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Microfinance: The World’s Best! …no Worst! Idea

Guest Post by Chris Horst - Close to five years ago, I charged into employment with HOPE International, riding the surge of the microfinance movement. At that time, the only press you could find on microfinance lauded the concept. The idea of helping poor people borrow and save money was not just pitched as a good idea. It was the world’s best idea.

Because the concept was so potent, so preeminently powerful, some industry leaders claimed it would single-handedly put poverty in a museum. Every major news source in the country (NYTThe EconomistNewsweekCNN, etc.) featured a steady stream of microfinance stories, all with the same message: We have discovered poverty’s cure-all—our silver bullet. There was literary and conversational “dancing in the streets” as we celebrated the discovery of the one-stop solution which would solve our world’s problems. The clear verdict: Microfinance eradicates poverty.

During early 2007, however, the news soured. The dancing turned to questioning as those bold proclamations were challenged. Research findings painted a less than glamorous picture of the impact of microfinance. Journalists (from these same publications) discovered microfinance clients who had taken out loans from one institution to pay off loans at another. Last month, it was revealed that some lenders’ high-pressure loan delinquency practices actually drove over 50 Indian microfinance clients to commit suicide, sparking a growing unrest in the Indian microfinance sector. The clear verdict: Microfinance perpetuates poverty.

Here is my question: Why are we so desperate to label microfinance as either a panacea or pandemic? Might the reality be that microfinance is neither? When the Toyota acceleration debacle hit mainstream or NWA Flight 255 crashed, nobody suggested that the automobile, airplane, or transportation system in general were detrimental to our society. Similarly, when Waiting for Superman hit theaters this month, highlighting the sad reality that many of our nation’s public schools are failing our country’s youth, even the biggest of educational critics do not suggest that all schools be shut down.

On the flipside, we share a belief that for every pastor scandal or denominational split, there are many more positive examples of churches truly making a positive impact on our world. The reality is that no single idea, concept, industry or poverty alleviation strategy is perfect or devoid of abuse and corruption.  We all know hospitals, airlines, car manufacturers, schools and churches which are successful – and probably a few which have failed.

Microfinance is not a new idea – we all benefit from the core concept every day. Savings accounts, business training, loans, and insurance products are tools we all use every day. I am personally grateful for Graystone Bank and Wells Fargo, both of which have provided an immeasurably positive benefit to my life. I also know countless successful entrepreneurs across the globe whose businesses were fueled by mentoring, biblically-based business training and access to capital.

It is just as wrong to talk about microfinance eradicating poverty as it is to lump payday loan shops, ruthless money lenders and usurious banks with sound, values-driven, client-focused microfinance initiatives. Not all microfinance is created equal.Sadly, a nuanced and balanced perspective does not make headlines, but my encouragement is to critique every extreme story, on both sides, in the court of commonsense and sound judgment.

Please let me know if you have questions about any of the recent articles or news stories on microfinance. I’d love to dialogue with you! 

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posted by Justin Forman | 12.14.2010 - 5:55 AM


I agree wholeheartedly. HOW things are done makes a huge difference! Microfinance--like fire, or cell phones, or potent medicines--is only a tool, which can be used for good or for ill, depending on the skill and motives of the user. By itself it cannot eradicate poverty; that requires worldview change, social connections, and lots of other things. But as one part of a comprehensive effort to deal with all the roots of poverty, it can be useful.
We've seen that for people not yet able to utilize microfinance well, self-help savings groups can be the first rung on the ladder out of poverty....
Carolyn Klaus, Hope In View, Inc.
commented by Blogger carolyn, 10:35 PM  

Thanks Chris for the balanced and thoughtful response to all the extreme news around microfinance. Those of us at Opportunity International couldn't agree more.
commented by Blogger Sonya, 3:45 PM  

Hi Chris Thanks for your thoughts on this, I'm sure you are right. I also think that many microfinance schemes don't move people out of poverty, but they do help them escape abject poverty.

Have to confess a vested interestin this, my daughter is involved in a scheme in Kenya
commented by Blogger Papa Bear, 12:47 PM  

Good issues raised... though the reality of practice (when donors aren't in the room) is that clients will sooner receive pressure to repay their high interest rate loan than receive a clear presentation of the gospel.
commented by Anonymous BTruman, 12:03 PM  

Thanks for your great feedback. Appreciate the kind words!

BTruman, I'm sure the reality is that many times your comments are true. I can at least speak for HOPE International that we place an incredibly high value/emphasis on the proclamation of the gospel throughout our network.

commented by OpenID smorgasblurb, 4:39 PM  

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