This is an article from the July-August 2011 issue: Overcoming Poverty


A Look at the Technique as an Effective Strategy for Poverty Alleviation


Hope in the slums

In the slums of several cities in Western India, the financially poor are gathering to save.  In groups of 10 to 12, they come together to receive business training, contribute $2 a month to a joint savings account for productive investment or to meet family needs, and learn about the love of Christ.

As members of India’s two lowest castes, many of HOPE India’s* clients are initially skeptical of its approach: “Why are you wasting your time with us?” they ask staff members. “We’re poor. We’re stuck here, and there is no way out for us.”

Believing that “there is no way out” is one of the most damaging aspects of financial poverty. If life will never get better, why try? If there’s no hope, why dare to dream?

Staff members of this Christ-centered microfinance organization respond by telling clients, “You’re created in God’s image, and He has a plan and a future for all of you.” As clients come to believe this message, they are in turn empowered to enact change in their communities. Progress is slow, but unmistakable - businesses are created, families have the financial resources to put their children in school, dignity is restored, and the voiceless speak. In one district of the slums, a savings group successfully petitioned the local government council to have electricity installed where there had previously been none. Instead of remaining resigned to their fate, these individuals now have hope and are working to build a brighter future. 

Microfinance under fire

Contrast their example with that of Andhra Pradesh, India, where riots and scandal have exposed the ugly underside of microfinance.  Until recently, microfinance—offering financial services such as small loans and savings services to the poor—was the darling of the international development sector. With its leveraged approach to reaching the poor and its philosophy of promoting client dignity, microfinance appealed to those across the political, social, and economic spectrum.

But when more than 30 loan clients committed suicide in Andhra Pradesh, and high-profile microlenders were accused of abusing clients’ rights, its image changed overnight.

Instead of being seen as the silver bullet to end poverty, it became synonymous with exorbitant interest rates and questionable repayment practices. Although much of the scandal was limited to the region of Andhra Pradesh, the damage to microfinance’s image was worldwide.

These two situations paint very different pictures of the effectiveness of microfinance and illustrate some of the tensions within the sector. Done well, microfinance can be a powerful tool for good. Done poorly—whether intentionally or accidentally—this powerful tool can further harm some of societies’ most vulnerable. In order to ensure that microfinance remains an effective tool for alleviating poverty and helping—not hurting—the poor, it is important to address these tensions by keeping clients at the forefront and prioritizing impact on individual families.

Credit versus training

As highlighted by the crisis in India, simply handing someone a loan is not enough: Without business training, clients are more likely to make poor investments. Without a place to save and accumulate capital, families may become hooked on a never-ending cycle of unproductive credit. The practice of just offering small loans, microcredit, has been replaced with an understanding that realizing positive change requires more than just a loan.

In HOPE’s programs, not only are clients encouraged to save, but they also learn biblically based business principles that teach them how to open and sustain a business. In India, clients receive training that equips them to make items like handbags and baked goods, as well as opportunities to sell the items they create at churches and local retailers.

Saturation versus need

With the growing popularity of microfinance and the incredibly high repayment rates of borrowers, Andhra Pradesh attracted microlenders interested in more than helping the poor. It appealed to payday lenders, loan sharks and anyone who was looking to make a quick buck. Inundated by multiple groups with a variety of motives, Andhra Pradesh became a place where receiving credit was like buying bottled water, with vendors offering loans on practically every street. With no peer screening or accountability, clients were taking multiple loans, using loans from one lender to repay another, and becoming over-indebted in the process.

However, across the world, the majority of people still do not have any access to basic financial services. Fewer than 20 percent of the global need for microfinance services is currently being served (and less than 1% of the global need is served by faith-based organizations), according to the World Bank’s Consultative Group to Assist the Poor (CGAP). When HOPE first entered the Democratic Republic of Congo, for example, there were only 65,000 bank accounts for a population of 65 million – 1 in a thousand. For these individuals, microfinance fills a large gap, providing access to capital, savings accounts and training to those who wouldn’t otherwise have any access.

Short-term versus long-term impact

Given this tremendous unmet demand, the question is whether or not the Church should become involved in meeting it.  Is it a wise use of resources? Does it align with the global mission of alleviating human suffering and pointing people to Jesus? Does it make an impact?

There are a variety of impact assessment studies on microfinance. In most, the stories of individual clients may not appear very dramatic to those in wealthy nations—and may not even show up as a blip on a country’s GNP. But for someone earning a dollar a day, adding a second dollar can make a huge difference. This 100 percent increase in income would likely lead that client’s family to eat better, enjoy better health, improve their housing, and experience greater confidence and hope for the future.

Instilling this hope for the future is an important aspect of microfinance. FINCA, a leading microfinance network, reports that 93 percent of its clients have all of their school-aged children in school. John Hatch, FINCA’s founder, encourages us to look at the “intergenerational” changes that are occurring: even if today’s clients do not escape poverty in their lifetime, they are equipping their children with the education that will help them break free of the generational cycle of poverty.

