Three Cheers for Usury
Charge 80% per year on a loan in the U.S. and you're called a usurer. Charge 80% on a loan in Latin America or Africa and you can be a poverty-alleviation charity.
Via Tyler Cowen, from today's Wall Street Journal. The quote is from the authors of a new paper with the slightly less than punchy name "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts."[PDF] In the paper, they examine the results after a South African lender encourages its loan officers to approve a random selection of their near-miss loan applicants. Looking at loan repayment and credit two years later they find:
…the marginal loans produced significant benefits for borrowers across a wide range economic and well-being outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving.
In other words, everybody wins. Sweet.