The highest level of charity is when you can help someone get on their own feet, use their own God-given abilities to provide for their family.
- Peter Greer

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  • Calvin Edwards on Encouraging Entrepreneurism

    From my observations the most effective organizations that work to alleviate poverty are those that offer a hand-up more than a hand-out. One of the ways to achieve this which I think has struck with great success in the last sort of ten to twenty years is microfinance… This to me is teaching entrepreneurism, is teaching capitalism to the poor… I’m sure there’s not one solution but I think one of the important ones is microfinance because it’s based on the economic principles of capitalism and it encourages entrepreneurism.

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  • Ebow Graham on Microfinance and Savings

    The microfinance institutions, they come in to talk not about savings, but to talk about credit. In always talking about credit, the poor can’t save … If you save, you can be empowered. If you don’t save, you won’t be— what? Empowered. You’ll always go borrowing. Without savings, you don’t have any backbone. Where do you fall? You are standing; you just fall down. But if you have the support—that’s the savings—when you fall, something stops you. Then you lift up in society, and they will know that the business you are doing, you’ve been able to save and move on… We can end poverty through savings.

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  • Michael Fairbanks on Microfinance Linking the Poor to Networks

    The value of micro-finance is not the money. In each survey I’ve ever done and I’ve ever seen shows that people enjoy relationships with micro-financing institutions because it links them to a network of productivity. They get coaching advice. They work with a lending officer who puts their eyes on the outside prize of an outside market. It’s an orientation through that relationship that’s so valuable. It’s an orientation to the outside world that’s so valuable. The money actually isn’t that important.

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  • Lord Brian Griffiths on Microfinance vs. Social Venture Capital

    Microfinance is terrific at helping individuals, especially women, create something of an enterprise, almost self-employment. But microfinance, it seems to me, is not good at creating small businesses, let alone medium sized businesses.  I’m not sure, apart from creating self-employment, I’m not sure microfinance is great at actually creating employment. For that, you need to go one step beyond microfinance, which would be social venture capital.

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  • Damian Von Stauffenberg on Microfinance

    Microfinance by itself does not lift you out of poverty into wealth, but it is a tool that makes it possible for you yourself to do that … And some people will make use of that tool and… lift themselves up to higher and higher levels of economic activities. Some will stay at a certain level, and some will take the money and have a beer. It’s as stark as that. And the big challenge for a microfinance institution, what makes a microfinance institution really worth its name, is the ability to detect among the thousands and thousands that would gratefully accept a loan, those that will become productive with that loan, that can turn that loan into value and better their lives.

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  • Calvin Edwards on Microfinance Impact in Nicaragua

    With one of our clients we’ve worked with, a micro- financial organization in Nicaragua, they have thirty-two thousand loans out there at any given time and everywhere you go where those loans are in place, people are doing better than their neighbors who are not showing their entrepreneurial instinct and trying to do something for themselves to alleviate the poverty that they’re in versus waiting for someone to come along and solve their problem for them. It just flat out works better, and they end up employing people, so it creates employment in the local community.

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  • Calvin Edwards on Microfinance Circumventing Corruption

    You have several obstacles broken down by the microfinance organization … where there is corruption and sort of essentially a locking out by the elite class of the public class to the systems and the assets that are needed to build a business—private organizations that provide microfinance just practically bypasses the whole system. All of a sudden a person can do that which they were not able to do with the corrupted governmental systems so one of the geniuses of it is it bypasses all those systems.

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  • Magatte Wade on Aiming Higher for African Success

    We have to start identifying Africans that are really doing things in a tremendous manner… We got to start taking their stories out. And it shouldn’t be the story of a poor African who, ‘Look at me, I’m so great. You know, I started this little chicken business company and everybody should treat me like they treat Bill Gates.’

