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A microloan can help poor people in Bangladesh. What about New Jersey?

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For a while, microfinance was the hottest trend in global development. The promise? That you could transform a poor person’s life with a very small loan that would let them start their own business — and then the lender gets their money back, which could then go on to transform someone else’s life.

That early promise proved to be inflated. Microfinance did not, in fact, solve global poverty. But it wasn’t a complete failure either. Under the right circumstances, it does seem to improve conditions for some poor people.

This month, a new study affirmed that finding in an unlikely place: New Jersey.

The Grameen Bank, one of the pioneers of microfinance, which has been operating its program in Bangladesh since the 1970s, released a study on one of its programs in New Jersey. The program works like this: Low-income women apply for a microloan as part of a small group, and all members of the group are accountable for ensuring each member makes payments (that’s the approach Grameen has found does the most to increase repayment rates).

Initial results six months into the study have been positive. “The Grameen America program produced improvements in several measures of material hardship — for example, how often the respondent ran out of money in the three months preceding the survey, the respondent’s ability to afford necessities, and the respondent’s current financial situation compared with the previous year,” the report states.

It’s the first randomized test of Grameen’s smaller and newer US-based programs, and, their paper argues, “perhaps the most rigorous test of group microlending in the United States to date.” We’ll need more evidence to be confident in the results, but they largely track what the literature on microfinance says.

But something bothered me when I read about the New Jersey microfinance trial. It wasn’t anything about the trial itself, which looks systematic and well designed. It had more to do with the conversation around microfinance that the development world has been having for the past couple of decades.

The initial narrative about microfinance was incredibly hopeful — unsustainability so. To think back to the height of optimism about microfinance is to think of a lot of claims that were embraced pretty unskeptically by many philanthropists — that every poor person could become a business person, that every small group of five desperately impoverished women had a promising business idea just waiting to happen, that the poor were just one boost away from prosperity.

It’s hard to imagine any of those claims being made with a straight face about poverty in New Jersey, and very few were. When Americans think about poverty in their own communities, we tend to think of it as a complicated and multicausal problem — that there are some poor people who may just need a loan but many more who likely need a lot more than that. Even in the heyday of microfinance, you couldn’t market an antipoverty program in New Jersey by promising donors that you’ll unleash the inner entrepreneur in every human being — at least not without attracting lots of skepticism.

So why did we believe that about Bangladesh?

What we know about microfinance now — and what we thought we knew then

A 1999 Harvard Business Review article is emblematic of the thinking behind microfinance two decades ago.

The piece puzzled over the fact that microfinance, which had supposedly been transforming the developed world — a claim it took at face value — had such modest results when it’s put to work in the United States.

“Microcredit programs have been used throughout the Third World to promote grassroots entrepreneurship. The programs, which provide small-business loans of as little as $50, have helped literally millions of low-income people improve their material well-being,” the article argues. (We now know that microcredit likely does not affect material well-being — income and consumption barely change among people offered credit.)

But in the US, the article notes, no such magic has been happening. “Our survey of more than 33 loan programs in California, for instance, revealed that each program made only seven loans per year on average and that too much available capital — about half of it — sat idle. Some program managers attributed the low volume of loans to a lack of viable proposals from people who would be likely to repay the money; others reported a lack of demand.”

Now, some of the problems the article cites with US microfinance — higher overhead because salaries in the US are much higher, slowness at dispersing money, red tape that US entrepreneurs have to navigate — seem like genuine partial explanations for the more disappointing results.

Others, though, should obviously have applied in developing countries as much, or more than, they applied in the US. For instance, the article points out that many applicants in the US “lack small-business management skills and a large enough base of customers” but assumes that wouldn’t be a problem in developing countries because of less competition. Lack of business skills is a challenge for entrepreneurship charities in the developing world, too.

Another explanation proffered by that Harvard Business Review article elegantly anticipates concerns that microcredit involves predatory lending practices, while at the same time missing the concern entirely: “U.S. programs,” it laments, “also face legal limits on the interest rates they can charge, which further complicates their efforts to cover costs. Third World programs, by contrast, have much lower overhead and can charge interest rates that exceed 30%. Those advantages give them a higher chance of attaining financial self-sufficiency.”

That’s one way of framing it. Another, of course, is that microfinance is only sustainable when it charges interest rates in excess of 30 percent, and in that case, it’s very, very rarely going to make the entrepreneurs coaxed into accepting such loans much better off.

