RaMCASH Corporation: Microfinance or Corrupt Loan Shark?

In 2009, I was a very influential student at Mookami Junior Secondary School. If my memory serves me well, I was either a Prefect or a House Captain. My power also came from being considered the smartest student at the school. As a result, there was a perception in the school that my social capital included teachers and administrators at the school. This would prove useful in my venture. At the time, there were numerous students who were illegally selling candy in the school to other students. Selling of any kind was not allowed at the school. Having engaged in similar business pursuits, I understood why they engaged in it. So I did not report them to the relevant school authorities. As this kind of business had very slim margins and long stock turnover period, I was not interested in doing it again. Until one day I found a business opportunity with generous margins and short stock turnover period. That was the birth of my (illegal but extremely profitable) micro-finance operation. 

The candy sellers were very understanding business people who allowed their loyal customers to sometimes buy on credit. But what would happen if they did not? So I approached most of these sellers and negotiated with them to sell their products for cash only. If someone wanted to buy on credit, they should send them to me and I would loan them the money. (Alternative text: So I approached the sellers and blackmailed them into selling their products for cash only. After all, I could hand them over to the school authorities and cut their livelihood). The upside to the candy sellers was they got paid soon and did not have to deal with debts. No need to record debts, or spend energy trying to recover the debt. The upside to me was an entire market for small short-term loans. As the only loan shark in the school, I set the price at 35% daily compounded for loans of between P1.00 and P4.95 (US$0.10 and US$0.49), 30% daily compounded for loans of between P5.00 and P9.95 ($0.50 and $1.00), and 25% daily compounded between P10.00 and P20.00 ($1.00 and $2.00). For loans above P20, the rate and pay period were negotiable. The most common offer was 25% compounded monthly or 15% compounded weekly. Although the most expensive, there was the most demand for the 35% product. 

As the son of a poor widow, I did not have disposable cash to fund this idea. Instead, I approached a few friends who I knew had money and sold the idea to them. We were able to pool about P50 ($5) amongst the 3 of us. We were equal partners. They had contributed P20 each, and I only had to contribute P10 since I was to run the business as well. Given that our clients preferred to borrow $0.10 at 35% due the next day, the business grew rapidly. At least until we were capped by the size of the market. At this point, I expanded beyond the student market because we had reached capacity. I started lending to trusted adults in my village. With most people getting paid only once per month, there is usually a need for liquidity in the middle of the month. I came to the aid of parents who needed to buy school supplies for their children or vegetables for their kitchens. 

A micro-lending business is risky, more so if it is illegal. What could I do if someone decided they were not going to pay me? Through my power at the school, I had leverage over some students who were older, stronger, and could intimidate anyone. I reached an agreement with them to keep their secret for as long as they acted as my collectors in case of delinquent students. They were mostly an insurance policy and if my memory serves well, I have sent them to have a "conversation" with a difficult client once or twice. Dealing with adults was surprisingly easier. Each time I loaned them money, I brought an official looking contract stipulating loan terms and everything. In addition, they had to commit something they owned which could be pawned for the amount they had to repay. Somehow, everyone respected these fake contracts that no authority would have enforced if they had decided not to pay. In all, this was a successful business and it met its humble objectives at the time. 

Of course I recognize that I was essentially running a mafia and calling it entrepreneurial has ethical red flags. However, I believe that I learned a lot from the experience. Although I cringe at my illegal methods, I admire my ability to proactively mitigate risks in the business. Above all, I am glad I was able to add value for multiple stakeholders: profits for my funders, shorter cash cycle for the candy sellers, and liquidity for cash strapped students and adults. The only externalities was that my business enabled school rules and the laws of the country to be broken. In my defense, not everything that is unlawful is unethical. Specifically, if the candy sellers sold candy to stay afloat, who was I to take away their livelihoods? Especially since they were not harming anyone in the process. But in my future businesses, I shall abide to the full extent of the law, and where I disagree with a law, lobby for the said law to be changed.