Christianity Today

Microfinance may be falling victim to its own success. Since starting in the 1970s, microfinance—the practice of providing financial services, particularly small loans, to the world's poorest—has grown rapidly worldwide.

Today, experts estimate there are 665 million client accounts at more than 3,000 financial institutions. About 188 million of these accounts are in India, while 27 million accounts are in Africa. Microfinance organizations are likewise diverse, from the multibillion-dollar Grameen Bank of Bangladesh to Christian groups such as Opportunity International, based near Chicago, and Kiva.org, which matches lenders and borrowers with loans that average $382. Microlending, savings, and insurance programs have been the darling of overseas poverty-fighting agencies.

Now scandals threaten to tarnish the reputation of these programs across the board. In Andhra Pradesh, a southeastern Indian coastal state, officials say 85 borrowers killed themselves because they could not repay high-interest loans. Some of these borrowers were pressured and harassed by collection agents.

In addition, some microfinance founders are suspected of exploiting the poor for quick profit. Last year, SKS Microfinance Ltd., also based in India, raised $350 million by becoming a for-profit, publicly traded corporation. The move made a few SKS executives and early investors very wealthy, which critics say undermines the poverty-fighting purpose of such programs.

The microfinance industry has attracted larger institutions interested in a quick buck, says Susy Cheston, senior director at World Vision, which operates Vision Fund with more than 600,000 borrowers in 40 countries. Vision Fund mostly operates through non-governmental organizations, not deposit-taking micro-banks. Cheston says, "In India, [microfinance is] growing too much too fast, with new providers coming in who [are] interested only in profits."

Meanwhile, Nigerian officials say Africa's microfinance organizations face both high loan-default rates and corrupt officials who exploit lending for personal benefit.

The reputation of the industry has declined so badly that Muhammad Yunus, who received the Nobel Peace Prize for founding Grameen Bank, wrote recently in The New York Times, "I never imagined that one day microcredit would give rise to its own breed of loan sharks."

Beyond Borrowing

While not directly tainted by these practices, Christian microfinance leaders say they are responding to the scandals by keeping the needs of clients topmost. This means doing more than lending money to the poor. It also means reaffirming the spiritual dimension as essential for addressing greed, corruption, and exploitation.

"When I came into the industry in 1992," says Dennis Ripley, a senior vice president at Opportunity International, "the early institutions were about providing loans to build the businesses of the poor," not making quick profits off the poor.

After graduating from seminary, Ripley believed his call was to help the church help the poor rather than serve as a full-time pastor. Eventually he joined Opportunity, which was among the first organizations to operate chartered banks to meet the needs of poor people, especially women in small business.

Opportunity made heavy investments in Eastern Europe after the fall of the Soviet Union. It soon learned that many people valued a safe place to put their money more than a loan. "If you offer people a loan versus a savings account, 70 percent prefer a safe place to save their money," Ripley says. Opportunity is now one of the oldest and largest industry players, with 1.4 million loans outstanding and more than half a million savings accounts at the end of 2009.

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