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Christian Microfinance: Which Way Now?
Version 1.0
A paper prepared for the Association of Christian Economists 20th Anniversary Conference:
"Economists, Practitioners, and the Attack on Poverty: Toward Christian Collaboration"
January 5-6, 2003Washington D.C.
Brian FikkertAssociate Professor of Economics and
Director of the Chalmers Center for Economic DevelopmentCovenant College
14049 Scenic HighwayLookout Mountain, GA 30750
I am extremely grateful to my colleague Russell Mask for mentoring me in the field of microfinance and for his numerous contributions to this paper. I am deeply indebted to him for all of the ways in which he has shaped my thinking in this field. Thanks also to Ellis Chaplin, Smita Donthamsetty, Malu Garcia, and Loida Vinera for their efforts to collect and process data from the joint pilot projects of the Chalmers Center and Food for the Hungry International (FHI). I have also benefited from correspondence with Rob Gailey of World Relief's Microfinance Consulting Services. The Chalmers Center is very grateful to both Food for the Hungry International and World Relief for all of the ways in which they have shared ideas, collaborated on projects, and partnered with us in training people around the globe in church-centered microfinance. Finally, the Chalmers Center thanks the Maclellan Foundation, First Fruit Inc., and hundreds of churches and individuals whose financial support has made this research possible. Of course, all errors are solely the responsibility of the author.
Table of Contents
I. Introduction……………………………………………………………………….3
II. Clarifying the Terms………………………………………………………………4
III. Conceptual Issues in Defining Poverty and Implications for Microfinance…… 5
IV. Appropriate Financial Services for the Poor………………………………….…10
V. The Microfinance Movement: Historical Trends and Current Challenges…….. 15Industry Trends……………………………………………………….….15Special Challenges for Christian MFIs… ……………..………………17
VI. The Impacts of Microfinance on Poverty……………………………………… 20Methodological Problems in Impact Assessment………………………..20Impacts of MFIs on the Poorest of the Poor…………………………… .21Impacts of MFIs on the Middle- and Upper-Income Poor………………26
Summary…………………………………………………………………30
VII. The Way Ahead………………………………………………………………….30Option #1: Continue with Large-Scale, Credit-Based, Minimalist……...31 ProgramsOption #2: Complement Large-Scale, Credit-Based Programs With… 33
Strategic PartnershipsOption #3: Design Small-Scale, Balanced, Credit-Based MF…………..34
ProgramsOption #4: Transform Large-Scale, Christian, Credit-Based MFIs…….37 Into Financial IntermediariesOption #5: Establish Credit Unions Geared Towards the Poor………...39Option #6: Promote Informal Savings and Credit Associations……… 43
VIII. Concluding Remarks……………………………………………………………..55
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"What I learned about the Women's Empowerment Program challenged virtually every assumption I had developed over more than 20 years of working in microfinance."
Jeffrey Ashe, Former Senior Associate Director of Accion International and Founder of WorkingCapital, commenting in 2002 on Pact's user-owned and user-managed savings and credit groups in Nepal.
“The central problem in the theory of economic growth is to understand the process by which a community is converted from being a 5 percent to a 12 percent saver—with all the changes in attitudes, in institutions and in techniques which accompany this conversion.”
Arthur Lewis, Nobel Laureate in Economics, ina 1955 statement about the process of economicdevelopment across the Two-Thirds World.
I. Introduction
Frustrated by what he considered to be the irrelevancy of economic theory to the
plight of the poor, Professor Muhammad Yunus decided it was time to stop teaching and
to start acting. Defying the skeptics, he founded the Grameen Bank of Bangladesh in
1976 to provide microloans to very poor women who were not being serviced by the
formal banking sector. Using an innovative incentive structure in which clients select
other members of their borrowing group and then guarantee each other's loans, Yunus
showed that it was possible to obtain sufficiently high repayment rates on non-
collaterialized loans to cover Grameen's operating costs and to maintain the value of its
loan portfolio.
The response of the donor community has been understandably euphoric. Rather
than give money for, say, a community health project that requires ongoing subsidies,
donors saw the opportunity to give money that would by recycled perpetually as
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microcredit programs successfully lent, collected, and relent their loan portfolios. A
virtual explosion in microcredit programs has ensued, and there is no end in sight. The
Microcredit Summit of 1997 in Washington, D. C. launched a global campaign to ensure
that 100 million of the world's poorest families receive microloans by the year 2005.
The Christian community has not stood on the sidelines. The major Christian
relief and development agencies are operating large-scale microcredit programs (e.g.
Food for the Hungry International, Opportunity International, World Concern, World
Relief, World Vision International), and many mission agencies, churches, and ministries
are dabbling in small-scale lending operations. Hundreds of Christians in this industry
have gathered for two global conferences in Thailand--Christian Microenterprise
Development I and II--to discuss the specific challenges facing them in this burgeoning
sector.
It is the purpose of this paper to consider some of those challenges. In particular,
this paper attempts to provide answers to the following questions: How should Christians
view microfinance programs as a poverty-alleviation strategy? What are the design
issues that should be of special concern to Christians in this industry? How should we
proceed working as Christians in this sector in the future?
II. Clarifying the Terms
Readers may have already noticed in the section above that the terminology in
this field is confusing. Indeed, the terms "microcredit," "microenterprise," and
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"microfinance" are sometimes used in inconsistent manners by many within the industry.
Hence, it is important to clarify the terms as they will be used in this paper.1
"Microenterprise development" (MED) refers to a broad development strategy
that uses both financial tools--such as savings, credit, and insurance--and non-financial
tools--such as business training--to help low-income entrepreneurs to start or expand their
own businesses. "Microfinance" (MF) refers to the provision of financial services, such
as savings, credit, or insurance, to low-income people to enable them to prepare and cope
with emergencies, to meet life-cycle needs, or to pursue opportunities to invest in their
businesses, education, etc. Note that while MF appears to focus on only one aspect of
MED, i.e. the financial dimension, in some ways MF has a broader agenda than MED.
While MED focuses on helping businesses, MF aims to address the full range of
household financial needs, including but not limited to the need for financial services for
businesses. Finally, "microcredit" is the provision of loans to low-income people; hence,
it is a subset of MF.
Because the vast majority of resources in this industry are devoted to the
provision of financial services, this paper will focus on the key issues in MF. This is not
meant to imply that other aspects of the industry--e.g. the provision of business training
services--are unimportant. Rather, the issues in business training are so distinct from
those in MF that they cannot easily be addressed in the same paper.
III. Conceptual Issues in Defining Poverty and Implications for MF Programs
How one designs and evaluates the success of any poverty-alleviation strategy
1 Although the industry has often used terms inconsistently, the definitions used in this paper are common and are consistent with the growing consensus.
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emanates from one's definition of poverty and one's conception of the causes of that
poverty. Hence, it is impossible to evaluate the "success" or "failure" of MF programs or
to define the challenges ahead without a clear concept of the proper goals and objectives.
What exactly is poverty? What are the causes? What are we as Christians trying to do
when we attempt to alleviate poverty?
The emphasis of standard, neoclassical economic analysis on maximizing a
consumer's happiness from consuming goods and services subject to a budget constraint
naturally leads most economists to equate poverty with a lack of income. Furthermore,
since a household's income is determined by the revenue that it gets from selling its
factors of production to firms, the neoclassical solution to poverty is to increase the
household's ownership of those factors or to change the prices those factors receive in the
marketplace. In this view, the success of MF lies in its capacity to increase households'
ownership of capital in order to achieve increases in households' income.
Space does not permit a complete description of the tendencies of neoclassical
economics towards a narrow, reductionist definition of both the nature of human beings
and of their task.2 However, it is clear that the Scriptures point us to a broader conception
of human beings and of their callings than is typically represented by neoclassical
economics. Created in God's multifaceted image, human beings cannot be reduced to
rational, utility-maximizing, economic agents. Yes, humans have an economic
dimension, but they are also social, psychological, and spiritual beings and do not derive
their happiness solely, or even primarily, from higher levels of consumption of goods and
2 For a fuller discussion of the tendency to reduce the complexity of humans and their cultural tasks to the economic dimension see Goudzwaard (1972, 1979).
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services. If people are more than economic agents, what exactly is poverty, and what is
poverty-alleviation?
Chambers (1983) views poverty as a multifaceted, interconnected system that
traps the poor in a web of entanglements as pictured in Figure 1 below. If programs
narrowly focus on only one dimension of this web--such as material poverty--they may
not achieve their objectives and might actually do harm. For example, it is conceivable
that a microcredit program could enable a poor household to purchase a new, high-
yielding variety of seed, apparently addressing the household's material poverty by
increasing its income; however, in the process the program could be increasing the
vulnerability of that household if that seed has more variable returns than traditional
varieties.
(Adapted from Chambers 1983, p. 112 and Myers 2000, p. 67)
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Although Chambers has characterized how poverty often manifests itself,
Myers (2000) argues that in order to get at the ultimate causes of this poverty, one must
go deeper to consider the fundamental nature of reality. As described in Figure 2 below,
Myers notes that God is a relational being who established several foundational
relationships for humans at the point of creation. Each person has a relationship with
themselves, with others inside and outside their community, with the environment, and
with God. Sin has marred all of these relationships, leading to Myers' description of the
fundamental causes of poverty: "Poverty is the result of relationships that do not work,
that are not just, that are not for life, that are not harmonious or enjoyable. Poverty is the
absence of shalom in all its meanings" (Myers 2000, p. 86). These broken relationships
result in the various manifestations of poverty observed by Chambers.
