Payday Loans: A View From Down Under
Payday loans may not just be gaining popularity in America. An article on The Herald Sun recently discussed their effects in Australia, as well. The author also gave his take on the business of cash advances. It’s paraphrased below:
Last week I wrote about a micro-lending outfit called Amazing Loans. It is raising capital on the Australian Stock Exchange to take advantage of a loophole in Victoria and Queensland allowing it to charge huge interest rates and fees on payday loans.
The people who stand to lose from payday loans lenders are those who can least afford it. While lending has become a multi-billion dollar industry in the US, there are fears that Australia’s sinking savings rate may lead us down the same path.
The only practical solution is for the Victorian and Queensland governments to outlaw this practice. This will kneecap the loan sharks and protect vulnerable consumers. So one might think, that is.
Despite the varying views on payday advances, my faith in the capitalist system is still strong. Micro-lending may be doing untold damage in Western countries, but the irony is that small loans to impoverished people have been found to be one of the most effective ways to help lead people out of poverty in some of the world’s poorest countries.
Giving some of the poorest people on earth access to credit allows them to start building businesses that not only benefit the owner, but in time provide sustained income that can be exchanged with other small business people in the community.
A grassroots community-driven savings and investment plan gives some of the poorest people the ability to rise from poverty with dignity.
Charity and aid may help people in the short term but empowering people to help themselves has endless potential. Instilling the spirit of capitalism, where people trade with one another for the benefit of themselves and their community, is a potent force for long-term success.