Holy Mammon

HOLY MAMMON why microfinance—especially when married to ministry—is leading the fight against poverty

BY BRUCE WYDICK

B

y virtually all accounts, microfinance represents one of the most exciting and dynamic movements of our time in the fight against world poverty. It involves lending small amounts of money, often as little as $50 to $100, to low-income entre preneurs, generally in developing countries. The entrepreneur taking a microfinance loan then uses the borrowed capital to invest in small productive assets such as a sewing machine or oven. He or (as is most often the case today) she may also use the loan as working capital to purchase wholesale goods for later resale or for hiring additional employees. The loan is then typically repaid in biweekly or monthly installments, and another, often larger, loan is then granted when the last one has been paid off.

These “dynamic incentives” used so often in microfinance bring to mind the parable of the talents (Matthew 25:14-30, Luke 19:12-27) in which those who have proven themselves faithful in small things are then given responsibility for bigger things.

With last year’s Nobel Peace Prize given to the founding father of microfinance, Muhammad Yunus, the microfinance movement has attracted so much media attention that one could say microfinance itself has now become famous. This newfound captivation with microfinance by the multitudes is in many respects justified, but it is also fraught with the usual biases and misconceptions of early infatuation. Many of these misconceptions view microfinance as a silver bullet that can single-handedly end world poverty. This is not the case, and it is important that infatuation develop into a more mature commitment based on a clearheaded understanding of strengths and weaknesses.

In this article I will discuss several aspects of microfinance: its increasing importance as a strategy to empower the poor in the fight against world poverty, what seems to make it work, the impact it has on the poor, and its actual and potential integration into the holistic mission of Christians in poor

countries. I write this both as one trying to look at the microfinance movement objectively and as an insider who was involved with the microfinance movement early on, and who has since made it the subject of a great deal of academic research.

By any standard, the growth in the number of microfinance borrowers in the last decade has been breathtaking.

The Microfinance Summit, the gatekeeper of worldwide microfinance statistics, reports that the number of microfinance borrowers increased from 13.5 million worldwide in 1997 to 113.3 million in 2006, these borrowers taking small loans from about 3,100 microfinance institutions (MFIs).

Certainly part of what is responsible for the mushrooming growth of microfinance is that it has enormous political appeal across the political and economic spectrum. Free-market types and others leaning toward the right side of the spectrum point to the self-sustaining nature of MFIs, which allow them to remain free of significant subsidies. They are attracted to its roots in market-based activity and its emphasis on entrepreneurial families lifting themselves up by their own bootstraps.

Yet even on the other end of the spectrum, socially oriented liberals are equally enamored with microfinance, because it is targeted directly at the poor, is environmentally benign (unlike many large, invasive development projects), and empowers women and artisans. Everybody loves microfinance.

The Christian community is not left out in this respect.

A large percentage of MFIs are faith-based, and the overwhelming majority of the faith-based MFIs are Christian, including one of the oldest and largest, Opportunity International (opportunity.org), which today boasts over 1 million borrowers worldwide. Christian development practitioners bring to their work a different perspective from their secular counterparts, viewing the poor not just through an economic lens but also in terms of their spiritual and social relationships within the community and their relationship

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respect, the transaction between the banana-buyer and the supermarket is a straightforward one, because each knows exactly what he’s getting from the deal. However, in a credit transaction, money is exchanged not for a well-specified banana, but for a promise—a promise to repay the loan in the future. The quality of the promise is hidden information. It is something that the borrower knows but the lender doesn’t, and the lender must engage in a costly screening process before consummating the transaction. The cost of this screening process is justified by the profit margin that lenders realize on large loans. But while the profit on large loans compensates for these screening costs, the profit on small loans doesn’t.

Since it is the poor who typically demand small loans, it is the poor—the very people who need credit the most—who become shut out of the credit market. Economists later came to understand that this insight was one of the major contributors to poverty traps and increasing inequality in developing countries. The rich get richer, but the poor stay poor, even though they have the “freedom” to participate in the economy.

How does microfinance solve this problem? Essentially MFIs solve this problem through the use of methodologies that dramatically lower the screening and transaction costs in credit markets to poor borrowers. First, repayment is induced by starting with small loans and then working towards bigger ones. In this way, problems with unstable borrowers are nipped in the bud, and responsible borrowers are given the opportunity to increase the scope of their borrowing.

