Microfinance: Good News?

Madondo used to earn a living in the ritzy hotels of South African tourist areas by selling snack foods and cigarettes to hotel employees. “The trick to that kind of business,” he says, “is knowing when everybody gets paid. You sell on credit when nobody can pay, then you find them first thing on the day they get paid. You can’t be lazy about it. But sure, I made a good living like that.”

Then Madondo met Jesus. Madondo left behind the snack business and headed back to his home village to hit poverty head-on. Without any expectation of pay, he invited neighbors to his home for church services, and by default became the preacher. Meanwhile, his life became a display of passion for action. He partnered with non-profit organizations to teach gardening to village members, and most recently he started working with a microfinance organization.

This is where Madondo’s life comes full circle. Now in addition to sharing the Gospel with anyone who has ears, Madondo ties in motivating rhetoric on why an African villager should get off his seat and start a business. He’s using his experience as a snack food seller to motivate neighbors, some of whom have never earned money in their lives except the meager welfare grant the government sends to keep them from starving.

“We can do it!” shout a group of young people at one of his meetings, practicing the slogan of this microfinance institution (MFI). It’s a message rarely heard among the poorest of the world.

What’s this all about?

I, too, work with a microfinance organization in South Africa. Like Madondo, I wouldn’t be here if it weren’t for my faith in Jesus. And yet on an average day, the connection between microfinance and the Bible is not as clear, say, as starting churches in Algeria.

The idea of microfinance is as straightforward as its name—micro, meaning loans as small as $5 but going up to $500 or $1000 (depending on the context), and finance, meaning getting people the money they need to start or expand a business to earn a living. People’s confidence grows as they get “a hand up, not a handout,” in the words of one MFI. Clients pay back the loans with interest.

But what does the Bible have to say about microfinance? With all the hoopla microfinance has garnered recently, culminating in the Nobel Peace Prize for the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, we Christians would do well to figure out where we stand on the issue. Namely, if Jesus said, “Sell your possessions and give to the poor,” how does microfinance stand as a means of giving? Is charging interest inappropriate with someone in dire straits? Are we supposed to find some more spiritual means? Would a man like Madondo be better off spending his time only preaching instead of recruiting clients for business loans?

What are the economics of the Bible?

Dive into the words of Jesus, and the economics of the Gospel are literally out of this world. Here’s a man who praised a widow’s donation of a penny as worth more than a year’s wages and told stories with heroes who gave away their master’s money or paid workers a full day’s wage regardless of their hours worked. He paid His taxes, but found the money in a fish’s mouth. Jesus saw money on a completely different value system.

What did Jesus have to say about lending to the poor? He said give. If you do lend, do so even to your enemies, and don’t expect to get anything back. Whenever He spoke of money, Jesus’ way was always the most generous, selfless and faith-led.

What kind of backwards economics is this?

Even in the Old Testament, God gave the Israelites a strict code of finance, especially regarding interest. God told the Israelites, “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest” (Exodus 22:25, TNIV). God told them not to charge interest of each other if the borrower is needy. And we also read in Psalms that the righteous "lend freely” (Psalms 37:26).

God wants us never to lose sight of the higher purpose—in the end, it’s not “all about the Benjamins.”

But is all this simply holy foolishness that no real person can obey?

The Bible also contains wisdom tested by men and women who knew human nature. Proverbs 28:8 seems to indicate that only exorbitant interest is a problem. And Deuteronomy 23:20 perhaps deals with the risk of lending to strangers, saying, “You may charge a foreigner interest.” Jesus told stories of people charging interest, without a critique. He also said, “Do not turn away from the one who wants to borrow from you” (Matthew 5:42).

Psalm 37:21 sums up the problem: “The wicked borrow and do not repay, but the righteous give generously.” The Bible would not deny that people out there would try to take advantage of a well-meant hand up.

Still, the Bible makes it clear that our aim should be for all people to have the means to earn a living. In the Old Testament, God set regulations like the year of Jubilee so that people could not be deprived of land, their means of living. In the New Testament, Paul admonishes that “Anyone who is unwilling to work shall not eat” (2 Thessalonians 3:10). His vision for the believers is that “Those who have been stealing must steal no longer, but must work ...” (Ephesians 4:28). We see an aim toward providing fair credit, encouragement or whatever it takes to get someone working to provide for themselves and for the good of the community.

So from all this, it appears that microfinance in a Christian context faces three challenges: to get people access to credit fairly, to deal with people of the world wisely and to keep the higher purpose in mind through everything.

Facing the challenges

Microfinance is certainly not a complete solution. What about the sick, the elderly or those facing tragedy—don’t they need more than a chance to start a business?

The fact is that no individual has the whole system of the Kingdom of God in his pocket. Justice requires doctoring, education, giving, providing jobs, preaching and more.

Take a doctor, for example. She spends her time healing people’s bodies. Is she telling them about the Gospel while she examines their broken elbows? Is she feeding the starving, counseling and divorcing couples and singing praise songs in their ears? Probably not. But she’s doing her part.