Revisiting this piece now, one comes away with the impression that we could have accurately anticipated the limited effects of microfinance in the developing world if we’d taken seriously what was implied by the limited effects in our own backyard. Instead, philanthropists kept working with untrammeled optimism on microfinance in the developing world.

Microfinance today — and in New Jersey

The microfinance enthusiasm of the early 2000s has given way in recent years to a lot more skepticism — including India determining most microfinance programs to be predatory lending and banning them, stories of suicides among recipients, and new research suggesting the positive effects, while not imaginary, are fairly small.

As Stephanie Wykstra summarized for Vox:

The most recent six microcredit studies, published in 2015, were conducted by economists working independently across six countries. The studies found fairly consistent results: None found evidence that income went up on average among those offered credit. A few saw modest positive effects, such as people choosing to spend more time on their small businesses and some changes in spending habits. Abhijit Banerjee, Jonathan Zinman, and Dean Karlan sum up the studies, concluding, “We note a consistent pattern of modestly positive, but not transformative, effects” — not the result that many people had hoped for.

That seems like bad news in comparison with the grandiose promises, and flimsy, eye-popping research that was used to prop up the initial wave of interest in microfinance.

But in another respect, such modest findings actually are good news. Poverty is a hard problem. Almost any solution will be a moderate, partial one.

Sure enough, those are the results we’re seeing six months into the Grameen America study in New Jersey. The best way to study program results for an intervention like this is a randomized controlled trial, in which some groups of women are assigned to receive a loan and others are assigned to receive no loan, but be tracked over time anyway. Follow-ups are scheduled for six, 18, and 36 months into the program.

We’re getting the six-month results now. The program found that recipients were less likely to run out of money, more able to afford necessities, and assessed their financial situation as better — though no improvements in income were measured yet.

It remains to be seen whether the recipients in New Jersey will buck the trend that microfinance programs don’t increase income, even as they do improve some variables associated with well-being. The improvements in measures of material hardship are promising, but I’d still bet against effects on income, which just seem very hard to achieve from microfinance even when other indicators are all promising.

And one particular figure in the report gave me grounds for hesitation. “Thirty-three percent of sample members were operating or intended to operate a direct-selling business at study entry. Examples of the listed businesses include cosmetics companies like Avon, Jafra, and Mary Kay; herbal/natural medicine companies like Herbalife; cookware companies like Royal Prestige; and companies like Amway that sell a variety of personal and home products,” the report noted.

Such multi-level marketing schemes are money losers for nearly everyone involved, and many of them use dishonest practices. To the extent that microlending enables poor people to buy into the expensive initial training and startup kits for multi-level marketing schemes, they may end up doing those people long-term financial damage. That problem, more than most that microfinance faces, would be uniquely American.


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Look at How Much “Game of Thrones” Characters Have Changed Over 8 Seasons

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During the summer of 2019, the final season of Game of Thrones aired. The show had gone on for almost 10 years which is a long time not only for the characters but also for the actors who portrayed them.

Bright Side is remembering what characters looked like in the very first episodes of the groundbreaking series and is comparing them to what they look like in the final season of the show.

1. Cersei Lannister

2. Jon Snow

3. Tyrion Lannister

4. Daenerys Targaryen

5. Sansa Stark

6. Arya Stark

7. Jorah Mormont

8. Varys

9. Jaime Lannister

10. Sandor Clegane

11. Brienne of Tarth

12. Samwell Tarly

13. Davos Seaworth

14. Theon Greyjoy

15. Brandon Stark

Did you watch Game of Thrones? Did you enjoy season 8? Tell us in the comment section below.

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Baltimore’s ransomware attack, explained – Vox

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Thirteen bitcoins are standing between the city of Baltimore and many of the services and processes its citizens rely on after hackers seized thousands of government computers at the start of the month. The ordeal has been going on for two weeks, and there’s no clear end in sight.

Here’s what’s happening: On May 7, hackers digitally seized about 10,000 Baltimore government computers and demanded around $100,000 worth in bitcoins to free them back up. It’s a so-called “ransomware” attack, where hackers deploy malicious software to block access to or take over a computer system until the owner of that system pays a ransom.