One implication of this framework is that focusing only on the superficial
manifestations of poverty without addressing the broken nature of the underlying,
foundational relationships will fail to bring lasting changes. Furthermore, because only
Jesus can bring true reconciliation to all of these relationships, Christian development
work must include a clear presentation of the gospel. Failure to do so denies the poor
access to the only real solution to the fundamental causes of poverty.3 This implies that
Christian development work must have a high view of the local church, for it is the
church that has been given the primary authority to conduct evangelism and discipleship.4
3 This does not imply that the root cause of all of the dimensions of poverty is the personal sin of the poor. Both the Scriptures and empirical evidence indicate that oppression of the poor is often a factor in their poverty. But oppression is the result of a broken relationship between the oppressor and the victim. It takes the power of Jesus Christ over sin to reconcile this relationship or to remove the oppressor. Without Jesus' death and resurrection, there is no reason to hope that the weak can ever overcome the oppression of the strong. His power is the answer, and the poor need to cling to this hope. 4 For a similar perspective, see Bussau and Mask (forthcoming), Mask (2000), and Myers (2000)
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Figure 2: Relational Foundations of Poverty
(Figure 3-13 from Myers 2000, p. 87)
As Hulme and Mosley (1996) discuss, these conceptual issues have profound
implications for the design and evaluation of MF programs. If poverty is viewed as a
lack of income, then MF programs that raise average incomes are deemed "successful."
Such programs would be characterized by the provision of credit for small businesses to
start, operate, or expand. However, if poverty is viewed as vulnerability, then MF
programs that reduce income fluctuations and increase households' capacity for
weathering shocks are deemed "successful." Such programs would be characterized by a
higher emphasis on protective strategies such as voluntary savings mechanisms,
emergency consumption loans, and low-risk income generating activities.
These considerations are not merely hypothetical. Hulme and Mosley study
twelve MF programs and conclude that the two most successful programs in terms of
increasing incomes of the poor were failures in terms of addressing the vulnerability of
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the poorest of the poor. At the same time, some programs that were less successful at
promoting income growth did a superior job at reducing vulnerability.
Clearly, Christian MF programs seeking to address the fundamental, spiritual
dimensions of poverty face even more complex design and evaluation issues than those
discussed by Hulme and Mosley. How can evangelism and discipleship be incorporated
into the design of MF programs? How can success in the spiritual dimension be
evaluated? How do Christians deal with the tensions between reaching a large number of
people with a narrow range of financial services and reaching a smaller number of people
with a fuller range of holistic services?
These complex issues cannot be fully resolved here. However, this paper does
take the perspective discussed above that the poor are trapped in a web of entanglements
that flow out sin's marring of God-established relationships. This perspective leads to
different program design and evaluation considerations than perspectives that focus on
more narrow definitions of poverty and its alleviation. In the discussion that follows, MF
strategies will be viewed in terms of the extent to which they address the poverty web as
a whole as well as the foundational broken relationships underlying that web.
IV. Appropriate Financial Services for the Poor
Which types of financial services do the poor need? As Rutherford (2000) notes,
the poor need lumpy sums of cash for lifecycle expenditures such as weddings or
funerals, for emergencies such as illnesses or natural disasters, and for opportunities to
purchase consumer durables or business assets. The poor need financial services which
enable them to obtain these lumpy sums in a secure, timely, and convenient fashion.
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While the general characterization in the preceding paragraph is true, it is
important to note that there is considerable heterogeneity amongst the poor in terms of
their economic situation and the financial services that they need. Mask (2000) provides
a helpful continuum to summarize some of this heterogeneity in Figure 3 below.
The poorest households are engaged in economic activity on the left of this
continuum. Their income levels exhibit considerable fluctuation over time, sometimes
hovering above and sometimes below the poverty line. They are generally one crisis
away from disaster, making them extremely vulnerable to the multitude of shocks that
characterize their social, economic, political, and climatic environments (Chambers 1983,
1995; Dreze and Sen 1989; Hulme and Mosley 1996, 1997; Wright 2000).
Households teetering on the edge of the abyss are naturally very risk-averse. As a
result, they cannot "put their eggs all in one basket" by focusing on a single source of
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income from a particular business enterprise or job; rather, they engage in a portfolio of
part-time and intermittent activities that provide them with both income and risk
reduction as part of their overall survival strategy (Walton 1985; Hulme and Mosley
1996; Todd 1996; Wright 2000).
Risk aversion also reduces the willingness of the poorest households to pursue
potentially high-yield investments if those investments are perceived as increasing the
overall risk of the households' portfolio of economic activities. Hence, extreme poverty
undermines the poorest households' willingness to engage in the entrepreneurial
investments that are necessary to get them on the upward escalator of sustained growth of
income (Hulme and Mosley 1996). For the poorest households, reducing fluctuations in
their income in order to lessen their vulnerability may be a prerequisite to their being
willing to undertake income-increasing investments.
As Mask's continuum indicates, the poorest typically do not engage heavily in
borrowing, even from informal sector moneylenders. Given the varied, intermittent, and
low-growth nature of the poorest households' economic activities, it is not surprising that
lenders would question these households' debt capacity (Von Pischke 1991). But it is
extremely important to note that the poorest households themselves often perceive loans--
particularly production loans with weekly repayment requirements-- as too risky for them
(Rutherford 1995; Hulme and Mosley 1996; Wright et al. 1997). For example, Hashemi
(1997) finds that the hard core poor in Bangladesh self-select out of Grameen's loan
program because they do not consider themselves capable of generating sufficient income
to repay their loans.
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What then are the financial services that are most appropriate for the poorest
households as they try to acquire lumpy sums? While not all people are debt-worthy, all
people are savings-worthy. Furthermore, in some ways, saving is less risky for the
poorest than borrowing, making saving preferable to borrowing in order to obtain lumpy
sums. As Vonderlack and Schriener (2001) explain, a woman could either save or
borrow to buy a sewing machine. If her child falls ill and she has chosen to save for the
machine, she has the flexibility to delay her purchase and use her savings to pay for her
child's treatment. However, if she has borrowed to purchase the machine, then
mandatory debt repayments might preclude her from getting medical care for her child.
Indeed, there is increasing evidence that the poor have the desire and capacity to
save (Miracle et al. 1980; Adams and Fitchett 1992; Robinson 1994; Steel and Aryeetey
1994; Johnson and Rogaly 1997; Wright et al. 1997; Rutherford 2000; Vonderlack and
Schreiner 2001). However, it is difficult for them to do so because: 1) hiding cash under
the mattress is not very safe in slums where people live in close proximity to one another;
2) there are many moral claims on one's savings, as friends and relatives are constantly in
need of financial assistance; and 3) like all people, the poor have trouble being
disciplined enough not to spend money that is hiding under the mattress (Rutherford
2000).
In such settings, the poor would like to get their money out of the house and into a
safe place without giving up liquidity and convenience, as disaster could strike at any
moment. Unfortunately, formal banks are typically unwilling to hold tiny deposits and
are often geographically distant, leaving the poor with inadequate savings facilities. In
response, in some poor communities trusted individuals go door to door collecting the
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savings of the poor and storing them in a safe place for a fee. Rutherford (2000) reports
savers paying 30% APR to the savings collector in a town in India, and Johnson and
Rogaly (1997) document savers paying an astounding 80% APR to the savings collectors
in Nigeria. Clearly, the poorest households place a high value on savings services.
As we move to the right on this continuum, the economic situation and financial
service needs change. Microenterprise owners are sufficiently stable to be able to take
some risks. They can focus their attention on a single business activity, and in addition to
accumulating savings, they are often eager to obtain loans to start or expand their
businesses' assets. However, like the poorest, these folks do not have access to adequate
financial services. On the savings side, these people face the same obstacles that the
poorest households face and would be interested in accessing savings services. On the
lending side, the main obstacles facing microenterprise owners from accessing formal
sector loans is the small size of the loans they desire and their lack of acceptable
collateral. As a result, they are often forced to rely on local, informal moneylenders, who
lend to them at interest rates which often exceed 300% APR.
As will be discussed further in the next section, programs desiring to offer
financial services to the poor must carefully consider what they consider to be their target
population. From a distance, "the poor" may look like a homogenous group, but as this
section has discussed, there is actually considerable heterogeneity amongst the poor.
Programs focusing on providing production loans will typically not be providing the type
of financial services most desirable to the "poorest of the poor," who tend to favor
savings services.
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The experiences of Bank Rakyat Indonesia (BRI) help to illustrate several of the
points made above. In 1984, as part of a comprehensive financial reform, BRI began to
offer savings services to the poor in addition to loan services. Total savings deposits
grew rapidly, reaching a total of $3 billion by 1996, with savings accounts outnumbering
loan accounts by a ratio of over 6 to 1 (Johnson and Rogaly 1997; Morduch 1999). As
mentioned above, not all people are debt-worthy, but all people are savings-worthy.
Furthermore, deposit sizes averaged $184 in 1996, as compared to average loan sizes of
over $1000, suggesting that savers are less well off than borrowers (Morduch 1999).
V. The Microfinance Movement: Historical Trends and Current Challenges
Industry Trends
As mentioned in the introduction, one of the features that has attracted donors to
microenterprise development is the possibility that microfinance institutions (MFIs)
would at least be operationally self-sustaining, i.e. interest revenues on microloans would
be sufficient to cover the costs of operations, defaults, and inflation. Indeed, many MFIs
have achieved operational self-sufficiency (Morduch 1999), but this does not free them
from dependency on limited donor funds, which limits the number of poor than can be
reached. As a result, the hope of many is that MFIs will be able to become fully
financially sustainable--with revenues covering all costs, including the cost of capital--
thereby enabling them to grow indefinitely by tapping into global capital markets (Otero
and Rhyne 1994; Drake and Rhyne 2002). However, many doubt this goal is realistic for
most programs, with some experts estimating that less than 1 percent of MFIs are
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financially self-sustaining and that at most 5 percent of present MFIs will ever be
(Morduch 1999).
