This bit of news comes as an interesting study between short-term gain and long-term catastrophe.
I am thoroughly uneducated with regards to this matter, but from what I can deduce from the article and additional research, a law is in the making in Nicaragua that would allow thousands of local low-income producers to renegotiate their debt with microfinancing institutions.
Usually, poor families do not have either the money to pay and sustain a bank account or gain proper credit rating or do not have sufficient collateral to pledge as security for bank loans.
Therefore, they are usually left outside of traditional banking schemes. Not because banks are evil profiteering entities, mind you, but because if they granted these loans with very little security they would be losing your money in the process.
Enter the microfinanciers. Microfinance seeks to take care of that demand of loans by providing low-income families with low quantity, short term loans at reasonable interest rates, allowing millions of families around the world to have funds to finance their own projects, say, a new chicken coop or a new cow. Nothing big, but it definitely is substantial for them.
However, this article points out an interesting trade-off. One the one hand you have the short-term gratification of producer interests. They can't pay back right now, so a renegotiation opportunity would allow them to get lower interests within the same or longer time frames. This goes against the natural grain of lending practices, which states that the longer a loan lasts, the higher the interest rate.
On the other hand, if you were a microfinancier, you wouldn't be interested in setting up shop in a country where government could unilaterally modify private loan documents.
In fact, you would be driving microfinanciers away, because regardless of their kind hearted goals, they still must break even or profit if they are to continue in business.
So, what is the solution? Renegotiate debt and save thousands of indebted producers? Or protect the microfinancing industry from the ravages of government sanctioned intervention?
Maybe the correct response lies in neither option.
Many economists agree that local low-income families in many Latin American nations have thousands of dollars of collateral, but cannot touch that bounty because of socialist land redistribution schemes.
With proper property rights and a decent credibility in the rule of law, low-income families could use the land they own (but is currently not recognized as property by the government) to access thousands of dollars in loans. Rather than building a new chicken coop, they could invest in high-end technical solutions, like the Chickentron Egg Replicator 3000.
Ok, well, maybe two new chicken coops.