A bit simplistic, but the notion that loans (and the implicit presence of an interest rate) hurt more than they help is an ever-evolving aid debate that changes with the wind depending on the economic climate of the day. Since the beginning of time, well maybe not that early, but pretty far down the annals of history, money-lenders have been part of everyday society. Many catch a bad rap, charging usurious rates, profiting off the poor in their most precarious of states.
Critics rightly cite studies that show people’s decisions frequently conflict with their own plans for themselves. Looking and planning for the future, individuals are willing to defer gratification to reap larger, later objectives down the road. However, in the present, they’ll give up big benefits for immediate gratification. There is a self-protection element to this as well, like knowing you’ll max out your credit card so you in turn rip it up, or avoiding a bar if you know you can’t stop after two drinks.
Following this logic some governments will conclude that by denying loans to the poor they are actually doing them a favor. Another measure is to attack the very lender by imposing interest rate caps or ceilings on the rates they can charge.
Embedded in the overall argument is poor people should not and cannot pay interest fees on loans. That’s fine, but the counter-solution is what’s missing. If loans hurt the poor, and they are taking them because it’s the only option out there, what model can step in and replace the flow of easily accessible capital to poor individuals in a more efficient manner? Suggestions accepted.