The possibility of achieving self-sustainability has had dramatic impacts on
program design. During the 1970s-1980s, microenterprise development programs
provided an integrated package of training and credit services designed to promote
growth in micro-businesses. It was assumed that such programs would require ongoing,
large subsidies. However, with self-sustainability moving to the forefront of donors'
minds, MFIs are now forced to design and implement programs that are at least
operationally sustainable within relatively short time frames. This has resulted in three
important tendencies in MF program design: 1) An emphasis on serving a large and
growing number of clients in order to increase loan revenue and to reduce costs by taking
advantage of scale economies; 2) A minimalist approach to service provision which cuts
non-financial services in order to lower costs; and 3) A drifting towards larger loan sizes
in order to lower average costs per dollar lent.
Most recently, a number of leading thinkers have begun to advocate a "financial
systems approach," which focuses on developing self-sustaining, microfinance
institutions (MFIs) that design and sell a range of financial products--credit, savings, and
insurance-- to the poor at market prices (Otero and Rhyne 1994). While "impact" was
once measured in terms of small enterprise growth, the new perspective focuses on
measuring the extent to which MFIs increase poor people's access to financial services.
One of the significant challenges for MFIs in pursuing this approach is that most
countries forbid NGOs from holding savings deposits, requiring MFIs to transform
themselves into full-fledged financial institutions operating under the auspices of their
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host country's banking regulations. Only a few MFIs have pursued this strategy to date,
the majority of MFIs continuing to focus on providing loans (Hulme and Mosley 1996;
Drake and Rhyne 2002; Von Pischke 2002).
Special Challenges for Christian MFIs
As mentioned earlier, Christian relief and development agencies have been very
active participants in the MF movement, with a major source of their funds coming from
secular donors such as the United States Agency for International Development
(USAID). As a result, they have been subject to the industry-wide pressures to achieve
sustainability mentioned above. While these pressures have created tensions for many in
the MF movement, the trend towards large-scale, minimalist programs has created
particular challenges for Christians involved in MF.
Although there is a range of theological perspectives within the Christian relief
and development community about the relationship of "word" and "deed" in working
with the poor, most would embrace the notion that evangelism and discipleship are an
integral part of what it means to do "Christian" relief and development work. As
discussed earlier in Section III, the author's perspective is that it is not possible to fix the
fundamental causes of poverty without Christ's healing of broken, foundational
relationships, making evangelism and discipleship essential to true poverty alleviation.
Unfortunately, maintaining the verbal declaration of the gospel is never easy
when the sources of funding are secular, and this familiar problem is compounded in the
context of the self-sustainability agenda of the MF movement. Specifically, the push
towards minimalism in service provision often precludes the offering of any non-
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financial services, religious or otherwise. In addition, the drive to achieve sufficient scale
induces Christian MFIs to provide credit services to thousands of clients, making it very
difficult to keep the "word" and "deed" aspects of the ministry in balance (Llanto and
Geron 2000; Bussau and Mask forthcoming). Although in a handful of instances
Christian donors have given money to MFIs to hire personnel explicitly dedicated to
evangelism, the number of such personnel are typically too small to keep up with the
ballooning numbers of loan clients. For example, one Christian MFI working in a Latin
American country has over 4,000 clients scattered all over the country. A large church in
the U.S. has paid for the salary of a single, poorly educated pastor to perform the
impossible task of providing the entire evangelism and discipleship component for these
4,000 clients.
This is not meant to suggest that evangelism and discipleship activities never
happen in Christian MFIs. By hiring Christian staff, by giving them incentives to provide
spiritual as well as financial services, by using group-based methodologies that provide
forums for biblical instruction, and by partnering with local churches, it is sometimes
possible to keep the "word" and "deed" aspects of the program in some degree of balance.
For example, Larson (1999a) documents how the Local Enterprise Assistance
Program (LEAP) of Liberia, an MFI started with assistance from World Relief, has used
a community banking model in which most of the banks are formed in connection with
churches from the Association of Evangelicals of Liberia (AEL). Pastors often help form
the banking groups and then refer them to LEAP. Thereafter, in addition to the
traditional positions of President, Vice-President, and Treasurer, each community bank
elects a chaplain, who oversees the group's evangelism and discipleship activities. The
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results of this partnership between LEAP and AEL are very encouraging. Pastors are
enthusiastic about the impact of the program on both the physical and spiritual needs of
their members, and they are thankful for the financial benefits their churches are
receiving: Tithes and offerings to participating churches increased from a low of 30% for
a church with only one year of program participation to highs of over 100% for churches
with three or more years of participation. Furthermore, through intentional efforts to
form multi-ethnic banks and through the teaching of biblical principles of reconciliation,
there has been a significant reduction in tensions between bank members from warring
tribes.5
While examples of evangelism and discipleship exist in MF programs, the reality
is that increased competition and market forces are likely to make it more and more
difficult for the staff of Christian MFIs to engage in such activities in the future. As
Rhyne (2002) discusses, until the late 1990s, most MFIs did not have to worry about
competition, the majority of them being able to act as near monopolies. In such a setting,
MFIs offering non-financial services--including evangelism and discipleship--could
potentially cover the costs of such services by raising interest rates on their loans (Llanto
and Geron 2000). However, markets are becoming saturated in some regions, and MFIs
are competing for clients in an increasingly commercialized manner by developing new
products, cutting costs, and lowering prices for their services (Rhyne 2002).
As competition increases, the likelihood of keeping "word" and "deed" in balance
decreases. It is hard to imagine an unbelieving client being willing to pay a higher
interest rate on a loan from a Christian MFI in order to cover its costs of evangelism and
5 For other documentation of MF programs that have had both physical and spiritual impact, see Bussau (1995) and Larson (1999b).
19
discipleship, when comparable loans are available from secular competitors at lower
rates. Competition simply makes it impossible to provide services that clients are not
willing to pay for. In principle, as mentioned earlier, Christian donors could provide
subsidies to cover the costs of such services. However, the presence of significant
economies of scale will likely cause increased consolidation in the industry, with only
large-scale MFIs able to survive. The necessity for Christian MFIs to grow in size will
rise, making it increasingly difficult for Christian donors to provide sufficient funds to
keep the "word" and "deed" aspects of programs in balance. In such a context, there will
be an even greater need for Christian MFIs to partner with local churches in order to
leverage the latter's capacity for providing evangelism and discipleship services.
Unfortunately, as will be discussed in Section VII, such partnerships are often very
difficult to implement.
VI. The Impacts of Microfinance on Poverty
Methodological Problems in Impact Assessment
What are the impacts of MF programs on poverty? Answering this question is
fraught with challenges.
First, as discussed in Section III, poverty is a multifaceted phenomenon that
includes psychological, social, economic and ultimately spiritual dimensions. Many of
these aspects are difficult if not impossible to quantify. A program that appears
"successful" in quantifiable dimensions might be failing in non-quantifiable dimensions
and vice-versa. Both researchers and practitioners should avoid the temptation to place
more importance on that which is measurable over that which is not.
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Second, although there is a burgeoning literature in this field, very few empirical
studies on MF impacts appear in the major, refereed, economics journals, the majority of
the literature consisting of working papers and books that rely heavily on the
observations and case studies of experienced practitioners and researchers. There is an
enormous need for more systematic, peer-reviewed, econometric research in this field.
Third, attempts to engage in systematic econometric research face daunting
obstacles. By design, MF programs are engaged in careful selection of clients, implying
that program participants are hardly a random sample. Hence, if evidence suggests that
program participants perform better over time than non-participants, it is difficult to
know if this is due to the impacts of the MF program or to the superior, unobserved (to
the econometrician) characteristics of the participants relative to the non-participants.
Evidence suggests that the biases from such sample-selection effects are quite strong,
possibly resulting in estimates that overstate the impact of MF on participants' profits by
as much as 100 percent (McKernan 2002). Although a number of efforts are underway to
correct for sample selection bias, progress has been slow, and few--if any--existing
empirical studies should be viewed as definitively estimating causal relationships.6
Impacts of MFIs on the Poorest of the Poor
With the qualifications just mentioned in mind, what does the literature suggest
are the impacts of MFIs on the lowest-income clients? As discussed in Section IV, there
is considerable heterogeneity amongst the poor, with the poorest households engaging
primarily in risk-reducing rather than income-growing behavior. Such households have
6 See Morduch (1999) for a careful review of the leading econometric studies.
21
little or no debt capacity, and they often view loans as too risky for them, preferring
access to flexible, convenient, and secure savings services. In this light, it is not
surprising that many observers believe the focus of MFIs on providing credit services has
prevented them from having much impact on the poorest households (Hulme and Mosley
1996; Montgomery 1996; Johnson and Rogaly 1997; Gulli 1998; CGAP 2000a; Navajas
et al. 2000; Wright 2000). There are three primary reasons for this lack of impact.
First, the clients of MFIs tend to be the middle- to upper-income poor, not the
poorest households. As Hulme and Mosley (1996) and CGAP (2000a) discuss, there are
several causes for this: 1) The poorest often exclude themselves from MF programs,
viewing loans as inappropriate for their situations; 2) Existing clients of group-based
lending schemes often exclude the poorest, seeing them as risky clients who will
jeopardize their own standing; and 3) As MFIs become more commercialized, incentive
structures for staff push them towards working with the less poor. It is simply cheaper
and less risky to lend $150 to one middle- to upper-income poor person than to lend $15
to ten, high-risk poorest of the poor. As discussed earlier, there is increasingly greater
commercialization in the MF industry, a trend which is likely to cause MFIs to drift
further away from working with the poorest households in the future.
Second, the poorest households do not appear to benefit indirectly from the loans
that MFIs make to middle- and upper-income poor. Although the evidence is limited, it
appears that as middle- to upper-income poor obtain microcredit and expand their
businesses, few new jobs are created for the poorest households (Hulme and Mosley
1996).