    I have a problem with that. I have a problem with that because it’s almost like taking us like inferior people. Why is it the world should be clapping for us when all you do is you have a regular chicken business? I mean, how many people have something like this going on in America, and I don’t see them being featured in Fortune magazine or in Business Week or in anything like that … We have to start identifying serious entrepreneurs that are doing world-class things, because I don’t want the vision and the inspiration for Africans to be ‘the next big micro-entrepreneur in the world.’ And right now that’s what we’re doing. It’s all about micro-entrepreneurship and everybody’s like so gung ho on it.

    So instead of having all of this focus on microfinance—which by the way has its goods, but it has its serious limits—we got to start looking at the Africans that are doing things, whether it’s for profit or non-profit, that are innovative—in the world-class stature—because I want for Africa to look at that and say, ‘That’s what I’m aiming for!’

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  • Peter Greer on The Highest Level of Charity

    The highest level of charity is when you can help someone get on their own feet, use their own God-given abilities to provide for their family.

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  • Peter Greer on The Reason for Charging Interest

    I remember that when I first heard about microfinance, an individual said that we charge the poor interest. That, to me, didn’t really make sense. These people are poor. And I could understand giving money so they could start a small business, but why would I want to give them money and then have them repay with interest? There are a couple of reasons why that makes sense. One is that that enables the next person in the community to have that same access to capital that that one family benefited from.

    But the other thing is, I was with a woman, and she was describing her business, and she ended up showing her business. And because she had repaid the loan and because she had repaid with interest, she knew, deep down, this was not another just aspect of charity that she had received. And you could see her stand up, and as she came in and she repaid her last loan with interest, she could say, “This is something that I, with my ability, with my capacity, that I was able to do.”  And there was pride and there was dignity, and there was just no question that she was a passive recipient of some extra-special favor. She didn’t get a special favor, she just has an opportunity. She repaid that loan, and with interest, and you saw the dignity in her body language as she repaid that final loan.

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  • Peter Greer on Problems in the Microfinance Sector

    There are some problems with the microfinance movement in Southern India. And part of that is because there was this huge number of players that came in and were chasing short-term returns. And they were giving loans out, but they weren’t really caring as much of what the loans were given for. So, if you wanted to do it to buy that television, that’s fine. So, there was a lot of microfinance that was not being used for productive investment, but it was used for purchases that probably were not increasing the assets and investment and capabilities of, of a household. And that’s why I think this crisis that we’re seeing, this crisis that’s brewing, really. Some of the core principles of why microfinance was successful had been violated.

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  • Peter Greer on Savings and Training

    And some of the things that make the model that we employ a little bit different are one, we do emphasize savings. We think savings, in many cases, are more important than access to a loan, for many families. We believe that training is critically important; that if you’re not making sure that the capital’s being used for those right initiatives, then you might not be helping a family. And worse, you might be actually over-indebting them if they’re not using those loans wisely.

    So, that’s why we think microfinance is broader than a loan. Microfinance is bigger than just giving someone access to $150. It’s a bigger system of providing training, saving money and, in the right opportunities, giving small loans.

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  • Peter Greer on Microfinance Not a Panacea

    I remember when I first heard Mohammad Yunus give a talk on microfinance. He gave it in such a compelling way, and he talked about that we were going to have to build museums, because people weren’t going to remember what poverty is like. And I remember that that was this incredibly enthusiastic statement. And we really did believe that we had a tool that could significantly impact global poverty.

    The problem is anytime you get involved in something, anytime you’re looking for one tool that’s going to be the silver bullet for a significant problem like poverty, that has its hand in so many, there is no one tool that’s going to work. There is no panacea for poverty. So, I’ve grown in my understanding that microfinance is a powerful tool, a very powerful tool in providing access to capital for small-scale entrepreneurs, provide a place for savings to happen, and allowing the seeds of entrepreneurship to begin to grow up. But it is not going to solve global poverty on its own. It’s too complicated.