In Rwanda, HOPE has seen similar results in its partnership with the Anglican Church to provide those in poverty with training and a safe place to save their money. Of HOPE’s nearly 70,000 clients in Rwanda, school attendance increased from 28 percent of members’ children to 71 percent, even as church attendance increased from 65 percent of clients to 96 percent.

Spiritual transformation

Microfinance has played a key role in impacting much more than just physical poverty. At a recent meeting of one of HOPE’s savings groups in India, a client stepped forward and said, “Before, we were called slum dwellers, but this is no longer how we view ourselves in our hearts. We have hopes, we have dreams, and we want to continue moving forward in God’s vision.”

Christ centered and client focused, HOPE India’s message to the poor is that they are made in the image of God—that they have dignity, talents, and potential. By communicating this message in word and deed, they are seeing lives transformed. Microfinance is not a panacea, but if used correctly, it is a powerful tool that equips individuals to free themselves from the bonds of physical and spiritual poverty.

*In India, HOPE partners with an organization whose name has been withheld for security.


Muhammad Yunas, who won a Nobel prize for his work in microfinance had the philosophy that poor people knew what they could do to earn extra money.  Maybe that made sense where he was.  I would imagine it would be easier for people raising cattle in a Muslim country to know how to increase their income than it would be for urban dwellers living in a Hindu culture where they are pidgeon-holed into very specific jobs by a caste system.  You would think job training would be necessary for successful microfinance there.  You would also think the microlenders would use the same principles of larger banks, not lending unless the borrower could show where the income would come from to pay off the loan.  This would require some support from organizations that could offer help with business plans, projected cash flow statements, etc. 

Some institutions involved in microfinance are concerned that if the lender offers training, the borrower may consider his or her success to be partly the lenders responsibility, and that this could result in a higher default rate. 

Interestingly, whether microfinance programs are successful overall in helping the poor is an issue over which academic literature is divided. 

I am interested in microfinance as a way to support MMB and other persecuted Christians after they come to Christ.  Some of them lose their jobs or get kicked out of their homes or jobs when they put their faith in Christ.  In some cases, young people with few marketable job skills are kicked out of their parents’ homes. 

One of the problems with microfinance programs is that many of them are designed to charge interest to the borrower.  The interest covers the default rate of a well-managed program, which could be as low as 2%.  I would imagine it also covers the costs of salaries for people administrating the program and growth of funds to lend to others.  There are some problems with this model.  One is that the Old Testament forbade Israelites from charging one another interest.  Historically, Christianity forbade Christians charging each other interest until Protestant Reformers began to advance other interpretations.  Now, national financial systems are designed for interest to be charged.  The US dollar usually loses about 3% to 3.5% a year, and in developing countries, that rate can be much higher. 

In predominantly Muslim countries, charging interest for loans may seem to be more immoral.  Muslims know this is haram according to their religion, though a lot of them pay and receive interest anyway.  I do not think charging interest is a good witness for Christian organizations to Muslims and probably isn’t the best way of dealing with MMBs in many of these Muslim majority nations.

I am interested in other models.  I know there are fee for service models where the poor pay people to help with business plans, etc. to get the loan.  When lending in small informal programs for believers, I suppose one could tell the borrower up front that to cover defaults and to create more funds for more people, that they would ask the borrower to consider making a donation after he or she has paid off the loan and is successful.  If donations covered expenses, defaults, and inflation, and supplied funds for increasing the pot of money for loans, this kind of a model might work.  Offering businesses consulting services to be paid after a year or two (or whenever the average business is viable), and forgiving the debts of those who fail is another way of doing it.  This would be financial similar to an interest balloon payment, but it would be a fee-for-service rather than an interest model.  I can also envision a partial loan, partial equity program where the microfinance institution takes a portion of the equity and sells it back if the business is a success.  That would be messy.  Fee-for-service and equity lending could open up some tax issues in certain countries. 

Does anyone have experience with non-interest models for microfinance?  Is there an organization that offers training or perhaps some resources like computer management software or some Excel spreadsheets already set up to help other organizations start Christian microfinance organizations?  If so please, respond and let me know.

Interesting thoughts! As you mentioned the OT does tackle the topic of lending, so I’d like to pass along what a colleague and friend of mine wrote addressing the issue of charging interest to the poor from a biblical perspective.  See  .

Also if you want more info on this topic, you may want to check out The Chalmers Center for Economic Development ( or The Poor Will Be Glad (

I am very happy to have found you on the internet. I share in this vision strongly.
I was wondering to myself if there was any thing life like christian microfinance or christian bank in the globe. I am glad that I found hope international. Please, I am chritian chartered accountant and I wish to start a chritian microfinance cameroon. Please consider being my model for this vision.
237 77 92 73 69.
Thank you.

Churches and money lending to the poor is quickly a counter-productive combination.

More power to the committed Christians in business, but the idea of ‘Christ-Centered’ organizations lending money to the global poor seems to be a marketing approach to US Christians donor/investors, from an industry that is as likely to prompt a suicide or over-indebted related problems as further the Gospel.


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