22
Third, when very poor households do join MFIs, there are questions as to how
much they actually benefit. Hulme and Mosley (1996) use data on 150 borrowers of
thirteen MFIs in seven countries and compare their performance from 1989-1993 with
that of a control group of 150 non-borrowers with similar incomes, assets, and access to
infrastructure. Their results indicate that the impact of loans on the incomes of borrowers
as compared to non-borrowers increased with initial income. Households originally at or
above the national poverty line in each country experienced higher increases in income if
they borrowed from the MFIs than if they did not; however, most households below the
poverty line who borrowed from MFIs experienced small or even negative income
growth as compared to non-borrowers.
Corresponding to these statistical results, case studies conducted by Hulme and
Mosley (1996) discovered that the enterprises of the poorest households often went
bankrupt, forcing them to default on their loans. In response, staff or fellow clients
sometimes seized the defaulters' assets, leaving them even more vulnerable than before.
In some cases, the pressure on defaulters was extreme. Clients of BRAC, an MFI in
Bangladesh, tore down the house of a defaulting borrower, and there were reports of
suicide amongst defaulters of the Grameen Bank, allegedly resulting from peer pressure
from other borrowers.
USAID's research project--Assessing the Impact of Microenterprise Services
(AIMS)--has performed similar research on three MFIs: SEWA Bank in India, Accion
Communitaria del Peru/Mibanco in Peru, and Zambuko Trust in Zimbabwe (AIMS
2002). In contrast to many MFIs, two of these three programs did include a relatively
high number of low-income people, the percentage of clients falling below the World
23
Bank's $1-a-day poverty line being 46 percent, 4 percent, and 34 percent for these three
programs, respectively. All three programs offered loans to their clients, but SEWA also
offered voluntary savings services.
AIMS collected data on 1,178 clients and 716 non-clients in two rounds in 1997
and 1999. The characteristics of the non-clients--the control group--were chosen to make
them as comparable as possible to the clients. Still, as discussed above, selection bias
due to unobserved (to the econometrician) characteristics cannot be ruled out. AIMS
examined the impact of these MFIs on opportunities (income, assets, and employment),
capabilities (education, nutrition), vulnerability (coping strategies and financial shocks),
and empowerment (participatory decision making, self-esteem, women's roles) at the
levels of the enterprise, household, and individual.
Although AIMS (2002) finds evidence that the poorer clients sometimes benefited
in a number of ways from the MF programs, the study concludes that the overall impacts
were "very modest." Furthermore, in some cases loans seem to have hurt rather than
helped the clients. For example, poorer clients in Peru were 20 percent more likely to
liquidate an asset in the face of a shock than were members of the control group.
Consistent with the discussion in Section IV, borrowers may have had less flexibility than
non-borrowers in dealing with shocks because they were committed to making fixed loan
payments. As a result, they may have been forced to liquidate their assets in the face of a
shock. Similar results were found for clients of SEWA bank. While some SEWA
borrowers experienced income growth over the two years, other borrowers sank into
lower depths of poverty. On the other hand, savers at SEWA bank made steadier
progress out of poverty, albeit at a slower rate than the most successful borrowers.
24
Given these considerations, a strong consensus is emerging that MF programs
need to develop a broader range of products if they want to provide financial services that
truly address the needs of the very poorest households (Otero and Rhyne 1994; Robinson
1994; Hulme and Mosley 1996; Johnson and Rogaly 1997; Gulli 1998; CGAP 2000a;
Schreiner 2000; Wright 2000; Vonderlack and Schreiner 2001; Von Pischke 2002). In
particular, instead of focusing on loans for business start-up and expansion, MF programs
need to develop savings, insurance, and emergency consumption loans that reduce the
vulnerability of the poorest of the poor. As will be discussed further below, there are a
number of organizations currently experimenting with the design and implementation of
such financial services, and the initial results are encouraging.
That having been said, it is important to remember that even the best and most
appropriate financial services can only address a small fraction of the multiple
dimensions of poverty (see Figure 1). In response, should MFIs run integrated programs
in which they offer a multitude of services, e.g. health, literacy, etc.? The minimalist
school argues against multifaceted programs, offering some compelling reasons in
support of its views. First, Gulli (1998) reviews research suggesting that multifaceted
programs are less sustainable financially than minimalist programs. And sustainability is
crucial for MFIs' survival. If clients perceive that an MFI will not be around much
longer, they lose all economic incentives to repay their loans, which will necessarily
cause the MFI not to be around much longer! Second, the culture of a MF organization is
often quite different from that of other service providers. Organizations that offer
heavily-subsidized services on a charitable basis often lack the discipline and systems to
offer financial services and to hold clients accountable for fulfilling their commitments
25
(Befus 1999). As a result, some multisectoral NGOs spin off their MF programs into
separate legal and organizational structures in order to preserve the integrity of both the
MF and other programs. All of this implies that MF programs must seek partnerships
with other organizations that offer complementary services if the multiple aspects of
poverty are to be addressed. More about this will be discussed below.
Impacts of MFIs on the Middle- and Upper-Income Poor
As one would expect from the discussion in Section IV, MFIs' emphasis on credit
services has more potential to attract and impact the middle- and upper-income poor.
Unfortunately, empirical studies often fail to distinguish carefully the income levels of
the clients they are studying, making it difficult to find explicit discussion of impact by
income level. However, because the poorest are typically excluded from MF programs,
the majority of clients in existing empirical studies will generally be the middle- to upper-
income poor.
Bearing the caveats about sample selection bias in mind, the discussion that
follows will examine some of the empirical evidence about the impacts of MFIs on the
various dimensions of poverty described in Figure 1 and on the underlying, spiritual
causes of that poverty summarized in Figure 2.
Material Poverty
Both the AIMS (2002) and Hulme and Mosley (1996) studies mentioned above
find evidence of substantial growth in household income for MFI clients as compared to
non-clients. Attempting to overcome the sample selection bias that may be present in
these studies, several researchers are utilizing some unique features of a data set on three
26
MFIs in Bangladesh in order to provide exogenous explanations for households'
participation or non-participation in these MFIs' programs (McKernan 1996; Morduch
1998; Pitt and Khandker 1998a, b; Pitt et al. 1999).7 Some of the results of this research
are encouraging: Pitt and Khandker (1998a) find that household consumption increases
by 18 taka for every 100 taka lent to a woman and 11 taka for every 100 taka lent to a
man. Similarly, McKernan (1996) finds that households participating in the Grameen
Bank more than double their self-employment earnings. However, Morduch (1998)
questions these researchers' methodology and reexamines the data. His results find no
increase in consumption for program participants, and he concludes "the mixed results
show that much more work is required to establish the case for strong microfinance
benefits in this context" (Morduch 1999, p. 1606).
Another dimension of material poverty is a lack of assets. AIMS (2002) finds
very mixed evidence of the impact of the three MFIs it studied on households'
accumulation of durable goods and housing improvements. Turning to the accumulation
of human capital, AIMS finds a positive impact of MF on the school enrollment for boys
living in client households of the MFIs studied in India and Zimbabwe, but no impact in
Peru. However, none of the three programs appeared to increase human capital
accumulation for girls in client households. Pitt and Khandker (1998a) also find a
positive impact of MFIs on the education of boys in client households, but this result is
again overturned by Morduch's (1998) reexamination of the data. The need for additional
research is glaring.
Vulnerability7 The survey includes households from villages without access to MFI programs, and program rules bar wealthier households from participating. These two factors allow the researchers to construct exogenous instruments that predict program participation, potentially overcoming sample selection bias. See Morduch (1999) for a helpful description.
27
AIMS (2002) finds mixed results on the extent to which MFIs enabled clients to
cope with shocks. However, Pitt and Khandker (1998b) and Morduch (1998) both find
evidence that the MFIs they studied enabled clients to smooth consumption over time.
However, it must be reemphasized that when the poorest clients were examined (see
earlier discussion), the evidence suggests that credit-based programs have little or even
negative impact on households' vulnerability. Again, there is strong reason to believe
that the expansion of savings, insurance, and consumption loans will reduce vulnerability
for the low-, middle-, and upper-income poor.
Powerlessness
There are three aspects of MF programs that could potentially address the
powerlessness of the poor. First, MFIs typically provide lower interest loans than village
money-lenders, thereby undermining whatever power these moneylenders wield over the
poor. Second, the use of group-based lending schemes has the potential to build
community, and there may be some "strength in numbers." There are numerous stories of
borrowing groups becoming politically active and giving public voice to the previously
voiceless. Third, the predominance of women in borrowing groups has raised the
prospect that women, who are often the objects of oppression, might be empowered vis-
à-vis men in general and their husbands in particular. However, obtaining a clear
measure of "women's empowerment" is quite challenging. Furthermore, Goetz and Sen
Gupta (1996) caution against interpreting the predominance of female clients as
indicating a rise in the economic status of women. Their research of women in
Bangladesh discovered that 63 percent of female MFI clients retained partial, limited, or
no control over the use of the loans they took, their husbands exercising considerable
28
influence over decision making. But even this finding does not undermine the possibility
that women's bargaining power within the household was increased, and many observers
believe there is considerable evidence of women's empowerment (Wright 2000).
Isolation
Bringing low-income persons--especially women-- into groups for regular
meetings8 and giving them access to a financial system clearly appears to reduce isolation
from others and from "the system." As Hulme and Mosely (1996, pp. 125-8) state, "…
the creation of a regular forum at which large numbers of poor women can meet and talk
represents a 'breakthrough' in the social norms of rural Bangladesh."
Physical Weakness
Systematic evidence on the impacts on physical weakness is sparse. AIMS
(2002) finds positive effects on food consumption in Peru and Zimbabwe but not in India.
Wright (2000) reviews a number of studies that claim better nutrition and larger body size
for participants in MFIs, but the sample selection problem is potentially quite high in the
studies reviewed.