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  • Peter Greer on The Microfinance Stories You DON’T Hear

    One of the first people that I helped start a small business in Rwanda was named Florian. And Florian started a gardening business, and ended up giving him the tools and capital that he needed to get this business up and running. And after working with him for several months, I went to his home, and I got to see his home. And I recognized that his home had not changed at all from when I first helped him get a job. And I remember feeling this disconnect. I knew what he was making, and yet there was no impact on his family, no impact on his kids. His kids still weren’t in school. There were no improvements. And it really baffled me for a little while. I visited several months later and and there, again, was no improvement. And it turns out that he was spending his increased profit on other women and on alcohol. And I remember feeling incredible let-down that I had this promise of microfinance, this promise of employment, and all of my enthusiasm that it was going to change lives, and yet I saw an individual that had a thriving business and yet his life and his family’s life had not changed at all. And I remember, at that moment, recognizing there’s got to be more than just in a change in a wallet for significant change to happen. And I think that is where certainly the church and the faith community has something materially different to offer than just another loan, just another job.

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  • Peter Greer on Microfinance’s Christian Roots

    William Carey, who many see as the father of the missions movement in the 1800’s, went from Britain to live in India, as one of the really pioneering missions, pioneering, pioneering missionaries. I read a biography of William Carey. I wasn’t reading it to learn about microfinance, but I was amazed that, in India, he recognized that there were women that had no way to provide for their needs. So, he wanted to care for the widow, the orphan foreigner. And what he found is that the best way to help these women was to help them get in small groups, where they would meet every week, and they would start saving money. And then every week, one of them would get the accumulated amount of capital and be able to have, then, a lump sum to start a business.

    And as I read this biography of William Carey, my eyes got big and I recognized he was doing microfinance – the exact same model that he was using at that point is actually one of the models that we employ in India, in a similar spot. It’s almost like the church forgot this incredibly powerful tool that we had.

    Mohammad Eunice is credited as really the father of the modern microfinance movement, but he’s not the father of the microfinance movement, if we define the microfinance movement as groups of people that are getting together to mobilize capital and to make sure that investments are made in places that can help the poor work their way out of poverty. It was in the founding of the missions movement. Unfortunately, we just have walked away from that. And I think the church is now in a period of rediscovery of what microfinance is and the benefit that it can have on the lives of the poor.

    Interesting, we did a survey with Barner Research, and asked what percent of the church pastors in America are familiar with microfinance. And we found that 59% of pastors in America have never heard the term microfinance. And we found that 1% are actually doing anything in this space. So, as much as I think that everyone knows about microfinance, the reality is it still is a tool that the church has not embraced. Worse, they haven’t even heard about it yet, in large numbers.

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Microfinance 101

Microfinance refers to the financial services industry for poor people in the developing world who have historically lacked access to even the most basic financial options. One such service, and the most widely discussed, is microcredit, which involves special banks or other lending institutions making tiny loans (i.e. microloans) to persons who, based on their net finances, would not traditionally be qualified to receive credit. Unlike payday loans and so-called “loan sharks,” the best examples of microcredit help the borrower toward economic independence by financing a wealth-generating microenterprise.

Although individual missionaries such as Baptist William Carey had encouraged such services as far back as the 19th century, and missionary groups such as the Congregation of the Holy Cross provided such services in the mid 1900s, the service was first systemized on a broad scale by the Grameen Bank, whose founder, Muhammad Yunus later received the Nobel Peace Prize. The Grameen Bank set a standard by providing small loans to those with little or no access to credit, enabling them to buy resources to produce goods they could sell on the market. The primary borrowers were and continue to be women, with the loans providing them a chance to go into business for themselves.

Grameen’s success in creating a profitable way of helping the poor spurred a mass migration to the new sector, which is now a multibillion-dollar industry.


