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Is Wal-Mart a leader in hypocrisy and social irresponsibility?

by Miki Saxon

wal-mart_logo.gifOKaaaaaaaay. Here’s Wal-Mart as white knight riding forth to save the masses and bring relief to the environment and health care crisis.Wal-Mart is positioning itself as a do-the-right-thing leader. In a speech yesterday “…president and CEO Lee Scott today said the company would continue to demonstrate leadership and work for change on major issues important to Wal-Mart’s customers, communities, associates and suppliers worldwide. …working to lead an effort by major global retailers to create common social and environmental standards for suppliers. The company will also require all of its suppliers to meet specific environmental, social and quality standards and it will make compliance with those standards part of its contracts… “What if we extended our mission of saving people money so they can live better…“”

Isn’t that great? Have you seen the ads for $4 dollar prescriptions? Terrific, right? Gee, maybe a leopard really can change its spots.

But before you get too excited take a look at another article in Business Week called The Ugly Side of Microlending.

And remember that CEO Lee Scott is at the top of the approval chain for this move.

Wal-Mart Stores, which obtained a Mexican banking license a year ago, began offering loans for purchases at 16 of its 997 Mexican outlets in November. In the U.S., the retailer markets itself as a friend to the budget-conscious. In Mexico, it charges interest rates that might set off popular and political revolts back home, although Wal-Mart describes its terms as appropriate to the Mexican market. At one store west of Mexico City, a 32-inch LG plasma TV with a price tag of $957 can ultimately cost as much as $1,474, thanks to a 52-week payment plan that carries an annual percentage rate (APR) of 86%.

Doesn’t that warm the cockles of your heart? Wring your profits out of the poorest of the poor while positioning yourself as the leader in “saving people money so they can live better.”

What do you think?
Is hypocrisy and social irresponsibility alive and well at Wal-Mart or have they truly turned over a new leaf?


Your comments—priceless

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11 Responses to “Is Wal-Mart a leader in hypocrisy and social irresponsibility?”
  1. Ren Garcia Says:

    A 52-week payment schedule = 1 year, so I would compute effective annual percentage rate as:

    1474 minus 957 = 517, interest paid

    517 divided by 957 = 54%, rate of interest paid.

    Not 86%, but still high. However, microfinance rates of the small microfinance lenders in less developed economies hover around this rate because of the higher costs of collection (e.g., weekly rather than monthly), incidence of arrears & defaults higher than regular loans, larger loan loss provisions. I guess the 31% average for microfinance that Business Week quotes includes the microfinance companies who have grown to a size where they can afford to cut down on the rates they charge.

    The other consideration is: none or a few financial institutions lend to these low income brackets of unstable income. For a large financial institution, it takes as much processing overhead to service a $1 million dollar loan as a $500, so they tend to ignore the small amounts & go for the big ones.

  2. Miki Saxon Says:

    Ren, the default on microloans is typically low, “Default rates on MFI loans run about 4%, which is less than half the rate on subprime loans made by U.S. lenders.”

    And it was more the province of philanthropists, “…Omidyars are announcing that they’re donating $100 million to Tufts University to create a new fund for microfinance lending initiatives…” and “…Jacque Weberg of Phoenix pledged $50 million over 10 years to Opportunity International, an Oak Brook (Ill.)-based nonprofit that works to help the poor in the developing world through microfinance”

    But where there’s money there’s greed, “While much of the money flowing into loans for the working poor is indeed ponied up by people with high-minded goals, these days its coming increasingly from those with a sharp eye for the bottom line—raising new questions over how to balance the altruistic mission of microfinance with the pursuit of profits.”

    As to the interest rate, your math may be correct, but there must be more to it. In over twenty years I’ve never see BW make an computational error that blatant.

    Nothing you say changes my mind regarding the hypocrisy shown by Wal-Mart between their words and their deeds.

