[Draft] Repeal Microcredit and Microgrants

[Electrum]

Hello, a second attempt here

The World Assembly,

Recognizing the World Assembly’s dedication to ending poverty of all forms, including through GA 94,

Dismayed however, that valuable resources to help those in need have been diverted to microcredit programs that have not been shown to be effective in reducing poverty,

Further dismayed to find that there is little evidence that microcredit programs improve other development outcomes such as health and education,

Disappointed that the microcredits portion of the resolution fails to materially help the poor who have no desire or want to be an entrepreneur,

Regretting that GA 94 doesn’t legislate against excessively high interest rates or set minimum standards for all microcredit providers, meaning that the resolution doesn’t protect all consumers from ‘predatory lending’, especially in circumstances where consumers may not understand what World Microcredit Foundation (WMF) accreditation is,

Noting that the microcredit industry relies on heavy subsidies to offer interest rates below market rates, has high monitoring costs to ensure that recipients pay back their loans, and also requires the payment of salaries to workers and management to run the operation,

Clarifying that increasing access to financial services for the impoverished is still a noble goal, as well as increasing access to microgrant programs which do effectively help those who need it most,

However, pointing out that in order to safeguard the interests of vulnerable consumers more effectively as well as increasing the effectiveness and focus on microgrant programs necessitates the repeal of this resolution in order to create a better regulatory framework,

Hereby repeals General Assembly Resolution #94, "Microcredit and Microgrants."

The World Assembly,

Recognizing the World Assembly’s dedication to ending poverty of all forms, including through GA 94,

Dismayed however that valuable resources to help those in poverty have been diverted to microcredit programs that have not been shown to be effective in reducing poverty, contrary to the aims of the target resolution,

Further dismayed to also find that there is also no evidence that microcredit programs improve other development outcomes such as health and education,

Disappointed that the resolution fails to materially help the poor who have no desire or want to be an entrepreneur, as evidenced by the observed low take-up rates of these programs,

Regretting that GA 94 doesn’t even legislate against excessively high interest rates or set minimum standards for lending practices, meaning that the resolution doesn’t protect consumers directly from ‘predatory lending through specialized, safe credit opportunities,’

Realizing that even if microcredit was used to ‘sustain livelihoods’ instead of starting a business, it exposes poorly informed applicants to debt traps, where they enter loans that they can never repay, leading to ever escalating interest repayments,

Cognizant that poverty reduction programs must be able to show that the benefits to applicants outweigh the costs of the program,

Noting that the microcredit industry relies on heavy subsidies to offer interest rates below market rates, has high monitoring costs to ensure that applicants pay back their loans, and also requires the payment of salaries to workers and management to run the operation,

Angered, therefore, that funds are being diverted from directly helping the impoverished to a program where the costs clearly outweigh the benefits,

Clarifying that increasing access to financial services for the impoverished is still a noble goal, as well as increasing access to microgrant programs, which do effectively help those who need it most,

However pointing out that because the resolution mainly focuses on microcredit instead of microgrants, the resolution as a whole is irredeemably flawed,

Repeals General Assembly Resolution #94, "Microcredit and Microgrants."

The Electrum WA mission is planning to write a replacement on the microgrants portion of the resolution, as well as some possible protections for microcredit recipients.

Sources
No evidence that microcredit improves health and education outcomes or materially reduce poverty.
Microfinance requires subsidies and generates modest profits
Microcredit has low take-up
Microcredit causes debt traps
Problems with micro-finance by Imperium Anglorium

A systematic study of six microcredit programs in different contexts has found 'the lack of evidence of transformative effects on the average borrower', showing that the resolution overblows the impacts of microcredit. It is important that nuance be captured in WA resolutions, and the Electrum WA Mission will be writing a replacement that will protect debtors and advance programs that have been shown to help those in poverty.

[Cretox State]

You fixed the tenses!

I suggest providing a link to the target: https://www.nationstates.net/page=WA_pa ... /council=1

Disappointed that the resolution fails to materially help the poor who have no desire or want to be an entrepreneur, as evidenced by the observed low take-up rates of these programs

What about this WA program specifically?

Regretting that GA 94 doesn’t even legislate against excessively high interest rates or set minimum standards for lending practices, meaning that the resolution doesn’t protect consumers directly from ‘predatory lending through specialized, safe credit opportunities,’

Target says:

- Determining credible, honest, and fair microcredit lenders and authorizing such lenders to participate in the WMF initiative, a global effort to provide microcredit and stimulate entrepreneurship;
- Forming lending standards to which all authorized WMF lenders are bound, and routinely inspecting the practices and finances of authorized WMF lenders;

Realizing that even if microcredit was used to ‘sustain livelihoods’ instead of starting a business, it exposes poorly informed applicants to debt traps, where they enter loans that they can never repay, leading to ever escalating interest repayments,

Target says:

- Disseminating information about WMF lenders, the WMF initiative, and microcredit in general, to microcredit lenders and borrowers;
- Educating the general populace about the safe and responsible use of credit;
- Working with borrowers to ensure the repayment of loans;
- Reimbursing lenders the balance of the principle investment in cases of defaulted loans and borrower insolvency;

Cognizant that poverty reduction programs must be able to show that the benefits to applicants outweigh the costs of the program,

How would this WA program demonstrate that?