Second, borrowers and borrowing groups have a relationship with a loan officer who works their neighborhood for the MFI much like an American paperboy. The size of this loan officer’s paycheck is heavily determined by the size of his or her client base and whether or not the borrowers in his geographical portfolio repay their loans on time. Here, the loan officer will often act as a source of sound advice, financial counselor, and debt collector all in one. In Christian MFIs, loan officers often view their work as a ministry to the poor, and loan officers will often share devotional time as a group with the branch directors before they head out for the day to visit their clients.

Third, MFIs often use group lending as a vehicle for making credit available to the poor. Because borrowing groups are self-selected and are made up of individuals who are jointly liable for each other’s loans, groups have an incentive to screen Continued on page 29.

with God. Allowing the poor access to credit, to produce things that are of value to others, and the freedom to participate in markets is viewed by many community-developmentoriented missionaries as one vehicle for “releasing the bonds of the oppressed” (Luke 4:18). This additional emphasis on spiritual and social concerns is a hallmark of Christian development work, but it poses challenges for those who seek to combine lending with evangelism.

I first got involved with microfinance in 1988 on an internship with ASPIRE, an Opportunity International affiliate in the Dominican Republic. The internship was set up for three of us by Tony Campolo in the master’s program in economic development at Eastern University (then Eastern College).

We spent our days traveling by jeep in the sticky Dominican heat, accompanying the loan officers as they were visiting their clients, gently admonishing them to repay their loans, and watching their businesses grow. These were the early days of microfinance when nobody was quite sure if it worked or not. No serious studies had been done on microfinance yet, and it was only anecdotal evidence of success stories and high repayment rates that kept fueling the enthusiasm. Borrowers continued to take and repay loans, with the repayment rate at ASPIRE and many other MFIs like it often approaching 98 percent or more.

Like many, I was captivated by the idea that the poor could be lifted out of poverty through a borrowing relationship with a self-sustaining micro-lender, and when I began my doctoral program in economics at the University of California at Berkeley, I decided to make microfinance the subject of my dissertation. At Berkeley I had the privilege and pleasure of studying under Professor George Akerlof, who had written a seminal economics paper that explained (in technical economic terms with lots of Greek letters) the hidden injustice in credit markets. Akerlof, who later went on to share the 2001 Nobel Prize in Economics with Joseph Stiglitz and Michael Spence, explained how the seemingly esoteric problem of asymmetric information between a lender and borrower in a credit transaction is responsible for the fact that the poor are often denied access to credit, even in an economy with free markets.

The idea is very simple, and it is essential for understanding microfinance. When a consumer goes to the supermarket to buy a banana, he can inspect the banana to see if it is brown and mushy, green and rock hard, or yellow and firm. In this

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LOAN RAN Meet the local heroes whose hard work—financed by small loans—has transformed both their families and their communities

Suren Avaguyan (Russia) The winters are cold for Suren Avaguyan as he sits each day in a small wooden shed that houses his shoe repair business in Nizhny Novgorod. Suren repairs 10 to 20 shoes a day.

A small space heater barely keeps the shop warm enough for him to do his work.

Without loans from Opportunity International, Suren would have one location and no employees. But he has had eight loans and now has two additional shops in the city, tripling his business. Suren is able to support his wife and two children, and his two employees are supporting their families as well.

From their small apartment, Suren and his wife dream of sending their daughter and son, 14 and 16, to university some day. “The first plan is education,” he says. “My business has allowed me to help my children. I must do what I can.”

the time,” says Nelizer. Serving 30 to 40 customers per day, profits from her business have not only supplied her family the means to a larger, three-bedroom home and school tuition fees for her 15-year-old daughter, Becky, but the added income also allows Nelizer to impact the community in which she lives.

Asomdwee Bakery supports 18 employees and their families, including Nelizer’s son Frank, who is 27. From the bakery profits, she provides shelter, food, clothing, and school fees for five orphans. To her, educating “children to the highest degree” is her calling, and it is just one of the many ways Nelizer is supporting her community. She is grateful for Theresa Trust Group, a group of 15-30 business owners that she meets with regularly, who support one another through training and personal development—skills she eagerly shares with others in her village.

Nelizer Darko (Ghana) Nelizer Darko, a 52-year-old wife and mother, had high hopes for a better future, but her dreams of owning a bakery business seemed untouchable until she met Opportunity International.