Underlying Spiritual Dimensions of Poverty
As discussed earlier in Section III, poverty is ultimately rooted in the effects of
sin on the foundational relationships that God established for humans at the point of
creation. The author is not aware of any systematic empirical studies of the effects of
Christian MFIs on the underlying, spiritual aspects of poverty; however, as discussed
earlier, a number of case studies have documented examples of spiritual impact in a
number of programs (Befus 1999; Bussau 1995; Larson 1999a, b). In light of the
pressures of minimalism, keeping a spiritual focus in Christian MFIs will likely require
8 Many programs do not use a group-based lending methodology, relying instead on individual loans.
29
greater creativity and increased partnerships with churches in the future. More about this
will be discussed below.
Summary
While there is clearly a need for better data, more research, and superior
methodologies, the overall picture suggests that credit-based MF often has positive
impacts on various aspects of poverty for middle- to upper-income poor. The results for
the poorest of the poor are far less encouraging, their economic circumstances and
capabilities requiring a different range of financial products than MFIs have typically
provided. Hulme and Mosley (1996) summarize the situation well when they state:
Further experimentation with protectionally focused schemes for the poorest, offering savings and contingency loans services, perhaps on an individual basis or on the basis of indigenous savings societies, is needed to explore whether a "second wave" of innovation can provide services to the poorest…Ironically, it is the success of the "first wave" finance-for-the-poor schemes, and particularly the Grameen Bank, that is the greatest obstacle to future experimentation. Most designers and sponsors of new initiatives have abandoned innovation, and "replication" is leading to a growing uniformity in financial interventions (Hulme and Mosley 1996, pp. 134-5).
Fortunately, as will be discussed in the next section, there are a number of
interesting experiments underway of the very sort that Hulme and Mosley are advocating.
VII. The Way Ahead
What are the implications of all of these considerations for the Christian
community as it seeks to use MF as a means of poverty alleviation? What should be the
focus of Christian MF efforts in the future? A number of different possible options will
be considered in turn.
30
Option #1: Continue with Large-Scale, Credit-Based, Minimalist Programs
Some Christians argue that the concern for the verbal proclamation of the gospel
in MF is overemphasized. Indeed, at least one major Christian MF organization appears
to be taking this perspective and is rapidly mimicking the secular industry's drive toward
large-scale, credit-led, minimalist programs. Although there are a variety of arguments
that one could give in support of such a strategy, one common line of reasoning is as
follows: "Banking to the glory of God is an honorable task in its own right, even if
evangelism is not a prominent component of it. God is the creator, sustainer, and
redeemer of the entire universe; hence, He is Lord of banking as well. Furthermore, God
really cares about the poor, and He hates poverty. Hence, Christians can and should be
involved in banking, particularly in banking that meets the needs of the poor."
There are elements of truth in this view, but there are at least four important
problems that plague this approach.
First and foremost, this approach will never--on its own--address either the
multifaceted and interrelated aspects of poverty (see Figure 1) or the sin-marred
relationships that are at the roots of such poverty (see Figure 2). Poverty is not solely or
fundamentally a lack of access to credit. If it were, solving poverty would be a relatively
easy task. Christian MFIs, particularly those with minimalist programs, must seek to
partner with organizations addressing other aspects of poverty as much as possible. In
particular, in order to address the spiritual aspects of poverty, Christian MFIs must be
partnering with the local church, a relationship which has been particularly difficult to
broker in the past. More will be said about this further below.
31
Second, if Christian MFIs are going to focus solely on the provision of financial
services, there is a huge need for greater truth in advertising. Christian relief and
development agencies tell Christian donors that their money will be used to meet the
physical and spiritual needs of the poor in a manner that is patterned after Christ's own
ministry. If the verbal proclamation of the gospel is not going to be present in such
programs in any significant way, donors need to be told this. At present, there is often a
huge disconnect between the public relations materials and the reality on the ground.
Many donors would be appalled to see how little evangelism and discipleship--if any--is
taking place in many Christian MF programs that claim to be communicating Jesus Christ
in "word" and in "deed" to the poor.
Third, as discussed in great detail already, a purely credit-based approach will not
meet the needs of the majority of the poorest of the poor. Although the middle- and
upper-income poor need the type of help that can be provided by such programs,
Christians should also be striving to help the very poorest. Again, there is a need for
truth in advertising here, as much of the public relations material that is produced
suggests that credit-led programs are reaching deeper levels of poverty than the evidence
actually suggests.
Finally, there are some serious questions about the long-term viability of this
strategy. A number of observers believe that financial institutions that are able to
mobilize and administrate savings deposits as a source of loan capital may have
significant cost advantages over those that rely on donors and upstream lenders for such
capital (CGAP 1998; Elser et al. 1999; Wisniwski 1999). If this proves to be the case,
32
then MFIs that do not mobilize savings may be crowded out in the future in an
increasingly competitive market.
Option #2: Complement Large-Scale, Credit-Based Programs With
Strategic Partnerships
One way to overcome the narrow focus of minimalist, credit-based programs is
through strategic partnerships with other types of service providers. In particular,
Christian MFIs could seek to partner with churches and missions organizations, the latter
providing evangelism, discipleship, and benevolence services with the former offering
loans. While there are some successful examples of such partnerships (Befus 1999;
Bussau 1995; Larson 1999a, b), in general it has been very difficult to get MFIs and local
churches to work together.
Many Christian MFIs have little vision for working with the local church, and
those that do have such a vision have generally grown discouraged. MFIs often complain
that churches can be bureaucratic, and their culture of grace has often made it difficult for
their members to understand that loans are not grants and must be repaid. In addition,
some churches' theological frameworks question MFIs' charging of interest and may even
look down upon business and economic activity in general. Churches, on the other hand,
often state that MFIs are full of outsiders to the community who only care about business
and about making money off of their parishioners.
While the obstacles to partnership are non-trivial, with education for both MFIs
and churches about their respective roles, effective partnerships can and do happen.9 9 Both World Relief's Microfinance Consulting Services and the Chalmers Center for Economic Development at Covenant College have obtained encouraging results from their attempts to educate churches and MFIs about partnering together.
33
There is considerable untapped potential for the Christian community in this area, and the
opportunities for effective partnerships to strengthen the impact of MF programs are well
within reach.
That having been said, there are two caveats that must be mentioned. First, this
option still limits financial services to loans, thereby excluding many of the poorest of the
poor. Second, as discussed in the previous section, credit-only programs may be crowded
out in the future by full-fledged, financial intermediaries.
Option #3: Design Small-Scale, Balanced, Credit-Based MF Programs
A number of missions, churches, and small Christian NGOs are trying to
implement very small loan programs using money from Christian donors. In principle,
this seems to be a viable strategy for keeping both "word" and "deed" present in the MF
program. Because the funding source values evangelism and discipleship activities, such
programs do not face the restrictions on sharing the gospel that are often present when the
donor is a secular government. Furthermore, because the programs are small, it is
practically-speaking not so difficult to keep the "word" and "deed" aspects of the program
in balance.
In practice, there are few--if any--examples of such programs that are truly
sustainable either financially or organizationally. Given that there are large economies of
scale in microcredit, these programs typically are not sufficiently large to cover even their
operating costs, thereby requiring long-term explicit or implicit subsidies. As soon as
these subsidies dry up, the programs are doomed. Furthermore, the organizations or
individual missionaries operating such programs typically do not have the proper
34
organizational structure--particularly in terms of governance--to ensure the long-run
presence of the loan program. Lacking the ability to communicate permanence credibly,
these programs are likely to run into repayment crises as clients, who typically have
uncollateralized loans, face no economic incentive to repay their loan to a MF program
whose temporary status offers them neither carrots for repaying nor sticks for defaulting.
It is important to note that when a microcredit program dies, it not only hurts the
program but also the poor that the program aims to serve. Not only are the poor left
without the financial services that they need, they are also less likely to have access to
such financial services in the future. The reason for this is that when a program dies, the
last loans that it has made will largely not be repaid, as clients have no economic
incentive to do so. This experience can severely damage the "credit culture" in that
region, as clients have learned that they may not really have to repay the loans they have
taken. This damaged culture will make this region far less appealing to another MFI
considering providing financial services in the future, and the MFI is likely to look for
clients in a different region.
It is common to hear a claim that some mission or church has discovered a
methodology that enables it to run a small-scale loan program in a sustainable way.
However, a close examination typically discovers that the program is being explicitly or
implicitly subsidized. Subsidies are not inherently evil, but they are often hard to sustain
over the long-run, potentially placing the program and its clients in jeopardy. For
example, a Christian mission has been claiming that it had designed a small-scale,
sustainable, microcredit program. However, a visit from a MF expert revealed that the
35
program was heavily subsidized with help from numerous volunteers, had been started
with a grant of over $300,000, and gave first-time loans to clients starting at $300.
All of three of these observations should give some pause to others considering
starting small loan programs. First, while volunteers are a tremendous resource, their
long-range reliability--particularly when they face their own economic and personal
crises--may be a bit uncertain. Second, start-up funds of $300,000 are very large
compared to that of many small programs that some churches and missions are trying to
operate. If financial sustainability is a challenge for a $300,000 program, what would it
be for a $15,000 program? Third, as is often the case with microcredit programs,
financial pressures often cause a drift towards richer clients who have the capacity to
borrow larger loan amounts, thereby lowering program costs per dollar lent. In this case,
minimum loan sizes of $300 are approximately three times larger than those of most
MFIs serving poor people in the same country as this missions organization. Hence, it is
quite likely that this program's clients are living well-above the poverty line.
In summary, Option #3 has some merit and deserves additional experimentation.
In particular, there is a need to examine the potential for volunteers to provide long-term
subsidies in small MF programs. In the absence of further research, practitioners should
exercise caution before proceeding in this direction, for there are questions about its
feasibility, its relevance to the poorest, and its potential for doing harm.
