Microfinance has become fairly well-known in recent years, at the very least since Muhammad Yunus and his Grameen Bank received the 2006 Nobel Peace Prize for their microfinance efforts. This concept of unleashing the latent entrepreneurial abilities of poor citizens of the third world by providing small loans has been shown to be effective in reducing the poverty of the recipients. Long-term "emergency aid" is not as healthy a situation and tends to cause major dislocations in the local economy as aid ebbs and flows.
There are many cultural issues and details which can greatly complicate the implementation of such a microfinance program. There are also opportunities above and beyond the microfinance programs themselves. And there is a spiritual dimension important to Christians involved in microfinance work. This book is a welcome description of many of these practical issues in addition to the basic theory of microfinance. It is aimed at the Christian community, but should be of interest to anyone concerned about poverty. [Disclosure: I am a personal friend of the first author.]
The book is very comprehensive, consisting of 250 pages of text and about 10 pages of notes and references. Although my wife and I have been supporting microfinance work for about a dozen years, I discovered quite a few thought-provoking points that were new to me. In order to improve our "vision" and understanding of the clients of microfinance, the book is packed with pictures of men, women, children, families, houses, shops, and landscapes from the third world. I found it useful to spend a little more time on the illustrations than I normally would. In addition to the pictures, there are numerous anecdotes which help bring home the practice of microfinance. Relevant statistics are not neglected.
The book is divided into three sections, "How bad is poverty anyway?," "How $100 can change the world" and "Joining the revolution." A nice touch is that each chapter is credited to the writer. In the first chapter Greer addresses the extent of poverty in the third world (developing world in the text) as compared to the first world (represented by the USA). It is undeniable that the poverty of the third world dwarfs that of the first world, and most microfinance advocates feel that microfinance is not applicable to the first world. Charles Karelis' book "The Persistence of poverty" is an interesting analysis of poverty in the first world and his conclusions support the idea that microfinance would not be effective in this arena. On the other hand, the Grameen Bank has recently started making loans to Americans in New York City although the amounts seem a little larger than micro. The jury is still out on this effort.
In the second chapter Smith gives a good history of Christian attitudes toward poverty. In the Evangelical Revival of the eighteenth and nineteenth centuries, helping the poor was central to mission work, but in the early twentieth century spiritual values took a back seat to relief work. A backlash resulted with many Evangelicals emphasizing the spiritual to the exclusion of helping the poor. A persuasive case is made that the biblical approach requires better balance than either of these extremes.
In the third chapter Greer describes several case histories of attempts to provide relief to the needy which were not effective. He defines relief as "a rapid provision of temporary resources to reduce immediate suffering" while development is a long-term process which encourages local initiative, builds the local economy and provides jobs.
In the fourth chapter "A Hand Up, not a Handout" Greer makes the argument that jobs are a blessing despite the common griping that we hear in this country. Even here, as the recession has gripped the country, people are a lot happier to just have a job and many fewer of them are risking changing jobs at this time. In the third world, jobs are often unavailable or available only through oppressive employers who exploit their workers. Self-employment is the only solution for many workers. This chapter completes the first section of the book, laying out the scope of the problem and motivating the microfinancing practices described in the second section.
In the second section of the book microfinance is defined and explained. The case has been made that development is necessary and superior to relief. Unfortunately, capital is hard to come by, for several reasons. The commercial banks do not see the poor as a financial opportunity, so little or no money is available from this source. It is difficult to save, because there are few secure places to store money, and also because social obligations to family and neighbors may force the prospective saver to give money to others. Those providing the service of allowing people to save actually charge for it, so you pay fees to save. Some save in creative ways, such as by buying a pig, feeding it for some time and then selling it when the funds are needed such as when school tuition is due. If you have such a live "piggy bank" you need to keep it alive, so you are able to "save" rather than give any surplus funds to your family or neighbors.
In Chapters 6 and 7 Smith describes other practical solutions. The poor have come up with a more general technique of overcoming these issues, banding together to form rotating SCAs (Savings and Credit Associations). These financial arrangements create a social obligation to contribute your agreed-upon amount periodically to the SCA, while solving the problem of storage of money by loaning out the money pretty much as soon as it arrives. As long as the recipients use their loans to further their businesses (in one case the SCA buys them a rickshaw) an SCA represents an innovative method of self-microfinancing. The tight social ties of the poor are central to this approach; rather than supply cash to possibly deadbeat friends and family, the social ties of the SCA take precedence and they are paid first.
