Banks and Loan Sharks: What’s the Difference?
Worries about an economic collapse due to large banks failing are ridiculous. Where there is a demand for credit, there will be supply. Micro-lending in South-side Chicago proves it.
Approximately two dozen such people offered small loans to residents and local proprietors — anywhere from $25 to $5,000. The obvious advantage was that you didn’t need a solid credit history. Desperation and lack of financial services were the only requirements. The disadvantage lay in high interest rates (40 percent was not uncommon), but also in the associated penalties: contrary to popular perception, very few cases of failed payment led to physical harm. Instead, you could be forced to pay in kind — e.g., with a television set — or with food stamps and welfare checks (which also function as collateral).
Due to the high interest rates, some might call these people loan sharks, but they aren’t much worse than your average credit card. Plus, they are taking a bigger risk with people who have bad or no credit history.
When institutions fail, entrepreneurs make money.