Option #4: Transform Large-Scale, Christian, Credit-Based MFIs into
Financial Intermediaries
36
As mentioned earlier, the financial systems approach that some are advocating
seeks to build MFIs that offer a range of financial products--savings, loans, and
insurance--priced in such a manner that the MFIs will be fully, financially sustaining
(Drake and Rhyne 2002). There appear to be several advantages to this approach. First,
adding savings and insurance services will allow the MFIs to reach the poorest of the
poor. Second, by allowing the MFIs to access a wider range of capital from both
financial markets and savings deposits, this strategy enables the MFIs to avoid their
dependence upon secular--especially government--donors, perhaps creating greater
opportunities for staff to perform evangelism and discipleship activities.
However, there are several serious obstacles facing this option. First, even though
such an approach frees MFIs from the restrictions that secular donors often place on their
uses of funds, competition from other MFIs may still make evangelism and discipleship
activities impractical. Operating a non-minimalist program imposes additional costs on
the MFI. Unless the clients are willing to pay for those additional services, competition
will make it impossible to pass those additional costs on to the clients. This is
particularly problematic when the additional service is "evangelism and discipleship," a
service that unbelieving customers are not eager to purchase. Once again, strategic
partnerships with local churches can alleviate the need for the MFI to spend resources on
evangelism and discipleship, and there are good theological reasons to favor such
partnerships as well.10
Second, as soon as MFIs start to hold voluntary savings deposits, they will
typically have to meet host country banking regulatory requirements. Many if not most
10 As discussed earlier, Christ has given the church the primary authority to conduct evangelism and discipleship; hence Christian organizations seeking to meet people's spiritual needs are compelled biblically to respect and support the authority of the local church.
37
MFIs will find it difficult to meet such requirements. Furthermore, the nature of existing
banking regulations--e.g. caps on interest rates on loans, capital requirements, etc.--may
make it unprofitable for the MFIs to continue to service poor clients profitably. Although
dozens of countries are currently considering the adoption of appropriate regulatory
environments for MFIs, it is not clear how these issues will be resolved (CGAP 2000b).
Third, there is considerable doubt about the capacity of most NGOs to transform
their credit-only MFIs into financial intermediaries (Elser et al. 1999; Fieberg et al. 1999;
Wisniwski 1999; CGAP 1997, 2000b, 2002). As CGAP (1997, p. 2) states, "[The MFI]
should not believe that adding savings is like adding 'just another product.'" Rather, once
savings services are offered, the MFI will face all of the following challenges: 1) A
dramatic increase in the number of customers--more people want to save than borrow--
puts strains on management and administrative personnel and systems; 2) Staff will
have to be retrained as they are no longer loan officers but financial intermediaries; 3)
Job descriptions and evaluation and promotion criteria will all need to be adjusted; 4)
Security, accounting, and supervision systems will all need to be altered; 5) Liquidity
management techniques will need to be mastered; and 6) Staff will need to learn to treat
their new, poorer clients with respect (CGAP 1997). Elser et al. (1999) and Wisniwski
(1999) argue that the costs of addressing all of these challenges will be too great for most
credit-based MFIs and that savings-driven institutions--e.g. village banks and
cooperatives--and commercial banks are far more capable of adding microsavings
services.
Option #5: Establish Credit Unions Geared Towards the Poor
38
As Magill (1994) discusses, credit unions (CUs), many of which have been
established by missionaries, have been providing both savings and credit services in the
Two-Thirds World since the 1950s.11 Most countries have adopted national cooperative
legislation that charters and supervises CUs, making them legally-constituted financial
institutions that are permitted to hold the savings deposits of their members. As of 1989,
there were more than 17,000 CUs with approximately 8.7 million members in 67
developing countries across Asia, Africa, Latin America, and the Caribbean. These CUs
held $1.8 billion of members' savings deposits and had $1.4 billion of loans outstanding
to their members (Magill 1994).
Magill (1994) estimates that 10-20 percent of CUs customers in the Two-Thirds
World are microentrepreneurs who are indistinguishable in their characteristics from the
typical clients of the standard microcredit programs discussed in this paper. He
concludes, "Even with the limited data available, therefore, it appears that credit unions
represent one of the most important sources of financing for small-scale entrepreneurs in
developing countries" (Magill 1994, p. 144).
Relying primarily on savings rather than on external funds for loans, CUs are
completely owned by their customers, with each customer having voting rights within the
organization. In many cases, the members themselves voluntarily perform the daily
operations. However, this becomes increasingly difficult over time as funds accumulate,
and most CUs eventually turn to professional staff to manage their operations (Rutherford
2000). Unlike most microcredit programs, the vast majority of CUs are financially self-
sustaining without subsidized funds for either capital or operations.
11 In Option #6 below there is a discussion of Accumulating Savings and Credit Associations (ASCAs). As Rutherford (2000) notes, a credit union is simply a long-term or permanent ASCA.
39
Unfortunately, as Magill (1994) describes, while savings is the basis for a client to
enter a CU, the philosophy that has dominated CUs has been the provision of low-cost
loans, and policies and procedures have been designed accordingly. Savings can only be
redeemed when the member leaves the CU, and interest rates on savings (technically
"dividends" on membership shares) are typically below rates of inflation. In reality, the
primary incentive to enter a CU is to obtain a low-cost loan, with members' savings being
similar to the "forced savings" that credit-based MFIs often require from clients before
they can qualify for loans. The question for the future is whether CUs can transform
their operations in order to provide flexible and convenient micro-savings services that
are needed by the poorest of the poor while remaining financially and organizationally
sustainable. As mentioned earlier in the discussion for Option #4, some observers
believe that it may be easier for CUs than for credit-only MFIs to make this transition
(Elser et al. 1999; Wisniwski 1999).
Another possibility is to simply start CUs that focus on providing flexible and
convenient savings and loan services to the poor from the outset. This is the essence of
SafeSave, an experiment begun in August 1996 in Bangladesh (Rutherford 2000; Wright
2000). SafeSave staff visit clients daily and offer them the opportunity to deposit as
much or as little savings as they like, to withdraw their savings, or to take loans. The
only thing that the client is required to do is to pay the monthly interest on any loan that
they have taken, but they can do this at any time during the month and in any installments
that they desire. Some claim that SafeSave provides the most flexible, high quality
financial services to the poor of any organization in the world (Wright 2000), and a
number of organizations are now trying to replicate SafeSave.
40
As of October 22, 2002, SafeSave had 6,840 clients and 60 staff. Client savings
totaled $140,000 and outstanding loans amounted to $191,775. Total liabilities were
approximately $300,000, approximately half of which are from a long-term loan provided
by a NGO. Rutherford (2000) reports SafeSave charging 28 percent interest on its loans
and paying 10 percent interest to its savers per annum. The SafeSave website
(www.safesave.org) claims that a branch of SafeSave becomes fully financially self-
sustaining in two or more years; however, an examination of SafeSave's financial
statements makes that conclusion less than obvious.
There would appear to be considerable merit to the Christian community's
exploration of establishing CUs in general and SafeSave replicas in particular. If their
savings products are properly designed, CUs have the potential to reach very poor clients,
and the reliance on clients' savings rather than on secular donors' funds for loan capital
may make more room for evangelism and discipleship activities.
However, there are a number of caveats that must be mentioned. First, CUs are
not easy to operate. As discussed in Option #4, deposit-taking institutions must possess
considerable skills for financial intermediation and for establishing sound management
and administrative systems. These challenges are sometimes exacerbated in the case of
stand-alone CUs, whose lack of linkage to other institutions can result in liquidity crises
or in unwanted surpluses of funds that are difficult to manage and store (Rutherford
2000). The complexity of running these operations may make them difficult and costly
to replicate. Can the Christian community properly recruit and train enough personnel to
operate CUs successfully?
41
Second, SafeSave prides itself on offering services to individuals rather than
groups, thereby enabling the poor to avoid the inconvenience of having to attend regular
meetings. However, there is enormous power in getting people into groups, and
Christians in particular should see groups as opportunities for evangelism and
discipleship.12 Christians experimenting with CUs should explore ways to utilize groups
to mobilize savings without imposing undue costs on clients in terms of time and
inconvenience.
Third, although CUs have a history of being financially self-sustaining, it is not
clear if that tradition will survive in an increasingly competitive market. As commercial
banks enter the microfinance realm, their sophisticated management techniques and
economies of scale are likely to place significant financial pressures on relatively small-
scale CUs.
Fourth, related to the previous point, it is not clear how CUs can provide
evangelism and discipleship services without significant subsidies, particularly as
competition increases. Once again, strategic partnerships with local churches and
missions organizations will become necessary.
Option #6: Promote Informal Savings and Credit Associations
Records indicate that Rotating Savings and Credit Associations (ROSCAs)
existed in China at least 1200 years ago. The concept is simple: A group of people meet
together on regular basis and contribute a pre-specified amount to a pot. A different
member of the group takes the pot at the end of each meeting until every member has
12 Larson's (1999b) study of Sinapi Aba Trust, a Christian MFI in Ghana, found far greater spiritual and social impact for clients in group-based lending schemes than in individual lending schemes.
42
received the pot once. After every member has had a turn, the group can disband or
repeat the rotation.
A ROSCA is a very simple and efficient means of financial intermediation. In
every meeting prior to an individual's receiving the pot, that individual is saving and is, in
effect, putting her savings for that meeting on deposit with the person who takes the pot
at that meeting. When an individual gets the pot, she is receiving a sum that is partly her
accumulated savings and partly a loan. In every meeting after the individual gets the pot,
that individual is repaying the loan portion of the pot that they received. Variations on
ROSCAs are found all over the world and are used by people at all income levels to save
and lend their own resources to one another.
Closely related to ROSCAs are Accumulating Savings and Credit Associations
(ASCAs). Unlike ROSCAs, the funds contributed to an ASCA in a regular meeting may
or may not be completely distributed to the members; hence, an ASCA's funds may
accumulate over time. Furthermore, ASCAs are typically more flexible than ROSCAs:
An individual might be able to take one or more loans of multiple sizes upon request,
and--depending on the rules--the members might be able to draw down on their savings
contributions throughout the ASCAs' life. While ROSCAs pay no interest,13 ASCA
members earn interest on their savings that arises from the interest paid on loans and
from various fines that are sometimes levied on members. Because of their greater
complexity, ASCAs involve higher levels of trust, management, and record keeping.