  3. Ren Garcia Says:

    Miki, I’m not saying there is no hypocrisy and no greed. There are and lots. Just trying to give more info. I did run a microfinance lending window for a small rural bank in the countryside, lending to small farmers (farming 5 hectares or less, about 12 acres). In the beginning, we were running huge arrears and defaults. What we did was institute a system of cross-guarantees and run farm/household budgeting workshops for prospective borrowers. We formed 5 farmers to a group (neighbors & relatives) and each guaranteed each other’s loan. If one was not able to pay, the others in the group contributed towards the payment of the loan. On the lending side, arrears & default dropped –but it was tough going for about 2 years. I wanted to find out how much of the arrears & defaults persisted from the point of view of the borrowing side that was actually being covered up by the cross-guarantees which made the lending side look good. Never got around to it. I had to give up jousting at windmills and had to get back to the city to look after my own arrears.

    I’m with you on the hypocrisy and greed in big business. They don’t play fair. They are strict on their accounts receivable and run up long accounts payable to their small suppliers forcing them to take on working capital loans which they can hardly afford.

    I also agree with you that, today, much of the money going into microfinance is bottomline-directed. Where before microfinance was a question of survival for the lender, it’s now big business. Microfinance has gone a long way away from when Grameen started it all.

  4. Miki Saxon Says:

    Ren, The part that angers me is Wal-Mart’s posturing and presenting themselves as a ‘do the right thing’ company while doing this stuff. At least the hedge funds aren’t up there making speech about how they’re all for the little guy.

    It’s very sad seeing Grameen’s vision corrupted.

  5. Miranda Says:

    Great article, Miki! Wal-Mart has bothered on many levels, from its business practices to its environmental practices. Which is why we do not shop there. Ever.

    Oddly enough, we actually save MORE money now that we don’t shop there. The impulse shopping has been cut WAY down without all the “bargains” and “deals” jumping out at us all the time.

  6. Miki Saxon Says:

    Miranda, I agree totally and you can add their politics. I really lost it a few years ago when $37 million was included in the federal highway appropriations bill to repave the private road leading to their headquarters. Talk about pork!

  7. Bob Turek Says:

    Miki- anything close to this type of lending used to be illegal. Apparently, the credit industry can do just about anything it wants until it runs itself out of business as it takes advantage of people. The Wal-Mart story is a good example of doing the WRONG thing. I’ve disagreed with much of the Wal-Mart media coverage but this needs to be made visible enough to force a policy reversal.

  8. Miki Saxon Says:

    Bob, The financial carnage being done to the world’s poorest by some of the world’s largest and wealthiest in the name of profits isn’t a secret and I’m sure that it’s been covered by media other than Business Week. No one seems to care—I haven’t seen any politicians from any country hollering about it.

    As to Wal-Mart specifically, 500 pound gorillas pretty much do as they please, especially when they’re politically connected.

  9. KG Says:

    Miki, it is clear that Wal-Mart is profit motivated. However, one of the issues that hasn’t been discussed is the higher rates of interest charged in Mexico. They have a 5 percentage point higher increase than in the US, so when consumer finance costs are 18% – 27% here, it is very reasonable that it’s between 30% and 40% there. There are also exchange costs as the USD is viewed as a reserve currency.

  10. Miki Saxon Says:

    KG, That’s still not the 86% BW mentioned or even the 54% Ren came up with and it doesn’t address the difference between Scott’s talk and his/Wal-Mart’s walk.

  11. Leaders who DON’T: Why there’s no leadership on one hand and bad leadership on the other Says:

    […] A host of nimble firms like CompleteCare in North Little Rock, Ark., began exploring this terrain years ago. Bigger players have jumped in more recently, although the market remains fragmented and reliable market share information isn’t available. U.S. Bank, a U.S. Bancorp unit, finances about $2 million in patient debt per month through a medical-benefit firm, charging most customers annual interest of 13.5%, and as much as 24% on late bills. General Electric’s powerful financial arm markets its CareCredit card to dentists, plastic surgeons, and some hospitals, with loan volume expected to hit $5 billion this year, up 40% from 2006. Citigroup and Capital One now offer similar cards. “Everybody is saying [medical finance] is the next horizon—whether it is lines of credit or credit cards,” says June St. John, a senior vice-president at Wachovia, which is exploring the business. Whetting all these appetites is the $250 billion consumers pay in medical expenses out of their pockets, an amount that doesn’t include insurance premiums. That’s an estimate for 2005 from the consulting firm McKinsey & Co. The figure could hit $420 billion by 2015. (Gee, the interest rates are almost high enough to attract Wal-Mart) […]

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