The funds available through the SCA mechanism are necessarily limited, and the classical microfinance approach can overcome those limitations by using funds donated or supplied by commercial entities. While repayment seems like a problem to Western eyes, the social ties between the members of borrowing groups, which cross-guarantee all the loans, result in high repayment rates.
In chapter 8 Greer explores additional benefits which may be piggybacked onto the microfinance platform. Microfinance clients have a trusted loan officer who administers their loans, and many MFIs (microfinance institutions) have used this infrastructure to supply additional products and services such as health insurance, education, clean water, etc. An interesting section at the end of this chapter focuses on delivering microfinance to the very poor, traditionally thought beyond the scope of microfinance help. Although an entrepreneur who has a business plan is obviously an easier target for a loan, some progress has been made with beggars, youth, and even prostitutes. These potential clients need more education but the success stories are out there.
The next chapter provides some balance, explaining that any business plan can fail and microfinanced efforts are no exception. A good argument is made that a small fraction of failures are not cause to abandon a successful system.
In Chapter 10 Smith discusses the problems of distribution of relief supplies such as foods and medicines. Equitable distribution of food isn't obtained by throwing it off trucks into a large crowd of hungry people, and proper administration of medicine requires trust in the provider. Failed attempts to eradicate polio due to lack of trust in the vaccine in countries like Nigeria illustrate this well. Smith argues that the church is the best distribution system in the world, and that MFIs are the second-best. Hence working together they can be even more effective, and the additional services that Christian MFIs would like to include include the spiritual.
The subtitle of the book is "Joining the revolution to lift the world out of poverty" and the third section of the book offers practical advice on how Christians can do that. In the third world, local churches may recommend that church members participate in SCAs or other microfinance schemes, as described in a case history from Rwanda. Christian principles and ethics can be very helpful in starting ethical businesses and building community. The groups needed to satisfy microfinance requirements may be easily formed from church members.
But how should western Christians participate in microfinance? One issue is whether a church, even a large church, should become its own MFI or partner with an existing MFI. The complexities of running a MFI are better illustrated by the whole book than this short review. Suffice it to say that it may take a western church far out of its prime areas of competence. Smith proposes in Chapter 12 that we instead act as advocates in promoting microfinance and provide various types of financial support through a MFI partner. Church members with the skills to assist the MFI partner in various ways can be very valuable.
Similar cautions also apply to third world churches who might decide to set up their own MFI institutions. The traditional charity mission of the church can be an obstacle to loan repayment. Also, handling reasonably large amounts of money can be a temptation for anyone. Partnering with a MFI working in their country can be effective as long as the MFI works with the local church.
Returning to the first world, we have great resources of many kinds. Many retired Christians (such as Smith, who took early retirement) have talents and business skills that can be applied to a variety of problems in the developing world. They might be involved in training, for example. But it is very important to understand local conditions so that people are trained for jobs which exist in a sustainable way in their location.
Another new movement is known as BAM (Business As Mission), illustrating Christian principles and practices within a for-profit business. BAM done correctly has many advantages such as giving numerous people steady employment, improving the job skills of the employees, and demonstrating commitment to the local economy. But there are pitfalls. Any business can fail, its actions may be misinterpreted or criticized, or any of a number of issues can inhibit success.
In the final chapter of Part III, Smith addresses the practical Christian issues of where we should invest our money. Many Christians believe that the message of the Gospel should be central in organizations that receive our gifts, but some ostensibly Christian MFIs are fairly indistinguishable from secular MFIs. I liked his criteria for determining whether to support an organization. "First, are my goals and the goals of the organization in harmony? Second, does the organization actually try to achieve its stated goals in a way that makes sense to me?" Microfinance in many of its incarnations makes sense, but if the goal is to make a spiritual difference in people's lives, not all MFIs meet the criteria.
After finishing the book, and then re-reading it to write this review, I am amazed that it packs so much information into about 250 pages. Each theoretical assertion is backed by anecdotal evidence which may not be conclusive, but is at least strongly suggestive. To me the message of the book is that while microfinance is a great idea, the fact that it deals with donors, foreign churches, entrepreneurs, local churches, governments, and local businesses means that many people are involved and a lot can go wrong. For almost every example of positive action there is a counterexample where it went wrong! It follows directly that one of the best ways to support microfinance is to pick a Christian MFI such as Hope International or World Relief and partner with them. When you consider the tremendous variety of cultures in the various countries most in need of microfinance, it seems that there is no substitute for the experience of shepherding successful microfinance programs.