ASCAs may be time-bound or non-time-bound. In a time-bound ASCA,
members decide at the outset to save and borrow for a specified period of time and then 13 Implicitly there is a negative interest rate paid on savings in a ROSCA determined by the rate of inflation. People who get the pot early in the rotation get more in real terms than people who get the pot at the end of the rotation, implying a negative interest rate on savings. In highly inflationary environments, ROSCA contributions might be indexed to some stable commodity or currency.
43
distribute the accumulated funds to the members at the end of that period. Of course, a
time-bound ASCA can repeat itself indefinitely if the members so desire. Theoretically,
a non-time-bound ASCA can go on indefinitely, accumulating more and more funds over
time. However, as the funds grow, the management, accounting, and storing of those
funds becomes increasingly challenging, often making non-time-bound ASCAs unstable
over time unless there is a formalization of governance, management, and accounting
systems (Rutherford 2000). In essence, a credit union is a formalized, non-time-bound
ASCA.14
In the past several years, a number of organizations have started to experiment
with promoting--as opposed to providing--informal financial mechanisms such as
ROSCAs and ASCAs. The distinction between "promotion" and "provision" is crucial
for understanding the advantages of this strategy.15 In the other MF strategies discussed
in this paper, some organization, usually an NGO, is actually running a program that
offers financial services to the poor over time. Should the NGO close down, the financial
services will end. In contrast, as discussed by Ashe and Parrot (2002, p. 2), a promotion
strategy is one in which the NGO or other organization acts as a "time limited catalyst of
group development," training clients to form and manage their own savings and credit
associations without any long-term help from the NGO. If the NGO should close, it is
irrelevant, as the savings and credit associations theoretically can live on indefinitely
without it.
Although there is clearly a need for more research and experimentation, the initial
evidence described below suggests that promoting informal financial mechanisms can be
14 For an excellent discussion of ROSCAs, ASCAs, and other informal finance mechanisms, see Rutherford (2000).15 See Rutherford (2000) for an extensive discussion of promotion versus provision strategies.
44
a powerful, adaptable strategy for reducing poverty for the poorest of the poor on a large-
scale, even in rural areas. Furthermore, this strategy can be implemented at a lower cost
to the promoter than standard, credit-based MF costs the provider.
Pact's Women's Empowerment Program (WEP) of Nepal
As described by Ashe and Parrott (2002), in 1999 Pact hired 240 partners in
Nepal, most of them local NGOs, to recruit, train, and support groups of women to
operate ASCAs and to adopt a literacy curriculum. The partners were paid $39 per
month for 18 months for each 10 groups they serviced, each group having an average of
21 members. Pact staff trained the lower paid staff of the NGOs in the basic operations
of the ASCAs and in the literacy curriculum, and the NGOs' staff then used their
relationships with clients to equip them to operate integrated ASCAs/literacy groups.
The contrasts between WEP and standard, credit-based MF are substantial,
signaling a dramatic philosophical and programmatic break with the past. As Ashe
states, "What I learned about the Women's Empowerment Program challenged virtually
every assumption I had developed over more than 20 years of working in microfinance"
(Ashe and Parrot 2002, p. 2). This is a dramatic statement from the man who once
introduced solidarity group lending to Accion International and helped spread the model
across Latin America. Ashe and Parrot (2002) provide a helpful summary of the main
differences between WEP and standard, credit-based MF programs in Table 1 below.
TABLE 1
COMPARISON BETWEENWEP's PROMOTION OF INFORMAL FINANCE AND THE
STANDARD PROVISION MODEL OF CREDIT-BASED MICROFINANCE
45
WEP's PROMOTION MODEL OF INFORMAL FINANCE
STANDARD PROVISION MODEL OF CREDIT-BASED MICROFINANCE
Basic Assumption: The poor can meet most of their credit needs through internally generated savings.
Basic Assumption: Micro-entrepreneurs need access to credit to build their enterprises or meet their other needs. Credit is primary; saving is additional. (There is often no savings component.)
Institutional Objective: Serve as a time limited catalyst to create large numbers of independently functioning, locally controlled savings and credit groups
Institutional Objective: Create a permanent financial institution that delivers credit on an ongoing basis.
Ancillary objectives: Create literate and empowered members who will take a more active role in their families and community.
Ancillary Objectives: Ranges from credit delivery only to using groups as a platform to introduce health, business training and other services.
Institutional Challenge: Develop an appropriate literacy curriculum and links to large numbers of local organizations. Motivate local organizations to provide ongoing support to groups and provide advanced training to the groups. Link groups into associations.
Institutional Challenge: Create a cost-effective and large-scale credit delivery structure that covers its costs, accurately tracks loans and savings and prevents fraud, and that may eventually evolve into a regulated and even a commercial financial institution
Definition of Sustainability: Large numbers of savings and credit groups operating independently after two or three years with little to no ongoing support. Few groups have problems of fraud. Groups and NGOs spontaneously create new groups thereby expanding outreach. Retained interest income builds each group’s loan fund.
Definition of Sustainability: While startup costs and the initial loan capital are generally provided through grants, all operational and financial costs are eventually to be covered through the interest charged on loans. Evolution into a regulated financial institution ensures ongoing access to loan capital and accountability.
Group Development Strategy: Base work largely on groups created for other purposes. Upgrade traditional savings and credit record-keeping systems rather than impose a standard model. Introduce village banking for interested groups.
Group Development Strategy: Create new groups. Impose a single standard group template – generally some version of village banking or solidarity group lending – to insure standardization and control. Individual lending is increasingly prevalent.
NGO Strategy: Use large numbers of NGOs and other partners to provide access to existing groups and to provide simple support services to the groups.
NGO Strategy: Either provide all services through program staff, or use one or two highly trained and supervised NGOs as mini MFIs to deliver credit services.
Adapted from Ashe and Parrott (2002, pp. 6-7)
WEP's growth has been dramatic. Within the first year of operations, WEP was
reaching 6,500 ASCAs with 130,000 members. By way of comparison, Ashe and Parrott
(2002) note that most credit-based MFIs are fortunate if they reach 3,000 clients in the
first year, and the reader may recall that SafeSave has only 6,840 clients after six years.
The savings rates have increased from $.20 per member per month in June 1999 to $.45
per member per month in July 2001. In June 2001, the total assets of all the groups
46
amounted to $1,900,000 and were projected to reach $3,000,000 by July 2002 (Ashe and
Parrott 2001).
As evidenced by the small savings rates, the clients of WEP are very poor women.
45% of group members are considered "poor," 35% are termed the "emerging poor," and
20% are classified as "better off." The "poor" have per capita income of less than $75 per
year, the "emerging poor" have incomes not exceeding $160 per year, and the "better off"
often have incomes above the country-wide average of $210 per year (Ashe and Parrott
2002).
While no systematic econometric work has been performed, the impacts of WEP
appear to be impressive: 1) ASCAs formed by WEP spontaneously started and trained
an additional 800 ASCA groups on their own without assistance from WEP staff; 2) 97%
of WEP ASCA group funds are currently on loan to 45,366 group members, making
WEP the second largest village banking program listed in the MicroBanking Bulletin; 3)
Only 4% of the ASCAs made loans that defaulted, and 82% of the groups keep their own
records without any outside assistance; 4) An average of 89,000 women reported
increased decision-making authority over buying and selling property, children's
marriages, family planning and girls' schooling; 5) 63,700 women gained a level of
literacy; 6) 86,000 women started a business for the first time; 6) Women earned between
18-24 percent per annum on their savings and were able to borrow at only 24 percent per
annum; and 7) The ASCA groups carried out over 100,000 community campaigns and
projects to fight against girl trafficking, wife abuse, and alcoholism and to improve their
communities (Ashe and Parrott 2001).
47
CARE's Work in Niger and Beyond
Allen and Grant (2002) describe another dramatic case of promoting informal
finance: Care's Mata Masu Dubara16 (MMD) program. Building on the ROSCAs that are
commonly used by women in Niger, CARE began to train rural women to form time-
bound ASCAs in 1993. As the initial groups met with success, news spread throughout
the country, and the CARE staff become overwhelmed with requests for training. In
order to meet this demand, CARE initiated a "village agent" system in which groups of
women who wanted to start ASCAs paid a village agent to receive training from CARE
and then to teach them how to start and manage the ASCAs. These village agents might
train and lend ongoing support to as many as ten ASCAs, enabling the agents to make a
respectable income for rural Niger. Five hundred such agents have been trained, enabling
MMD to experience rapid growth since late 1998, as documented in Table 2 below.
There are now over 160,000 women in CARE's ASCAs in Niger, and it is estimated that
another 40,000 women are in groups that have started spontaneously without CARE's
direct involvement. The total savings of CARE's ASCAs have reached $3,000,000,
nearly all of which is on loan to the members, making MMD the second largest
microfinance initiative in Africa (Ashe 2002).
TABLE 2
GROWTH IN CLIENTS IN CARE'S MMD PROGRAM IN NIGER
Item 1993 1994 1995 1996 1997 1998 1999 June 2001
June 2002
Members 1,500 2,805 3,744 6,121 21,745 40,777 123,189 159,109 162,128Groups 45 90 92 176 647 1,266 3,179 5,557 5,546Avg members/gp 33 31 41 35 34 32 39 29 29
Allen and Grant (2002, p. 8)
16 Mata Masu Dubara is translated as "Women on the Move."
48
Each group sets its own rules, but nearly all groups have decided to charge 120
percent per annum on loans, and loan repayment is nearly perfect. Savings rates for
groups range from $0.05-$1.00 per member each week, depending on the capacity of the
women in that group to pay. The return that members earn on their savings is quite high,
averaging 76 percent on deposits (Allen and Grant 2002). Although the ASCAs are time-
bound, virtually all of them restart at the end of the pre-determined period.
