Dust choked sunlight pours in from the rafter windows of the warehouse and settles heavily on the endlessly shifting lines of figures flowing between colorful tarps loaded with produce and vendors. It’s just after quitting time and the weekly Tuesday farmers market is in full swing. Sacks of colorful spices jostle for space with avalanches of cabbage and lettuce. Watch your step as you squeeze down the crowded aisles lest you accidentally knock down one of the many pyramids of neatly stacked red and white onions. Buy peanuts by the kilogram, avocados the size of a small dog or tofu in either wet or dry form. It’s a bonanza of color and noise; rows upon rows of buyers and sellers, voices raised in the familiar verbal dance of haggling. A veritable sea of people ebbing and flowing with the tides of the bargain, crashing against itself violently where the aisles intersect, little eddies forming around the stands with the best product. Bring $10 and leave with enough fruits and vegetables for a week- and delicious ones at that.
It’s a common scene in developing countries all over the world. Women sitting all day in a crowded market or along the side of a road, shooing flies away with cow-hair switches, entreating passers-by to stop and examine their goods. For me, it became so commonplace I failed to scratch the surface of its meaning until recently. Without really thinking about it, I assumed these were women selling food they had produced themselves. I was given a fresh perspective on these markets, and on small scale vendors in general, after reading Abhijit Banerjee and Esther Duflo’s new book Poor Economics. In actuality, many of these vendors are purchasing their goods from a large supplier in the morning. Or, to be precise, they are renting them. Most of these individuals purchase their daily stock on credit and pay the supplier back at the end of the day, with interest. What really blows me away is exactly how much interest they pay. One of the studies cited in Poor Economics found the average produce vendor in Chennai, India was paying an interest rate of about 4.69% a day! Working off of that, the authors determined that, "a $5 loan, if it goes unrepaid for a year, leaves a debt of nearly $100 million.” It was this astonishing figure, and the possibilities that freeing vendors from this yoke would present, which helped create the idea of microlending, still one of the biggest buzzwords in the development field. Microlending is defined, according in part to Wikipedia as, “the extension of very small loans" [usually at modest interest rates] "to those in poverty designed to spur entrepreneurship”
The plot thickens when the authors attempt to assess the impact microlending has had on poor people across the world. In one comprehensive study they find, on the one hand, it hasn't had a negative impact and was helping bring down wasteful spending, but on the other hand, wasn’t dramatically boosting business creation or empowering women, two of the “sexier” results supporters are looking for (apologies to Jane). They had determined it was working, but not with the level of impact people were hoping for, so they attempted to figure out why. Two of the reasons they found are also what make microlending as consistent as it has been. One, giving loans to groups of women, and therefore employing the social pressure of joint liability to ensure repayment, also discourages individuals from making any risky investments. Another is the strict repayment schedule borrowers must follow which starts shortly after the loan is received. This prevents people from investing in projects where the payout isn’t certain or immediate. Both of these stipulations cut down on loan defaults (for good reason) but also on risk, and failure, and therefore the impressive results many people are looking for.
One final reason questions the idea of poor people as “natural entrepreneurs”, a common tag line in microlending. The authors suggest that some of the deficiency in results may be be due to a lack of enthusiasm on the small business owners’ parts. They are running businesses that will likely never be able to grow beyond a certain point because of minuscule profits, saturated markets and/or unaffordable capital to make the leap into a bigger business. Plus, they’re not the greatest jobs in the world, more of something put together to help make ends meet. Many of these owners may be just biding their time until they can find a better/more interesting/more profitable job and have no interest in making a career out of being, say, a fruit vendor. Personally I found these conclusions to be at the same time fascinating but logical. However, as a relative amateur in this field, I would love to hear any thoughts or criticism.
One final reason questions the idea of poor people as “natural entrepreneurs”, a common tag line in microlending. The authors suggest that some of the deficiency in results may be be due to a lack of enthusiasm on the small business owners’ parts. They are running businesses that will likely never be able to grow beyond a certain point because of minuscule profits, saturated markets and/or unaffordable capital to make the leap into a bigger business. Plus, they’re not the greatest jobs in the world, more of something put together to help make ends meet. Many of these owners may be just biding their time until they can find a better/more interesting/more profitable job and have no interest in making a career out of being, say, a fruit vendor. Personally I found these conclusions to be at the same time fascinating but logical. However, as a relative amateur in this field, I would love to hear any thoughts or criticism.
If you’ve made it this far, I’m impressed, so I’ll leave you with the fun fact that I had a chicken foot for dinner tonight. You may or may not be disappointed I don’t have a picture to share.