Today, Nelizer owns Asomdwee (“Peace”) Bakery and is working toward her sixth loan cycle from Opportunity. The fragrance of bread, donuts, chips, cakes, and meat pies wafts about the village.“I would like more ovens and an additional mixing machine that uses diesel, because the electricity goes out all of

Eva Garcia (Honduras)

NELIZER DARKO

Eva Garcia moves with a boundless energy that defies her 74 years and inspires her six children and 19 grandchildren. She makes 500 tamales a day over a wood-fired stove just off a tworoom home that she shares with her husband, José.

Before becoming a client of Opportunity International, Eva sold only tortillas. But thanks to her loans, she has expanded her business and now sells four different kinds of tamales and other foods.

Eva is the founding member of her Opportunity International Trust Bank group-lending program. She has served as the Trust Bank president and treasurer and is now a member of her Trust Bank’s board of directors. Eva is also on her PRISM 2007

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Stories and photos courtesy of Opportunity International.

SUREN 0AVAGUYAN

NGERS community leadership committee.

Unlike most elderly women in poor countries, Eva does not depend on her children for her basic needs. In fact, Eva’s community depends on her. She is a respected leader, advocating for improvements in the lives of those around her. She is also a leading voice in her community—so much so that politicians seek her support. When Eva encouraged local government officials to repair her community’s potholed, boulderstrewn dirt road, the road was repaired.

“In 74 years, I feel excitement to work,” Eva says. “I wish I could keep living longer, so I could continue in the Trust Bank.

As long as God gives me life, I’m going to continue in the bank, because I have a work spirit.”

EVA GARCIA

they sell for 73 cents to $1.27.

Jemmalyn dreams of opening a sari-sari, a small convenience store, and she hopes to send her three siblings to college. She is eager to move to a safer community. With Opportunity loans helping her expand her business, she believes all this is possible.

Jemmalyn Alcantara (Philippines) When her family moved to Manila four years ago, Jemmalyn Alcantara had no idea of the fate awaiting them. A sudden heart attack claimed her father shortly after the move. Then thieves stole nearly all of the family’s possessions, forcing them to move to Payatas, a squatters’ community that surrounds Manila’s city dump.

In Payatas, 10,000 families subsist by gleaning tons of garbage for plastic, metal, paper, and other recyclable materials.

They live in shanties constructed of scrap metal, wood, and cardboard. Soon after arriving in her grim new neighborhood, Jemmalyn sought an alternative to digging through garbage.

She learned basket-weaving and started a business. Now, as an Opportunity International loan client, she and her mother weave about 10 baskets of various sizes a day, which

Elsa Reyes (Honduras) Elsa Reyes and her husband, Salomón Ríos, have been partners in life ever since they were married in 1941.They have been partners in the family bread-making business for five years.

Salomón brings in the firewood, maintains the oven, and sells the bread on the street.“We work as a team,” Elsa says.“He never sits down.”

Bread is a family business for more than the happy couple.

Daughter Alicia Munóz is an employee, while her husband, Santiago, pitches in without salary when he can. Elsa and Salomón have 15 children and 45 grandchildren.

JEMMALYN ALCANTARA

BEATRICE KITAARA

ELSA_REYES

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Loans from Opportunity International allow Elsa to buy her ingredients in bulk, increasing profitability. Now on her 12th loan, Elsa has expanded her business by selling water from a freshwater storage tank she recently installed.

Profits from her business allowed Elsa to put in a cement floor in the cooking area outside her home. She turned her muddy yard, where she bakes, into a hygienic, cement bakery with a canopy. People know her bread is clean, so business is good.

Elsa’s bread is a hit in her neighborhood, especially for children, to whom she always gives free samples. “God gives so we can share with everyone—mainly children,” she says.

Marilyn Obdaniela (Philippines) Marilyn Obdaniela had a small business selling cement and charcoal in Tayabas. When her sister decided to leave the Philippines to work as a nurse overseas, Marilyn took over her small handicrafts business with five employees. She received her first Opportunity International loan shortly thereafter to expand her new business.

Today, less than four years later, 80 people work for Marilyn, producing 2,000 handcrafted baskets per week. Marilyn’s baskets export to Europe as well as several nearby towns and Manila.

Marilyn’s husband, Ermilo, delivers baskets to her customers and exporters.

Through Marilyn’s growing basket-weaving business, she provides enough income so her employees can provide for their families. Marilyn plans to help every one of her employees’ children complete their schooling.

“My life before was very simple,” Marilyn says. “But now I can help more than 20 families have an income for their daily needs—and their children go to school.”

Beatrice Kitaara (Uganda) Beatrice Kitaara and her husband have a small farm across the valley from Mbarrara, Uganda’s second-largest city. After hard labor in the fields, they sell ground nuts, cabbage, eggplant, and other vegetables in the local market. For years, they struggled to feed their nine children.