CARE is now implementing variations of MMD in Mozamabique, Zimbabwe,
Malawi, Zanzibar, Mali, Eritrea, Rwanda, and Uganda.
Chalmers Center/Food for the Hungry International Church-Centered Pilots
For the past two and a half years, the Chalmers Center for Economic
Development, a research and educational program of Covenant College, and Food for the
Hungry International (FHI), a Christian relief and development agency, have been
collaborating on piloting church-centered ROSCAs and ASCAs in Kenya and the
Philippines. The purpose of these pilots is to create a model in which the local church is
better equipped to embody Jesus Christ by caring for the spiritual and physical needs of
its own members and others in its community. The Chalmers Center takes the lessons
learned from these pilots and then trains missionaries, churches, and Christian NGOs to
implement church-centered ROSCAs and ASCAs on their own.
A total of three staff members in Kenya and the Philippines have been working
with dozens of churches to develop this model. Staff members begin by helping
churches to understand the implications of the kingdom of God for bringing healing and
reconciliation to every relationship that sin has damaged (see Figure 2). Emphasis is
49
placed on the role of the local church in declaring that kingdom in word and in deed.
Churches are then helped to assess themselves, their communities, and their readiness for
using MF as a tool for ministry.
The churches choosing to move ahead with MF do not own the MF groups;
rather, their members are mobilized to start, own, and operate ROSCAs and ASCAs as a
means of community outreach. Chalmers/FHI staff meet with the groups over time,
explaining the technical aspects of informal finance using a biblically-based curriculum.17
The entire process--including the biblical curriculum--is being tested and refined in order
to produce a handbook that others can use and adapt to their own circumstances.
Chalmers/FHI staff have been experimenting with a formal data collection tool
only since June 2002, when several time-bound ASCAs started their cycles. As these
cycles end on December 22, 2002, no final financial results are yet available. However,
the tentative figures for two of the groups in the Philippines are presented in Table 3
below.
Group members in both Kenya and the Philippines are very poor, too poor to
access the services of credit-based MFIs operating in their communities. As Table 3
demonstrates, savings per week is $0.25-$0.30 per member, and the loan sizes averaging
$10-$11 are well below the first-time loans of most credit-based MFIs. Interviews with
group members indicate that while they are aware of MFIs in their communities, they do
not utilize their services because they are too poor to do so and because they find their
ASCAs to offer more convenient and flexible services.
17 Chalmers Center training materials focus on group formation and group maintenance issues of mission, membership, financial policies, management and governance, and monitoring and evaluation.
50
TABLE 3
PRELIMINARY RESULTS FROM TWO CHURCH-CENTERED ASCASIN CHALMERS/FHI PILOTS IN THE PHILIPPINES
Length of Operations
No. ofMembers
TotalSavings
Savings per Member
Total Number of Loans Granted
Total Value of Loans Granted
Average Loan Size
% of Total Loan Value Already Repaid
Total Group Assets Divided by Group Savings*
ASCA 1 25 Weeks 15 $97 $6.50 31 $341 $11.00 82% 1.09ASCA 2 25 Weeks 28 $200 $7.14 41 $409 $9.97 83% 1.18*Total Group Assets = Cash on Hand + Value of Loans Outstanding
While present data do not permit a comprehensive impact analysis, qualitative
data indicates that these church-centered groups are doing far more than addressing
people's financial needs. Groups' mission statements typically state broad-based goals
such as "the purpose of the group is to give glory to God's name through building unity,
trust, and relationships in the group and through testifying to God's power in the
community." And there is evidence that this mission is being met. Meetings resemble
small group Bible studies, with frequent prayers for God's provision for the varied needs
of both members and non-members. Staff report that working through money matters
and conflicts together is building group trust and unity. Emergency funds are being used
to extend mercy to members and non-members in times of crisis, and home visitations to
both members and non-members are commonly reported. Group 2 in Table 3 above is
having such a strong testimony in the community that some non-members are attending
the weekly meetings because--as one group member explained--the ASCA members have
been "good Samaritans to these people, and these people are drawn to the ASCA because
of this." Finally, there are reports of some group members getting involved in the
activities of the sponsoring church for the first time.
51
There are a number of design features of these groups that deserve mentioning.
First, the groups in the Philippines have largely been formed with mothers involved in
FHI's child sponsorship program. As a result, these group members' families are being
ministered to in range of ways--including health training and screening, educational
support for children, and biblical instruction-- thereby addressing more dimensions of
poverty (see Figure 1) than an ASCA would on its own. Furthermore, because ASCAs
are user-owned and managed, there is no need for FHI to alter its management,
administrative, and accounting systems in order to incorporate an informal finance
program into its overall operations. This represents a distinct advantage over standard,
credit-based provider models, whose activities are so distinct from the other activities of
their sponsoring NGOs that they typically need their own systems, thereby making
integrated programs more difficult to design and implement.
Second, in keeping with the Bible's concerns about charging interest to those in
desperate situations, these groups have been encouraged to develop emergency funds to
provide opportunities to minister to people in crises. Group members regularly
contribute a specified amount to this fund, which is typically used to provide donations or
no-interest loans to families experiencing a death, a fire, an illness, or some other
disaster. These emergency funds have provided numerous opportunities for the groups to
extend mercy to both group members and non-members.
Third, evangelism and discipleship are easy to incorporate into this delivery
mechanism. With no outside funds for either group operations or capital, nobody is
beholden to the restrictions of secular donors. Furthermore, the technology is sufficiently
simple that a church, a missionary, or a typical staff member in a Christian NGO can
52
organize and support ROSCAs and ASCAs and provide the complementary evangelism
and discipleship activities.18 Moreover, the costs of operating such groups are trivial and
are not characterized by economies of scale; hence, even small ROSCAs and ASCAs can
be started and survive in a competitive environment, implying that promoters can choose,
if they so desire, to minister deeply to the spiritual and economic needs of a small number
of people without fear of being crowded out by large-scale MF programs.
Fourth, the fact that the poor themselves design and operate these groups has
significant advantages over standard, one-size-fits-all programs designed by outsiders
who lack local knowledge. For example, in one of the pilot ASCAs in the Philippines, it
quickly became apparent that a subset of the group could not afford to save at the agreed
upon rate of 20 cents per day. Rather than simply expel these folks, the ASCA members
helped the poorer members to form their own group with lower savings rates of 20 cents
per week. This is the poor ministering to the ultra-poor without a dime's worth of outside
money or influence other than initial facilitation and training.
Drawing on the lessons from these pilots, the Chalmers Center is training
churches, missionaries, and the staff of Christian NGOs to promote church-centered
ROSCAs and ASCAs.19 As a result, this approach is now being initiated by a wide range
of promoters--from individual missionaries to global NGOs such as Habitat for Humanity
International--in quite diverse contexts including the Ivory Coast, Mexico, Uganda, the
Philippines, Burundi, and Eastern Russia. While the initial reports from some of these
18 Donthamsetty (2000) documents how a widow in the Philippines began to promote informal finance, resulting in a church-centered MF program meeting the needs of hundreds of low-income persons. Gunderson (2000) describes how a Chalmers-trained missionary successfully equipped a church to use MF to transform a squatter community in the Philippines.19 Chalmers conducts training via distance learning, consulting, regional courses and workshops, and an annual two-week Institute conducted in partnership with Food for the Hungry International and World Relief.
53
trainees are encouraging (see, for example, Gunderson (2000)), it is simply too soon to
assess their overall success.
Summary
Additional examples of promoting informal finance are available: Wilson (2002)
discusses Indian self-help groups with 17,000,000 members; Zapata (2002) describes the
Mexican government's underwriting the training of 420 savings and credit groups and its
plans to expand this program to reach 80,000 clients over the next several years;
Matthews and Ali (2002) document a promotion model in Bangladesh that has 55,000
savers who have mobilized $1,000,000 of their own capital. The low cost nature of
promoting informal finance suggests that further expansion can be anticipated in the
future. Ashe (2002) summarizes the situation as follows:
Depending on the country, the local setting, and whether or not literacyor other training is included, these programs show that groups can be trained and monitored at a cost of $5-$30 per member. Most of thesecosts are incurred during the eight months to three years it takes to traina group until it can operate independently. In contrast, the start up costsof a typical MFI can reach $300 or more per borrower, including thecosts of capital, operations, systems, and training. Even efficient MFIsstruggle to reach more remote areas, the fixed costs of lending and collection are simply too high. The savings led models, however, canaccommodate the needs of very small businesswomen in rural locationswho may only take periodic loans that are tailored to their business sizeand specific needs as approved by their group (Ashe 2002, p. 3).
In addition, when one also considers the apparent ease with which promoting
informal finance can be integrated with other interventions--including evangelism and
discipleship--it appears that this is a MF model that has the potential to address
significantly some of Chambers' multifaceted manifestations of poverty (Figure 1) and its
underlying causes (Figure 2) for very poor people in a wide range of settings. More
54
research and experimentation is clearly in order, particularly with regards to how well
these groups can survive over time without significant technical support.
VIII. Concluding Remarks
MF is not a settled field, and its dynamism will continue to make it difficult for
Christian donors and practitioners to land on a single "best" approach. The various
strategies have different strengths and weaknesses, and it will take some time even to
understand what those really are. In this context, the potential benefit of increased
collaboration between Christian academics and practitioners is quite high, as the need for
further applied research in this field is glaring. If Christians are to make significant
contributions in this arena, the design of both research agendas and MF programs must
proceed from a clear conceptual framework concerning the multifaceted nature of
poverty (Figure 1) and the broken relationships that fundamentally underlie that poverty
(Figure 2).
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