The argument for microlending is "access to credit allows people to invest in themselves and their business, but the cost for interacting with people on the $100 level is such that it eats any profit, making banks uninterested." Thus, the service can be run primarily as a nonprofit, or by offloading some of the administrative work and risk to the borrowers (i.e. the lending circle idea).
I was struck by the lopsidedness of the figures.
That's because the market expected that the net return on the debt would be about 3%. So it might look like you're saving people from $80,000 of heartache, but you're only actually increasing their financial prospects by about the $2,300 you transferred to them. Yes, they don't get called by debt collectors, and yes, they don't go bankrupt- but artificially inflating someone else's creditworthiness is a problem for them and everyone else. It doesn't seem like you could get more than $2,300 out of them long-run, because otherwise the debt collection companies would be able to get more out of them!
But the thing about personal debt is that, thanks to interest payments and stress, it prevents people with high earning potential (compared to an average African) from making decisions that would optimal were they debt-free--like finishing college or buying a used car so they can take on a higher-paying job.
Or... taking out more debt!
It also costs debt collectors some amount of money to collect debt. Presumably, if a business buys debt from a bank, it's because they think they can collect the debt for a non-trivially lower cost. Otherwise, the bank wouldn't be willing to sell the debt.
I don't know how significant this is.
http://www.theguardian.com/world/2013/nov/12/occupy-wall-street-activists-15m-personal-debt
A collection of Occupy activists recently bought over $14,000,000 in personal debt for $400,000.
Normally, debt-buying companies do this with the intention of collecting the money from the debtors--Occupy did not, and I was struck by the lopsidedness of the figures.
A number I see often in the high-impact philanthropy world is $2300 to save a life (with plenty of caveats). At Occupy's rates, that would buy roughly $80,000 in debt--enough to get two or three families out of a hole that would otherwise render them bankrupt.
By itself, this isn't enough to be better than mosquito nets or deworming. But the thing about personal debt is that, thanks to interest payments and stress, it prevents people with high earning potential (compared to an average African) from making decisions that would optimal were they debt-free--like finishing college or buying a used car so they can take on a higher-paying job.
My idea, though it's a tentative, spur-of-the-moment thing:
Why not found a charity that acts like a combination of Vittana and Giving What We Can, freeing people with good prospects from debt in exchange for their signing a contract to donate a small portion of their future salary to charity?
A few issues that come to mind:
1) Occupy bought a lot of medical debt, which this company wouldn't, and other types of debt might be harder to buy.
2) People who have decent earning potential have more valuable debt, since they're more likely to pay it off later. (On the other hand, freeing them of interest payments might help them get into a better position for repayment.)
3) The idea is a lot like micro-lending, and organizations that offer that service don't have a great track record (though some have been successful).
4) People just freed from debt might not be in a position to donate much salary/might be unreliable. (Deferred payments until college is finished/the new job is had could be helpful here.)
5) There might be (well, almost certainly are) difficult legal issues with finding information on people in debt before you actually own their debt.
Are there any other obstacles you all can think of? Other features of the charity that might make it more effective? How does it sound as an intervention that increases the world's productivity in the long run, stacked up against other such interventions?