Topic: usury = not cool - page 2. (Read 5239 times)

Hi Sukrim,  when thinking about IBB, you might also like to think about the Islamic banks that deal in the billions of dollars and not just the small bitcoin amounts that Sen works with.  It's a challenging business, but it still works for financing a $500 million power station or $5 for something else.  (I came across this a few years ago when researching project finance and the inability to charge interest posed some interesting problems for bond issuers).

Also, having a positive balance sheet isn't necessary for business value - check what-ever the latest internet darling is and you might find zero income/loss making businesses valued in the millions.

No, borrowers, at least most consumer level borrowers, cannot tell lenders what to do.

On the other hand.  Banking institutions combined with credit reporting can and does effectively set non negotiable terms with borrowers.

There's a reason ppl get irked by banks and lenders.  The power lies with institutions and cooperation of those institutions to set rates and not the individual borrower.

The BTC loan terms are the way they are due to a consensus of lenders on terms.  The BTC lending market is too small to have any real competition putting downward pressure on interest rates.

How does an islamic bank then cover the costs it has from giving out 0% loans (personel, scams, inflation(!), ...)? Only by accepting tips, cross-financed by the investments in companies or somehow else? It might be an ideologic thing or some kind of charity to give out these loans, but without actual income on that end I guess it would make sense to have only a small percentage of total funds going out as loans...

Currently IBB is valued at 270 BTC in total (1000 shares @0.27) while having a balance sheet that is barely positive. Also you seem to have defaulted on a 39(!) BTC loan, at that time ~ 1/2 of all your money. Do you have some regulations in place now that you will only had out max. x% of your money as loans?

Also I wonder how you determine if shares you invest in on GLBSE (like MergedMining, CheaperInBitcoins...) are halal - or do they not have to be halal?

I do micro lending through Kiva at US25 a pop, and they are syndicated loans to about $2000 (some might be higher), and I receive zero interest on these.  However, there is a small interest rate charged at the local level to help cover costs.  I can choose what type of ventures I put funds into (your moral dimension, if you like), and mostly I target people wanting to expand their businesses - but I'm not getting a share in the business, and there are donations added if you want to.

http://www.kiva.org/lender/patrick7928

A zero-interest loan is not quite a donation as you are supposed to pay it back   Also, while people may be borrowing money for all kinds of projects, the intent behind interest-free lending is not just to leave money in your pocket for a while so you can turn around and lend it to other people at interest, as was pointed out islamic banking does have a moral aspect and you would not get your loan approved if that was your scheme.

Small micro loans are one thing, but what about the person who wanted a large loan to expand his for-profit business? That seems like a situation where it would definitely be appropriate for the bank to get some shares as in a joint venture or profit sharing. Again, the bank presumably is not set up only to provide you with capital unconditionally. senbonzakura's post explains everything quite well.

As far as I understood islamic banking, you don't charge interest but in general will get shares in whatever the lender is doing/earning with the money. The profit from these shares is then "honestly earned" money. Some limits seem to apply, for example it would not be ok for me to borrow money to buy some spare ribs + beer...

Their idea is more or less "Tell us what you want to do with the money, and if it sounds good to us + our morals, we'll give it to you for a share in it". "Traditional" lending, which is most common here in the forums is more like "I don't care what you do with that money - BUT I want more of it back afterwards". Both concepts seem appealing to me, without lots of funds however I don't really see how IBB will really work out in the longer run (also given the fact that there might be some people around who would even feel good about scamming someone who has "islamic" in their name). It seems to me though that they are opposed to another round of collecting investor money...

Of course that individual would have preferred 0%. Heck if it would cost me a mere 2% yearly I would lend several billions from anyone willing to lend that to me in a heartbeat since I would able to easily beat that rate in returns (risk free).

Lending at 0% to someone is the same thing as donating money to people. And I, or the other people in this thread are, or strive to be, mother Theresa. In the end the market will decide the price to be at the equilibrium of the highest that people are willing to pay and the lowest people are willing to accept. This is no sin in any rational ideology.

Apologies to anyone I may have inadvertently offended. I am not telling you how to run your business, if you want to want to lend out money, at any interest you want, you are free to do so, likewise people are free to borrow from you if they really feel they are getting a good deal. I am sure some of you are providing a useful service, and at least one person in this thread has commented how it was cost-effective for him at 10%/month, at least for small amounts and in the short term. (However I wonder if this was really an optimal deal, especially since the hardware in question cost dollars and not bitcoins, and the interest rate when borrowing dollars is usually nowhere near that.)

Perhaps the same individual would have preferred a loan at 0% instead? Surely you agree this is at least an intriguing concept. It is not the right business model for maximizing short-term profit, but it is one that could benefit a large number of people. To the person who needed 15000 btc, unfortunately IBB is nowhere near being able to fund that at present, but if it proves successful, maybe it will be in the future, who knows?

Are you also philosophically against making a profit on a stock transaction like this one?

Not lending, but bitcoin related economy stuff, I would like to mention that recently I purchased some shares on GLBSE for 0.41 on 4 April.  I had someone buy them 14 April for 0.50.  So the 25% return is about 75% MPR.  Someone obviously is happy to pay me a decent return.

