Microfinance or Microslavery?

Microfinance is rather broadly defined as

"financial services for the poor or low-income"
This definition includes say... a community-based savings bank in Cambodia. The intent of such banks was to serve those that traditional banks could not or would not reach. Not going to find B of A there any time soon, and thank God. In more recent years though, this theory has taken to the web and spawned several microcredit services. Kiva, MicroPlace, and Prosper have all popped up and attempt to take advantage of the poor fill a niche.

Previously, I've payed almost no attention to any of these. As you may have gathered by now, we're rather debt-averse. I know that Kiva and Prosper were all the rage three or four years ago. People helping people. What's wrong with that? Well, it depends upon your definition of help.

What got my attention, was when a group at church discussed doing microfinance as a part of social justice. hmmmm....

The group, just finished with their 30 week Bible study course, was looking for ways to put what they had studied and discussed into action. That's great - prayer and Bible study should lead to more action. Then she hits us with this:
"We're also looking into microfinanace - where we can lend as little as $25 to help people in third world countries"
There is so much wrong with that short statement that I nearly fell out of my chair.

First - as a Christian, I'd direct you to Proverbs 22:7 which states that the rich rules over the poor, and the borrower is servant to the lender. I love it when God just tells it like it is. Are we looking to enslave, or empower?

Second - The Bible never uses debt to solve a problem. So why do we assume that lending = help? No one would disagree with helping those less fortunate, but how is this the solution?

Third - If we are really interested in helping these folks, why - as Christians - would you not just give them the money? If the money is truely the help they need (debatable), then why demand repayment and charge interest?

Now, the person presenting the idea is a sweet lady, and I was not about to overturn her table over this. Nor was it really the time to critique this or the other ideas being presented. So I chose to focus this on my inside voice.

Am I over-reacting? Or is it really as crazy as I think it is?


Anonymous said...

I'm debt-averse myself and generally agree with you, but I do think that micro-finance plays a role in international development.

First, I think even those of us who are debt-averse are also credit-worthy. We also have FDIC-insured, safe and accessible savings accounts.

We have the option of credit, and the (better) option to NOT take it.

In some situations, microfinance exists because there isn't much in the way of a safe place to save, much less additional income to save.

My favorite story is a woman who ran a food service cart and blew out a tire after just a few months in operation. The tire was $25 - more than she had (or could have expected to) save. But without it, her income was zero.

In her case, giving her $25 would've been better than lending $25. But she needed some option to stay in business.

But if she'd been starting up, from scratch, looking for $25 or $100? I think the need to prove that her business plan was sound and that she was credit-worthy would be important. Too often, grant money goes to those with connections. Extending credit can be a legitimate means to hold people accountable in communities where that might not be the customary basis for allocating available resources.

The interest can also fund important things - business counseling and other support services for first-time entrepreneurs. Those resources simply don't exist in many of the areas addressed by microfinance programs.

Our charitable dollars go directly to a ministry that simply gives - but I've been intrigued by similar microfinance initiatives.

What's more important than opposing the principle, I think, is to keep a very close eye on the organization operating the microfinance fund. Are they making a profit, or are they changing lives?

While long-term, I don't want to hook the developing world on the credit drug, I do think that there are cases where this type of credit makes sense.

Kika said...

Interesting to think about. I don't know much about the world of micro-finance; only have read a couple articles. I don't see why it can't be a loan without interest, though, when the idea is simply to empower and come alongside others. I think there can be good in the knowledge that the person or group receiving the interest-free loan will repay it that it may be offered next to others. I think there could be a sense of pride for the recipient, knowing that they're not taking a "hand-out" and they are, in turn, seeing that money go to another person, with a business plan, who will also have an opportunity to succeed. In my own life, my husband and I recieved a short term, interest-free, loan from a friend which we used to buy our first home. What a help that was and I've never forgotten that kindness and that someone believed in us to repay them and never asked for anything in return.

Mr. (not) the Jet Set said...

Thanks for the great comments.

"While long-term, I don't want to hook the developing world on the credit drug, ...."

But how do you avoid that? Here, we just showed Sally Pushcart, that a loan is the way out. So the next time things fall apart, then what? Back to the loans? How did we not just hook her? And what happens when she can't pay?

My original aversion to micro-lending was purely spiritual - The Bible says that the borrower is slave to the lender. But then you have the new problem of creating financial mis-behavior.

Susan said...

"Why not just GIVE them the money?"
You know, as a devout christian, that was one of the questions I had when I started to research a paper on the Grameen Bank in college.
It turns out many microlender candidates only have local loan sharks or lenders who refuse to deal with them because they are poor or female.
Additionally, Yanus, the founder of Grameen, made two other observations about the people his bank lends to:

1- People have more pride, self-respect and practice better stewardship when the money they are given is a loan for specific purpose instead of a gift.

2-When men got extra money, the cash tended to go towards vanity items, new shirt, a radio, beer. When women got extra money, it went towards better food, clothes, and schooling for their children.

Also add to this the sad reality that most money or food sent to developing nations is too easily stolen or eaten up by national and local officials demanding bribes (really- the loss is huge- it's maddening.) .....and the simple fact remains that a micro loan with obligations on an individual basis does far more good than any "debt free" option that we've tried so far.

Good micro lenders help with developing business plans, and let locals figure out what will work locally and can be started up without a loan so large that it will cripple them if things go bad.

Debt is like fertilizer. When heaped on indiscriminately (like in our consumerist society) it burns and blights. But when used in small, judicious doses, it can make the desert blossom and bear fruit.

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