Or compare that same doctor to Jesus. Did Jesus need a hospital full of gizmos to heal people? With no system and no training, He just stood there and spit on people or let them swipe their fingers on His robe and shazzam, they’re healed. Does that mean our doctors should drop out of med school and take up walking around touching people? Probably not. God uses human means to perform superhuman feats, and our job is to use the tools before us.

What a doctor can do, though, is operate with biblical perspective. The same is true of microfinance professionals. Legitimate arguments can be made both for and against the operation of MFIs. So a microfinance program must face the challenges listed above.

Microfinance has great potential to make a means of living available as freely as possible. When able-bodied people like Madondo can access capital at a fair interest rate, in the tiny amounts they need, less “charity” is necessary, and the resources available for helping in hard places can go much farther. Microfinance programs give an opportunity for someone to work who otherwise has none. It’s a means to teach Paul’s hard-hitting lesson—that one has to work or won’t eat, and gives those ready to work an opportunity to do so. The creativity of average folks is released, uplifting individuals, families and communities.

This means not being foolish. Microfinance institutions keep interest rates low by keeping their repayment rates high, so they do well to choose clients carefully. Since the poorest of the world often lack the physical collateral that a bank would use to keep their losses minimal, MFIs often use “social collateral” substitutes: people may borrow in groups, helping each other solve business problems and repay. People choose group members they trust. Ideally, this keeps MFIs from lending money to enable alcoholics and thieves, but still reach the poorest.

Because of their care for borrowers, MFIs usually have interest rates competitive with the rest of the market, or even lower, as informal moneylenders often lend at preposterous rates, earning the title of “loan shark.” This interest permits the organizations to reach many more people with an opportunity to better their lives themselves than traditional charity, since the money goes out, is repaid and goes out again, with very little additional capital input, if any.

Finally, as in any field, Christians should regard microfinance with the bigger picture in mind. Our lives are not about money, and neither is money the complete solution to poverty. We have been bought by God, our mansions are in heaven, and let us teach others the same. Madondo can share creative applications to the economic problems facing his neighbors and also the live out and speak the news of Jesus’ life, death and resurrection. In fact, the former may enliven the latter.

15 Comments

Jeremy

18

Jeremy commented…

While I agree that the Bible does not expressly condemn the charging of interest, it also seems clear that God's people in the OT and the NT have a dominant ethic of NOT charging interest. Microfinance is not a bad thing, or sinful, but shouldn't a Christian microfinance endeavor seek to give people a chance to start a business WITHOUT charging interest? Especially in the context of impoverished people who may have never had money to work with to begin with?

Dan King

4

Dan King commented…

Interesting article... It's kind of cynical, but raises some interesting points.

I recently got back from a mission trip working with a microfinance organization. Five Talents International is a faith-based 'MFI' and they have several programs around the world. For example the program that I visited in Kenya is a savings and credit program in which the members themselve pool their savings together, and then make 'loans' to others in the group. The interest rates are low (like 1%), and the repayment rates are high (like 99% on-time payments).

The trip that I was on was to teach basic Christian business skills to help these people be more successful with what they have. While there I was impressed to learn that the groups not only work with managing their savings together, but they also worship together and study the bible together (just like any home-group here in the US).

These programs have seen amazing success way beyond a loan to start a business. People who have risen up in leadership in these groups have become elected government officials, and others use their skills to train others to teach them a trade so that they can go on to start their own businesses.

I'm actually sharing many of these stories right now at my blog, as I post my journals from my trip.

I agreee that it is not the ONLY solution, but it does play an important role. There are lots of great things that come out of GOOD microfinance programs, so I would only caution against lumping all MFIs together. As with anything else, there are many people who ARE doing it right...

Thanks! good read...

Erin Swanson

2

Erin Swanson commented…

I think the thing about microfinance is it can be, even more than a money and "charging interest" issue, one of dignity.

We take it for granted that we can open a bank account. most of us can get access to a credit market.

I know, for example, people in the slums of India, because they don't have access to clean water and the city's provision, will pay up to 4 X the amount - from loan sharks, the "water mafia". This is an instance where they are willing to pay for a need, but have no access to a credit market. Microfinance can be a great fit here - people don't always need charity, but rather the dignity that comes with meeting their own needs.

I think our faith should take these challenges and look at them with a bigger perspective. Because the reality is it will be different for different people, in different places, according to their need. Some places will be too poor for any such opportunity, and that is where our generosity should abound. while still incorporating empowerment, relationship, patience, true and lasting change...be it microfinance, or a gift/donation/grant.

That opportunity and discernment should excite us, to express our faith creatively, intelligibly, and with perseverance, no matter the opportunities to give and help our brothers and sisters.

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SarahP commented…

I do think microfinance practitioners need to be careful about encouraging people who are poor to go into debt. The group savings programs that Dan referenced seem more likely to bring economic freedom.

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quick loan commented…

Microfinance loans are needed to serve the poor, but loan companies prefer working with large loans in little numbers to reduce management expenses. They also look for security with a clear name - which many low-income people do not have. In addition loan companies usually consider low earnings people a bad risk magnificent particularly high information tracking expenses on function.

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