Opinion : Is religion compatible with microfinance ?

By Laurence ATTUEL-MENDES , Professeur Associé – Département Gestion Droit Finance

Microfinance Focus , July 24, 2010 : In the line of the work of Max Weber, the relation between the religious and economic spheres is still an current issue. Indeed, because of the world crisis among other reasons, microcredit is becoming one possibility to go out poverty by availing use of solidarity and by creating one’s wealth. But very high interest rates are practiced. Meanwhile, the crisis shows the rise of religions and hence a perceived barrier to micro-credit, even if their goals are similar. We are looking for the way it is possible to conciliate the social justice purpose and the high level of interest rates. Is religion compatible with microcredit? Does the discussion between economics and religion still remain a dialogue of the deaf?

The usury prohibition laid down by the various religions (Christians, Judaism, and Islam) is based on similar principles that we may sum up as the protection of weak people against themselves and against the powerful. They differ mainly on their evolution and their interpretations. Prohibition of high interest rates became a more religious or political[1] practice rather than an economic one, with the continued leadership of the charity which will not therefore constitute an incompatibility in practice. Some connections are possible if we are to believe the very official Vatican newspaper (March 4, 2009) praising the benefits of a system based on the principles of Islam in an article entitled « Dalla finanza islamica proposte et idee per l’Occidente in crisi » (ideas and proposals from islamic finance to West in crisis).

The principles of monotheistic religions do not constitute an absolute barrier to microcredit, even if some adjustments may be necessary for Islam. The charitable aim is predominant, so that there is no incompatibility remaining. It removes one kind of hurdle that could have been a brake to the microcredit development and which implies that it will be sustainable.

A new question may then arise, that of the place of women in religion compared to that in microcredit[2]. Indeed, one can see an ambivalence of the Church, always torn between a desire for gender equity and a willingness to subjugate women. The religious debate is not closed yet.

[1] The question doesn’t arise any more about states, except from Islamic ones as Iran, but about MFIs that are sometimes ruled by religious communities.

[2] Women are the more numerous to use microcredit in the world: more than 75% according to www.planetfinance.org

Disclaimer :Views expressed in the article by author is his own and do not necessarily represent those of Microfinance Focus. Reproduction in whole or in part without written permission is prohibited.

© 2010, Microfinance News. All rights reserved. 2008-09

8 Comments on “Opinion : Is religion compatible with microfinance ?”

  • swarupa wrote on 25 July, 2010, 18:41

    As far as my knowledge is concerned I dont think that religion is compatible with Microfinance because for instance Islam prohibits taking interest on loans whereas MFI’s charge a high interest rates on poor people.

  • Derek wrote on 26 July, 2010, 20:59

    It is neither useful nor constructive to ask whether these two forces are compatible.  Though religion has lost its primacy in secular Western societies, this is not the case in most countries where microfinance is active. Religion is an integral part of life in many of these countries. Meanwhile, microfinance has quickly made itself a powerful force in the social and economic lives of the poor in these countries. If microfinance institutions and religious authorities start picking fights, I can almost guarantee that microfinance will lose, that is, if imams and pastors start telling their faithful, in a strong, focused and concerted way, that microfinance is somehow “wrong,” then the market would dry up. I’m not arguing that microfinance clients are economically irrational (Muslim clients choosing non-Islamic over Islamic products to take advantage of lower rates are a case in point), but rather emphasize that religion is an important social force, where buy-in is not always an option but a necessity in these communities. Rather than focusing on differences, we need to focus on common ground and find ways of working within the boundaries religious traditions have set, whether we like it or not. This is also a part of the social mission–meeting clients where they are. 

  • Peter van Dijk wrote on 28 July, 2010, 8:48

    The author limits Microfinance to Lending to Micro-enterprises for socio-political objectives. That obviously brings MF immediately into the environment where also the current largest religious institutions operate.

    If one would stand still and think one moment of what people, businesses and governments in general want from Finance, and in particular what poor so far unbanked people desire from Microfinance, then it becomes clear and evident that this is help and advice on how to safeguard and better manage the little money they do have and depend on for day-to-day survival (regardless from the source or the use of the money).

    USURA, Latin for (fixed) Interest Rate, has always been condemned by the powerful, including powerful people who say they represent the universal supreme being on earth. But they have never ceased to have good bankers next to them to advise them. In countries where voices are strong to promote Islamic Finance and condemn fixed interest rates, banks do apply IR as normal practice. “Shariah compliant” finance is only “reserved” for the poor.

    If people really want to help finance to emancipate the poor then they need to consider MF as a part of banking and they need to emancipate banking as a professional job that requires an income, a price, which is defined by interest rate. To retain MF to socio-political credit is keeping the poor under the wings of politically motivated people whose power depend on how many poor followers they have, and that is a historical fact.

  • Remy Ssali wrote on 28 July, 2010, 12:35

    I believe religion and in particular Christianity is compatible with microfinance. This is clearly elaborated in the parable of talents in Mathew Chapter25 verses 14-50. Verse 27 of the chapter specifically emphasizes and encourages the earning of interest. As can be discerned from the text the Lord was happy with the two guys in the parable who invested and received 100% profits!

  • Laurence ATTUEL-MENDES, Burgundy School of Business wrote on 29 July, 2010, 18:57

    Thank you all for your comments.
    Swarupa, in Islam, you can do qard hassan, which is an interest-free loan, there is also a possibility of charging interest as far as they do correspond to something real, like tangible cost, the loan is allowed if contractants are sharing profits and losses and if there is a connection to a real asset.
    Derek, I totally agree, that’s exacly what I say : let’s focus on similarity where microcredit is possible because of charitable aims for instance.
    Peter, the article is focused on microcredit, not microfinance in general, you are right. Even if high interest rates are the average in MF, charitable aims don’t prohibit to charge no interest, which makes this operation sharia compliant and more ethical in a general way.
    Remy, thank you for the reference. Indeed, that’s a good point in favor of the compatibility.

  • Azhar wrote on 3 September, 2010, 20:19

    Both are really compatible. Every religion be it Islam, Christianity, Hinduism and others provide means for social justice. All religions have tools to remove injustices. Income inequality is an injustice.

    Today microfinance is talking aboubt social responsibility, Socially responsible behaviours, and socially responsible investments. This all was provided by religions already.
    In my view fully compatible. I am a learner on this subject. Anybosy can contribute to my knowledge at my email. azhar.nadeem@live.com

  • