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Mobile Loans Ponzi
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tom_boy
#51 Posted : Wednesday, January 09, 2019 7:44:10 PM
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Joined: 2/20/2007
Posts: 767
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They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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tom_boy
#52 Posted : Wednesday, January 09, 2019 7:52:47 PM
Rank: Member

Joined: 2/20/2007
Posts: 767
I rest my case. Too many pseudo economists here. Alot of head knowledge, no practical application.

With all those experts in banking who understand loans and risk so well, how was the mortgage crisis allowed to happen.
They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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murchr
#53 Posted : Wednesday, January 09, 2019 8:01:04 PM
Rank: Elder

Joined: 2/26/2012
Posts: 15,980
tom_boy wrote:
I rest my case. Too many pseudo economists here. Alot of head knowledge, no practical application.

With all those experts in banking who understand loans and risk so well, how was the mortgage crisis allowed to happen.


I will try to help you on this one



This video should assist
"There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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MaichBlack
#54 Posted : Wednesday, January 09, 2019 9:57:51 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,843
MaichBlack wrote:
MaichBlack wrote:
tom_boy wrote:
MaichBlack wrote:
Lolest! wrote:
Angelica _ann wrote:
Gathige wrote:
tom_boy wrote:
I dont see how some people do not see mobile loans as a form of ponzi scheme. Njoroge borrows from A to repay B. Each time his loan gets bigger and bigger until eventually he will default.

I bet most people do not do any value creating work with this cash.

What % of total loans goes to mobile lending?
What % of this ends up in sport pesa et al?



The part I like about mobile money is the ease by which the meet the customers needs. You can imagine someone who needs fare to get to a work site who will be paid at the end of the day. He borrows the fare, gets back in the evening and then repays his loan and builds his credit profile. The overall interest rate may be higher than conventional rates but the ease and convenice is great.


Would you borrow from a bank if you know outright the interest rate is 50% pa, of course not. I think therein lies the risk to the greater economy since i believe it is not sustainable in the long run.

No you wouldn't but the math biz guys are doing is simple what I end up with minus what I've spent(per day).

Remember, life is very expensive in the kadogo economy

These loans have their target audience and most wazuans are not in that category. Mama mboga takes a loan in the morning buys her wares sells them by evening and repays the loan (even if it rolls over) If she borrows 2700, turn over is 5,000/= and she pays 3,000/=, she just made a cool 2,000/= she couldn't have made. Hiyo ndiyo hesabu take which makes a lot of sense!!! Come December, she decides to start selling live chicken on the side. She borrows 20,000/= at the beginning of the month, buys and sells chicken the whole month, at the end of the month she has gross of 60,000/= from chicken sales for the month she pays say 24,000/= and remains with 36,000/= she couldn't have made.

It suddenly starts raining, a hawker with no "float" quickly borrows some money, rushes to Kamukunji or wherever buys umbrellas sells most of them the same day, makes a tidy sum and repays the same day or within 30 days depending on his "business plan".

Not everything in the market is meant for everyone.


Those are great stories but is there data that this is what is actually happening? I understand borrowing a few times to cover some shortfall in a business. I dont get this mama mboga who wakes up daily to borrow money and repay in the evening. I dont get these hawker - rain scenarios occuring very often in a year. Do these people account for the billions traded daily on mobile lending? I think not.

Even if it were to be the case, what kadogo economy are we building? One dependent on exorbitant interest rates. As volumes grow, wont these high rates in themselves accelerate inflation? I am not sure that mobile loans can provide necessary break through momentum for any business. Its a loan that helps you marktime with an illusion of progress or even slowly drag you down. One default, a few bad business days and you are a defaulter, back to square 0.

Meanwhile, mobile loans deny SMEs much needed capital.

Here you were talking about inflation and denying SMEs credit.

And unfortunately you have no idea what you are talking about!!! A first year Economics student will tell you High interest rates LOWER inflation and lower interest rates increase inflation

Economics 101: Relationship between interest rates and inflation

And for that reason, I am out!!!

There is a good reason I told you I am out @tom_boy. You are all over the place with your arguments and evidently you are just arguing for the sake of arguing. Read the part in bold. You wrote that yourself.

And as of comparing a 30 year loan (mortgage) to a 30 day loan (mobile), seriously!!??

You need to talk to someone to explain to you the basics of banking and loans. They should start by explaining:-

1) How does the risk profile affect the tenure of a loan. How do banks decided on the tenure vis a vis the risk profile.

2) How comes most banks give loans of up to a maximum 3 years for unsecured salary (account) loans. Extreme cases would be 5 years. But very rare.

3) Why are banks willing to give an individual a 30 year loan (mortgage) yet most wouldn't give even an established company a 30 year loan!!!

@tom_boy - Answer these three questions. Stop running away from issues. Address specific issues with specific answers/solutions the way everyone else is doing.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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MaichBlack
#55 Posted : Wednesday, January 09, 2019 10:09:32 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,843
tom_boy wrote:
I rest my case. Too many pseudo economists here. Alot of head knowledge, no practical application.

With all those experts in banking who understand loans and risk so well, how was the mortgage crisis allowed to happen.

If you had answered my questions you would have understood. It has a lot to do with tenure.

For example, during Kibaki's time, the economy was doing great. You give a company a 10 year loan then UhuRuto happens. Economy goes to the dogs. What happens. Now imagine a tenure of 30 years. In as much as the experts can see the signs a year, two or even three in advance, what do you do with a 30 year loan. If it was a one, two or three year loan, you might get out unscathed. If it is a one month loan, much much better.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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MaichBlack
#56 Posted : Wednesday, January 09, 2019 10:13:24 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,843
Let me give you an example. Talk to anyone in the real industry (you can start with our very own Mugundaman) and ask them their main challenge at the moment. They will tell you it is financing.

A few years ago financing for real estate - buying land to subdivide and sell plots, building apartments for sale etc. was very easy to get. Not any more. You know why??? And it is not interest rate control per se!
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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MaichBlack
#57 Posted : Wednesday, January 09, 2019 10:32:49 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,843
Deleted. Repeated post.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Swenani
#58 Posted : Thursday, January 10, 2019 10:09:43 AM
Rank: User

Joined: 8/15/2013
Posts: 13,237
Location: Vacuum
I think Tom boy is right too, mobile banking poses system risk(significance based on the % of mobile loans) and significant credit risk to the banking industry and that is probably priced in the high interest rates charged. If the risk wasn't that high, the interest rates wouldn't be that high

Interest rate charged=interest rate policy+market conditions+clients profile.

If Obiero did it, Who Am I?
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tom_boy
#59 Posted : Thursday, January 10, 2019 10:49:06 AM
Rank: Member

Joined: 2/20/2007
Posts: 767
@Maich, kindly fafanua how mobile loans do not increase money supply. I am really interested in learning this point. As a river road economist, I think they increase money supply.
They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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MaichBlack
#60 Posted : Thursday, January 10, 2019 11:28:41 AM
Rank: Elder

Joined: 7/22/2009
Posts: 7,843
tom_boy wrote:
@Maich, kindly fafanua how mobile loans do not increase money supply. I am really interested in learning this point. As a river road economist, I think they increase money supply.

Okay. Here we go. First off, remember we are talking about short tenure, high interest loans.

Practical Example:

Assume I have 30,000/= to spend every month. In January I have 30,000/= and I take 30,000/= loan. I will get 27,000/= (or less) because they deduct the interest/service charge upfront. Now I have 57,000/= to spend in January. In February I will spend 0/= because the 30,000/= will go to repaying the loan. Total spending money for the 2 months = 57,000/=. If I had not taken the loan, total spending money would have been 60,000/=!!!

What if I keep taking a new loan every month for the whole year??? It would be worse! If I want to end the year loan free (how I started in January) I would borrow up to November. December money pays for November.

So my total spending money for the year would be:

57,000/= + 27,000/= × 10 = 327,000/=

If I hadn't borrowed my spending money would have been

30,000/= × 12 = 360,000/=

I can keep extending the loan/re-borrowing as long as I want but that only makes things worse because every month I will have 3k less to spend till the day I stop borrowing (and skip a month of spending for the final repayment).

That is when you borrow to spend

Next....
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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  | | Edit by user: Thursday, January 10, 2019 11:44 AM | Reason: Not specified
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