights are Not Optional