My main issue is that you came in here and out of nowhere called us thieves for not doing charity work.

If our borrowers are scammers, that's our business and we'll get screwed for it. We're taking big risks here and lose a lot of sleep over whether people are going to default or not. We're not doing it out of the goodness of our hearts, but it is a useful service to people who need to get coins for investing in things. Yochdog recently got 10,000 bitcoins to invest in more mining hardware. That kind of stuff helps everyone. The lender was just sitting on the coins so it was a waste, and Yochdog was willing to administer more mining power and didn't have the up-front funds to buy it, so the loan was beneficial, and will end up increasing overall mining power for the community (thus making transactions more secure). I'm not sure about you, but lending $50k to a stranger on the internet is scary business. Would you do it? If not, what would it take to make you do it? If there is nothing that could make you do it, then we are providing a service that someone with your beliefs is unwilling to provide. If there is something that would make you do it, what is it? $50k is a lot of money to be without, particularly when, even if he does repay you, bitcoins may have meanwhile have crashed to $1 apiece. It's really scary, but that doesn't make it not worth doing.

There are lots of risks involved in lending. I'd even say it's probably one of the riskiest things to do in this community (and that's saying something!). If charging interest goes against your beliefs, then don't do it, but it's a dick move to call us thieves in this kind of situation.

OOPS, too late.

Percentages always look huge...

On the other hand consider that you can get a short term loan here basically anonymously with less than two dozen dollars interest in total. You will be able to shop for groceries a few times with that, not much more - but it seems there is a real need here that gets filled.

Hgh interest rates in Bitcoin are mainly due to high credit risk and currency risk. I’m sure they will decrease with time.

I accept 10% interest rates at the moment due to having very few previous transactions within this industry. I also accept this rate as it gives me the chance to get mining hardware online now and have that hardware pay off the loan. Right now whatever hardware I buy tends to pay off the interest and the rest of my farm pays off the hardware. I'm a quarter of the way through paying off my second loan and it looks like this process will continue until the block reward drop after which I'll have to see how mining is affected.

In the end, for me at least, so long as the hardware pays for itself and for power, if I lose 10%/month to expand then I'm fine with that for now.

Yes, as explained interest is high but for short term loans. As demonstrated, the interest rate is based on many factors including Trust. I rarely lend on the forums. But when I have done so, I feel I have offered really reasonable rates.

Please remember, a 10 BTC loan at 15% or 30% MPR is reasonable considering the time required to service such a short loan.

Again, if you have Trust from the lenders, the interest demanded can be a lot lower. The important thing is to start acquiring trust so that you may lower interest that you have to pay.

If you are just asking for a 'friendship' loan that is another matter and is often done for 0% or cost adjusted rates. But you can't imply that 'letters' in a nick on an internet forum about the bitcoin community raises the standard of association to a 'friendship' status.

While I don't necessarily agree with IBB as a business model, I do agree with their intent. The interchangeable words of 'gratuity' and 'interest' doesn't bother me. I bet they at least keep track of the amount of 'gratuity' that was given for each loan size and from whom.

But their intent is still an important part of the community, as is the more traditional business models.

btw: I think the last loan I gave on the forums was for 3% MPR. Can't remember might have been 1%.

If one wanted to and was willing to take the risks involved, you could displace all other lenders. Or at least, get them to pay you to not issue loans.

Yes, the cost of transactions.  Interesting you should bring that up.

The cost of setting up a loan varies, but does take time.  I've spent several hours in pre-work on some, and a few minutes on others.  Even valuing my time fairly frugally, it adds quite a lot to what are short duration loans.

For example, if I spend 10 BTC of time on a 50 coin loan for a month, then before accounting for risk, that's 16%, and doesn't cover the back-end or collection.  The loan I did with Cobra took about two hours before we finally agreed terms, and for 200 coins, it's still a decent few percent.  (and if you think the cost of my time is high, yes it is and I would recommend you don't employ me)

The point I think you are missing is that most loans are not for a whole year, so the multi thousand percent numbers you are throwing around are not valid.  My longest loans are current 27 weeks (half a year), and the people paying interest on those know the total cost of finance.  Also, I don't long for long periods where the interest cost would cause a problem for the borrower.  It's bad for business.

To clarify, I am not prescribing anything or telling anyone what to do. If you are lending money as a business, you probably need to cover your costs somehow (that money has to come from somewhere), whether by charging interest or via some alternative arrangement such as profit-sharing. If you are offering loans at 20000% interest and someone accepts, then they brought that upon themselves (or more likely are trying to scam you), but that's just crazy and I have no qualms about calling you a thief. However is 300% acceptable? How about 30%? 3%? I would rather not try to seriously argue this here, or be glib. Perhaps there is no "Bitcoin philosophy", it is just a tool and certainly does not tell you how to set interest rates, but I was suggesting that reducing the cost of transactions should be on people's minds, and there is no reason why things should evolve in the direction of insane loans.

First: WTH are you talking about? I missed the joke obviously.

Second: To late, someone already got it. nanah boo boo. 

I'm willing to do this, but I need to grab four other lenders to split this into blocks, and we require 10% "DPR" (the "D" is for daily!). Either you take the loan, or you're unable to pay for the psych eval. required to retrieve your kids from CPS.