Today, Beatrice is an Opportunity International loan client.

With two loans, Beatrice planted more crops and purchased a cow. Selling milk yields a steady income, which pays her children’s school fees. The milk and additional produce provide a nutritious diet that is keeping her family healthy and free from anxiety about hunger.

In her weekly Trust Bank group-lending meetings, Beatrice has learned basic business skills such as how to budget. Other Trust Bank members taught her how to weave, a highly saleable skill.

Beatrice expects to send all of her children through school. She envisions their farm income increasing with larger crops and more cows. From worrying about where they will find their next meal to planning for future success, Beatrice’s family has come a long way.

Regina Zango (Mozambique) Regina Zango, 58, is a vision of transformation, hope, and determination. A vendor in the Madruga market in Matola, Regina received her first Opportunity International loan in 2001. Abandoned by her husband over 20 years ago, Regina dedicated herself to her business of selling vegetables in the market to provide for her family and educate her six children and two grandchildren.

Although she currently lives in a meager one-room shack, she is happy there because it allows her to keep an eye on the permanent, five-room, cement-block house she is building block by block, room by room, with the profit from her business.

Construction began five years ago and Regina believes it will be completed next year.

REGINA ZANGO

ELIZABETH BYARUHANGA

MARILYN OBDANIELA

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“I have been working for a long time, little by little, to build this house for the future,” Regina said with her arm around the shoulders of her granddaughter, “because even though I won’t be here one day, I’ll be happy, because my family will have a better place to sleep.”

was the end of the world. I used to cry all the time.” In 2002, Elizabeth learned about Opportunity International and its innovative Trust Bank group-lending program. She founded the Kabalagala Widows Group Trust Bank in Kampala, Uganda.

This group of 19 women and one man are rebuilding their lives after each losing a spouse to AIDS. Elizabeth has a stand in an open market in Kampala, where she sells bananas. Her first Opportunity loans allowed her to buy her bananas in bulk, securing more profits to pay for her children’s school fees. Increased profits have also allowed her to support three AIDS orphans in addition to her own eight children. Elizabeth’s oldest child has graduated from the university, and three others are attending.

Elizabeth Byaruhanga (Uganda) When Elizabeth Byaruhanga’s husband passed away in 1993, she might have become just another sad statistic on a continent overwhelmed with the HIV/AIDS pandemic. His death left Elizabeth with an unfinished house, eight children, and very few prospects for supporting herself.

“After my husband’s death,” Elizabeth says, “I thought it

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is a thornier question than one might think initially. One major problem is a self-selection issue: Often it is the optimistic go-getters who decide to take microfinance loans, but these types might be better off in the long run anyway, even if microfinance weren’t available. Thus comparing those with microloans to those without gives bad answers to the impact question. The carefully executed studies that have accounted for this kind of bias have found that microfinance seems to display modest but positive impacts on household enterprise investment and consumption. These effects are not large on average, but do suggest that microfinance has small effects on the welfare of borrowers, particularly when it is women that do the borrowing. Combined with the fact that women are more responsible at repaying loans than men, this has led to a situation in which now more than four out of five microloans worldwide go to women.

But some of the most important impacts of microfinance may not be easily measurable. The psychological and social empowerment that accompanies starting and growing one’s own small enterprise with its niche in the community may outweigh the importance of small increases in household consumption. Moreover, small businesses allow households also involved in notoriously volatile agricultural production to avoid putting all their economic eggs in one basket. For the poor, a steady income is often more important than a high income.

Finally, there is so much about microfinance that fits with the development and empowerment of Christian community worldwide. Borrowing groups provide an environment that fosters both interdependence and accountability among members. Carrying out microfinance in the context of Christian

out any potentially risky borrowers (rotten bananas) who might cause problems for both them and the lender. Christian MFIs will often form these groups from church networks, where the social and spiritual capital between fellow believers substitutes as collateral for physical capital. Each plays an important role. Social capital, loosely defined, is the goodwill that exists between members of a community that facilitates transactions between them. A borrower may repay her group loan, for example, because she wants to maintain her good reputation within the community. Spiritual capital, again loosely defined, is the movement on an individual’s conscience to “do the right thing” even if no one is looking.

In other words, a borrower may refrain from taking advantage of his group members because he believes God would hold him accountable for doing so.