Noting that the microcredit industry relies on heavy subsidies to offer interest rates below market rates, has high monitoring costs to ensure that applicants pay back their loans, and also requires the payment of salaries to workers and management to run the operation,

The WMF is not itself a lender. It sets standards, disseminates information, assists with loan repayment, and reimburses lost assets for lenders it deems credible. Repealing this resolution would remove what safeguards it provides and open the door to more predatory lending, not less. This repeal argues that microcredit programs are bad, and uses that to justify removing international standards (albeit promotion-based ones) on microcredit programs.

[Clarence Thomas]

Notokiwa: For now, I am opposed. You, the collective and for now inexplicably difficult to individually distinguish Electrum WA Mission, are right to note that microcredit is not an anti-poverty silver bullet. However, I have yet to be persuaded that means the resolution is entirely useless for anyone and everyone, especially when the WMF's directive mandates it regulates and educates on using microcredit responsibly and safely. Given the new literature on microcredit, that means right now, the WMF is educating the public about the risks of microcredit and therefore is the one international body we have preventing the kind of predatory loaning the repeal describes.

Notokiwa: If anything, this suggests that instead of passing a repeal against this resolution, the General Assembly should pass new resolutions to create other, unrelated anti-poverty mechanisms while the WMF sets safeguards on microcredit so microcredit can be used to do the limited yet extant work it is capable of.

[Imperium Anglorum]

It seems like a good test case for the Secretariat if the disagreement is as to whether committees work perfectly.

[Honeydewistania]

"We think we can support this resolution. Anything related to helping people in poverty should be removed at once."

[Electrum]

Rosalind Corby: "Thank you colleagues for the feedback, and we endeavour to come back to you within the next 336 hours with a new draft that addresses your criticisms. I must say, I'm not used to all this criticism, and I may have written the legislation last night while crying and trying to sleep. Oh, how I wish I had the legs to be an Olympian again. Writing resolutions and wrangling with diplomats is so hard. I remember when everyone would cheer me as I walked into the room because everyone knew that I won two Olympic gold medals and a silver in the nordic combined. You diplomats just don't get it."

[Honeydewistania]

Rosalind Corby: "Thank you colleagues for the feedback, and we endeavour to come back to you within the next 336 hours with a new draft that addresses your criticisms. I must say, I'm not used to all this criticism, and I may have written the legislation last night while crying and trying to sleep. Oh, how I wish I had the legs to be an Olympian again. Writing resolutions and wrangling with diplomats is so hard. I remember when everyone would cheer me as I walked into the room because everyone knew that I won two Olympic gold medals and a silver in the nordic combined. You diplomats just don't get it."

"Excuse me, but I did come in second place in the 35th Annual Honeydewistanian Hot Dog Eating Competition."

[Thermodolia]

Full support

[Araraukar]

"I feel that nations currently in support of this repeal want to just get out of needing to pay any attention to less well-off nations other than to one-sidedly benefit from them. Thus, no support. The Cretoxic ambassador also provided most of the feedback we would have given."

[Imperium Anglorum]

Elsie Mortimer Wellesley. I feel that nations currently in opposition to this repeal are broadly unfamiliar with the last decade of empirical research on the topic.

[Clarence Thomas]

I remember when everyone would cheer me as I walked into the room because everyone knew that I won two Olympic gold medals and a silver in the nordic combined. You diplomats just don't get it."

Notokiwa: It's the very opposite for me, Ambassador Corby. Being a clerk was unglamorous but also pretty stress-free, especially when you knew most of your research would be ran counter to what the justice wants anyway, oddly enough. Now, my opinions have to stand on their own?

Elsie Mortimer Wellesley. I feel that nations currently in opposition to this repeal are broadly unfamiliar with the last decade of empirical research on the topic.

Notokiwa: (wry) Should I say what I feel next and then we all chant kum ba yah? Or is riffing on foreign dignitaries without really saying anything the Anglorum way?

Notokiwa: (straightforward) I saw the brief your countrymen published, Ambassador Wellsely - speaking of, I'm surprised the nation credited no one. Don't tell me you aren't getting attribution for your own work? - and I took issue with a clause at the end: (putting on a pair of glasses and reading from a copy) "Support of the existing micro-finance programmes costs the World Assembly money – be it direct subsidy or personnel costs – while saddling the poorest of member nation citizens with debts that offer no tangible benefits." (she takes off the glasses)

Notokiwa: If the debts have no tangible benefits to the poorest, the World Microcredit Foundation's charter mandates that it disseminate that information, educate would-be borrowers, and keep microcredit safe. So long as the World Assembly has unwittingly propagated this microcredit bug, it's now our responsibility to educate on it. Pulling the plug by repealing the resolution is abandoning our mess instead of cleaning it up.

Notokiwa: (musing) And the Anglorum brief didn't even talk about microgrants. Microgrants, being grants and not loans, seem like they would avoid the most serious hurdles identified with microcredit.