Table of Contents

  • Microfinance 101
  • Sustainable Microfinance
  • Microcredit as a Subset of Microfinance
  • Microfinance: State of the Research
  • Microenterprise vs. Small and Medium Enterprises
  • The Common Threads: Enterprise and Wealth Creation

Sustainable Microfinance

Since that time, successful microfinance institutions (MFIs) have been established on every continent. As with any tool for helping the poor, the tool of microfinance must be used carefully. Microcredit can be a blessing when lenders make informed loans to promising microenterprise ventures while taking care to build in accountability. Hopeline Institute of Ghana, for instance, trains its borrowers in basic bookkeeping practices and insists that they keep accounts of how the loan is spent in the business. Accountability also means insisting on some form of collateral from the borrower, even if primarily a non-traditional form of a capital, such as the social capital inherent when several women who are neighbors and friends borrow under an arrangement of mutual accountability and responsibility, an arrangement entered into voluntarily.

Another characteristic of the best microcredit operations is transparency in the lending operation itself. In other words, accountability shouldn’t just be for the borrowers. And indeed, a lack of accounting transparency has been a major criticism of microcredit.

When lending becomes tied to a secular humanist vision of the family and zero-sum thinking, or becomes a vehicle for propagating versions of collectivism, or becomes a front for exploitative lending practices, it begins to undermine rather than promote human flourishing.


Microcredit as a Subset of Microfinance

Microfinance is not synonymous with microcredit; rather, microcredit is one aspect of microfinance. Unfortunately, these two are often viewed as one and the same, with the sole focus being on the impact of loans. When performed ethically and at reasonable interest rates, small loans to enterprising individuals have proven a powerful resource even in the poorest areas of the developing world. However, sustainable progress demands a holistic fiscal approach focused also on the other, perhaps less flashy financial services, such as savings programs for the poor, which are all too often forgotten amidst the hype surrounding credit. 


Microfinance: State of the Research

Academic studies of microfinance have returned widely conflicting data. In a 2008 review essay in the Electronic Journal of Sociology, John Westover commented that “despite the popularization of microfinance in the mass media and the many positive findings that are reported in some feasibility and impact studies, there are also many studies that report some negative impacts of such programs and fail to find a direct link between microfinance program involvement and poverty reduction.” He also concluded that while there were several worthwhile case studies, there remained a shortage of extensive, rigorous quantitative studies of microfinance. “Until more such studies are conducted and findings reported,” he concluded, “we must take the findings of less rigorous impact studies with a grain of salt and not be too quick to generalize findings of the impact and effectiveness of a specific program, in specific location, at a specific time, to other cases.”


Microenterprise vs. Small and Medium Enterprises

While microfinance can play a role in development, it is not a panacea for poverty. If microcredit is not carefully targeted toward wealth-creating enterprises, it can create a dependence on borrowing. Microfinance may also have the effect of distracting attention away from a crucial link in the chain of development—small and medium enterprises. Businesses of 10 to 500 people often lack the up-from-poverty appeal of microenterprise stories. Yet, as Andreas Widmer points out, in developed areas such as “America and Europe, it is SME companies that employ 75% percent of the entire workforce and account for 50% of GDP

Microenterprise jobs have provided hope and opportunity for many people, but as Arneel Karnani points out in the Summer 2007 issue of the Stanford Social Innovation Review, microfinance places the emphasis on small subsistence activities which are generally less effective at creating new wealth for the poor than are businesses of thirty or more employees. Jobs in larger companies and factories also are typically more stable and lucrative than microenterprise businesses.


The Common Threads: Enterprise and Wealth Creation

This isn’t an either/or dilemma. Microenterprise as well as small, medium and large businesses can and should play a role in a healthy, growing national economy. The common thread is wealth creation. Credit and other financial services directed toward enterprises that create new value are a powerful tool for promoting sustainable growth, and for these to flourish the focus needs to be placed on institutional reform and the creation of a just investment climate marked by secure property rights and the rule of law. For widespread and sustainable eradication of poverty, such an attractive saving and investment climate is foundational.


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