Both social and spiritual capital can play out in fascinating ways in microfinance. One time when I was making the rounds with a loan officer in Guatemala, he told me a story about a borrowing group of young men in his area that collectively refused to repay a loan. His own encouragements to repay had seemingly no effect until he told the fiery Pentecostal pastor that no more microloans would be granted to people in the village until the young men repaid their group loan.Apparently the pastor informed the delinquent borrowers that the temperature of their afterlife would be significantly influenced by whether or not their loan was repaid. (It was repaid within days.)

A major question persists over the impact that microfinance has on its borrowers. Determining the impact of microfinance

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community allows for a common understanding of ethics and a biblical framework for resolving disputes. Fellow believers share bonds that facilitate the kind of trust that makes borrowing groups successful. Moreover, microfinance avoids the pitfalls of patronage so often associated with historical attempts to help the poor and empowers the poor to make many of their own choices. It rectifies an endemic injustice in market economies while retaining the strong incentives of a marketbased system that induces people to produce things that are useful to the community and then be compensated.

The utilization of microfinance in the context of mission carries its share of contradictions and struggles. Foremost among these is the tension Christian MFIs often experience in demanding repayment from borrowers. Should a Christian MFI really take a defaulting borrower’s collateral? Successful MFIs are always hardnosed about repayment, but this kind of inflexibility can be difficult in the context of a community based on forgiveness and sharing one another’s burdens. Even upstanding members of a church may sometimes fail to repay loans for one reason or another. Dealing with these situations

is often awkward and can be messier than the more straightforward relationship an individual has with a normal secular financial institution.

But in these struggles there is something unique that a Christian MFI can bring to the world of microfinance: an unyielding commitment to the poor based on the simple fact that they, like us, are God’s children, each with a unique set of gifts to offer the community. Microfinance has a way of unlocking these gifts and harnessing them to empower a borrower and her family to live with dignity in service to others via a household enterprise. Microfinance is not the silver bullet that will end world poverty by itself. But when viewed in the context of a holistic ministry to the poor, it has much to offer indeed. ■

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month’s grocery bill. Rather, he calls us to be content with God’s provision for the day. Just a few verses later Jesus tells his followers, “Do not store up for yourselves treasures on earth” (Matt. 6:19).These teachings indicate that following Jesus will involve living in the insecurity of letting go of our “stored-up” goods, releasing them to those who have needs now so that we might be the means by which God gives to them their daily bread. Excessive fearfulness makes us incapable of welcoming such vulnerability and thereby incapable of welcoming the daily gift of God’s provision.

With our moral lives so deformed by fear, how can we share with the world the good news of Jesus: “Do not be afraid...for it is your Father’s good pleasure to give you the kingdom” (Luke 12:32)? When fear crowds out hope, we lose our ability to be non-anxious recipients of God’s gifts and joyful conduits of God’s blessing. ■

Bruce Wydick is professor of economics at the University of San Francisco and faculty advisor to the InterVarsity Christian Fellowship.

He wrote the March/April 2007 cover story for PRISM on globalization and the poor. His book Games in Economic Development is forthcoming with Cambridge University Press.

retire.We fear that our healthcare benefits will not be sufficient to cover expensive treatments or long-term care in a nursing home. And so we come to believe that the more we have, the less we need to fear.We accumulate as an act of prudence, trying to secure ourselves against an uncertain future. And if there were no God, this would be exactly the right thing to do.

This is far different from greed, we tell ourselves.This accumulation of wealth can easily be described as wise financial planning. I’ve been told by a friend who is a financial planner that my wife and I will need over a million dollars to retire “comfortably.” I don’t really know what “comfortably” means to this person, but the very language of “comfort” suggests something far less than extravagance. Indeed, the very matter-of-factness of the statement carries a subtle threat that if we do not have such a grand sum tucked away, we will live uncomfortably in our older years. But what does all that pressure to hit the million mark do to our ability to be generous here and now?

In the Lord’s Prayer, Jesus teaches his followers to pray, “Give us this day our daily bread” (Matt. 6:11). We would do well to note that Jesus does not encourage us to pray for tomorrow or the next day or for enough money to secure the whole

This article was adapted from Scott Bader-Saye’s Following Jesus in a Culture of Fear, part of the Christian Practice of Everyday Life series published by Brazos Press, a division of Baker Publishing Group (2007). It is reproduced here by kind permission of the publisher.

Scott Bader-Saye is associate professor of theology and religious studies at the University of Scranton in Scranton, Pa., and the author of Church and Israel after Christendom:The Politics of Election (Wipf & Stock, 2005).

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