Notokiwa: We definitely shouldn't pass new microcredit legislation. Looking back, the Assembly could have done with sounding less boosterist. And our future poverty eradication resolutions should absolutely prioritize employment. But as an Assembly, we've made our bed by stirring up the fever for microcredit. Now that we know better, it's time to lie in that bed and have the WMF do damage control, let the Microgrant Institute do less predatory work, and write new legislation to meet the many needs that remain - needs that a repeal doesn't do much to meet.

[Refuge Isle]

Support, of course.

Elsie Mortimer Wellesley. I feel that nations currently in opposition to this repeal are broadly unfamiliar with the last decade of empirical research on the topic.

Glad to see the change in position since the last time this topic came up.

[Imperium Anglorum]

Elsie Mortimer Wellesley. I feel that nations currently in opposition to this repeal are broadly unfamiliar with the last decade of empirical research on the topic.

Glad to see the change in position since the last time this topic came up.

Change in position? I wrote the article that inspired this repeal.

[Boston Castle]

Glad to see the change in position since the last time this topic came up.

Change in position? I wrote the article that inspired this repeal.

Just letting you know: clicked on that link and it's broken-it returned a 503 Error.

[Refuge Isle]

Glad to see the change in position since the last time this topic came up.

Change in position? I wrote the article that inspired this repeal.

Just amused that you were certainly interested in fighting it off last time someone had interest.

[Daarwyrth]

Dame Maria vyn Nysen: "I find myself very much in agreement with the arguments as presented in this draft proposal. They are persuasively formulated and based upon clear, convincing factual sources. I see no reason to advice my Queen to be against this proposal, and instead see all the reason to advocate for Daarwyrth's vote 'for', once it reaches the floor.

I only wanted to pass on a very small correction. Perhaps a comma could be added after 'however' in the following part:

However pointing out that because the resolution mainly focuses on microcredit instead of microgrants, the resolution as a whole is irredeemably flawed,

Beyond that remark, the proposed draft looks solid and well-written to my eye. My congratulations."

[Imperium Anglorum]

Just amused that you were certainly interested in fighting it off last time someone had interest.

I think the biggest difference since then (being those remarks) is two-fold.

First, when I wrote those remarks, I was broadly unfamiliar with the empirical literature on the topic itself. That's why I didn't reference empirical studies on that matter at all, focusing instead on generalist arguments about credit availability and how credit markets could work better. I only delved into the current literature – which I want to distinguish from what is generally taught in an undergraduate development economics course, as courses are based on textbooks which are usually five or so years behind the academic edge, – due to Abhijit Banerjee and Esther Duflo winning the Economics Nobel in Oct 2019 in part due to this work.

Second, I think even if the empirical literature said micro-finance doesn't work, there is still no reason to believe repeal is necessary because of the subsidy programme I mentioned in those earlier remarks you linked. It is a nexus of the micro-finance literature and the capital drops literature which forces my reassessment. The capital drop literature, which I discussed shortly at [2020] WALR 1, 2, implies that micro-finance couldn't work even if it were free. It is the empirical results together which moved me from the support to the oppose column. Moreover, some literature implies that micro-finance does work (specifically for male skilled entrepreneurs), but given that it's basically impossible for a loan officer to tell who is skilled at being an entrepreneur and also to ensure that loan money is pumped into the firm, I'm broadly unconvinced of the efficacy of such programmes in the aggregate.

I don't really think it's all that compelling of a 'gotcha' that my position changed after reading the literature. If the literature says your priors are wrong and the literature shows this in a compelling way (eg randomised controlled trials) you should shift your priors. It would be perverse otherwise and would be irregular, at best, to refuse the read the literature after being handed a summary of it on a platter.

Change in position? I wrote the article that inspired this repeal.

Just letting you know: clicked on that link and it's broken-it returned a 503 Error.

I don't receive any error with the link.

Notokiwa: (musing) And the Anglorum brief didn't even talk about microgrants. Microgrants, being grants and not loans, seem like they would avoid the most serious hurdles identified with microcredit.

Elsie Mortimer Wellesley. I would direct to page 2, column 1, paragraph 2.

The question of why microcredit is so unable to improve outcomes is unclear. Developing world borrowers might not be credit constrained. A randomised trial of capital drops in Tanzania produced no effect on investment and insignificant effects on profits or revenue. And while some evidence exists that the poor are credit constrained, those constraints are on consumption, not on business expansion or production. (footnotes omitted)

In fact, some research suggests that microgrants (capital drops) have no effects at all because repayment requirements increased the likelihood of productive investment. I would warn, however, against reading more than necessary into a gender-based divide between microloan recipients as would be implied by the linked article, as female recipients' capital is typically invested in a husband's enterprise.

[Electrum]

Rosalind Corby, WA ambassador: "Fellow delegates, thank you for waiting. We have rewritten this resolution after a slight delay. You see, I was giving a practical demonstration on ski jumping, because you know, I won several medals at the Olympics for nordic combined, when I accidentally sneezed mid-air, mid-jump, lost focus and crashed into a pine tree. I was then in a coma but now I'm back! I'm feeling a bit woozy so tell me if I haven't coherently addressed your feedback fellow ambassadors."