Baltimore, like several other cities that have been hit by such attacks over the past two years, is refusing to pay up. As a result, for two weeks, city employees have been locked out of their email accounts and citizens have been unable to access essential services, including websites where they pay their water bills, property taxes, and parking tickets. This is Baltimore’s second ransomware attack in about 15 months: Last year, a separate attack shut down the city’s 911 system for about a day. Baltimore has come under scrutiny for its handling of both attacks.

The ransomware attacks in Baltimore and other local governments across the US demonstrate that as ransomware attacks spread, and as common targets such as hospitals and schools beef up their online systems’ security, there are still plenty targets vulnerable to this kind of hack. It also exemplifies the conundrum that ransomware victims face: pay up and get your access back, or refuse — potentially costing much more in the long run.

What’s going on in Baltimore, briefly explained

Hackers targeted the city of Baltimore on May 7 using a ransomware called RobbinHood, which, as NPR explains, makes it impossible to access a server without a digital key that only the hackers have.

The Baltimore hackers’ ransom note, obtained by the Baltimore Sun, demanded payment of three bitcoins per system to be unlocked, which amounts to 13 bitcoins to unlock all the seized systems. The note threatened to increase the ransom if it wasn’t paid in four days, and said the information would be lost forever if it wasn’t paid in 10 days. Both deadlines have now passed.

“We won’t talk more, all we know is MONEY! Hurry up! Tik Tak, Tik Tak, Tik Tak!” the note said.

The city government is refusing to pay, meaning that the government email systems and payment platforms the attack took down remain offline. The attack has also harmed Baltimore’s property market, because officials weren’t able to access systems needed to complete real estate sales. (The city said transactions resumed on Monday.)

Baltimore Mayor Jack Young, who’s officially been in his office less than a month, said in a statement on Friday that city officials are “well into the restorative process” and have “engaged leading industry cybersecurity experts who are on-site 24-7 working with us.” The FBI is also involved in the investigation.

“Some of the restoration efforts also require that we rebuild certain systems to make sure that when we restore business functions, we are doing so in a secure manner,” Young said. He did not offer a timeline for when all systems will come back online.

The Baltimore City Council president also plans to form a special committee to investigate this latest attack and try to ensure it doesn’t happen again.

A similar attack using RobbinHood hit government computers in Greenville, North Carolina, in April. A spokesperson for Greenville told the Wall Street Journal that the city never wound up paying, and that while its systems aren’t entirely restored, “all of our major technology needs are now being met.”

More than 20 municipalities in the US have been hit by cyberattacks this year alone. And such attacks can be expensive, perhaps especially if targets say they won’t pay. In 2018, hackers demanded that Atlanta pay about $50,000 in bitcoins as part of a ransomware attack. The city refused, and according to a report obtained by the Atlanta Journal-Constitution and Channel 2 Action News, the attack wound up costing the city $17 million to fix.

Ransomware attacks aren’t new — but we’re still figuring out how to deal with them

In 2017, a ransomware called WannaCry targeted tens of thousands of computers using Microsoft Windows operating systems in more than 100 countries. Officials in the US and the United Kingdom eventually blamed North Korea for the attack. Also in 2017, corporations in the UK, France, Russia, Israel, and Ukraine experienced ransomware attacks. US hospitals were also targeted.

Here’s how Timothy Lee explained for Vox what was going on and how ransomware had become more prolific:

The basic idea behind ransomware is simple: A criminal hacks into your computer, scrambles your files with unbreakable encryption, and then demands that you pay for the encryption key needed to unscramble the files. If you have important files on your computer, you might be willing to pay a lot to avoid losing them.

Ransomware schemes have become a lot more effective since the invention of Bitcoin in 2009. Conventional payment networks like Visa and Mastercard make it difficult to accept payments without revealing your identity. Bitcoin makes that a lot easier. So the past four years have seen a surge in ransomware schemes striking unsuspecting PC users.

Some ransomware schemes are so sophisticated that they even invest in customer service, helping victims who want to pay their ransoms navigate the complexities of obtaining bitcoins and making bitcoin payments.

Since then, a number of sectors and organizations have made improvements to their security practices to protect against ransomware. But the latest Baltimore attack exemplifies what a whack-a-mole game this is: One area improves its practices and hackers just go looking for another.


Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.

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Cameron Russell for ELLE

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A film by Kai Z Feng of our February 2014 cover.

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