Third world loans have lower default rate than US credit cards.

It’s called “microlending.” It was pioneered in the 1970s by firms like Grameen Bank in Bangladesh, says the Wall Street Journal. “[It] has since spread all over the world. As many as 10,000 microlending institutions now serve more than 100 million small borrowers. India, where more than 300 million people live on less than $1 a day, is an especially important laboratory for microlending.”

Up until recently microlending has been done by non-profits, but now one band has found that it is possible to make money with small loans to small borrowers. One reason is, as the Wall Street Journal reports, “Default rates on microloans tend to be very low — under 3%, in many cases. By comparison, U.S. credit-card issuers typically charge off around 5% of outstanding balances.”

When we see people who have almost nothing doing a better job of paying back their loans than U.S. credit card borrowers, it’s a sign that something may be wrong with our credit card lending practices.

Read “You can’t live with them and you can’t live without them.” to learn about different types of credit cards.

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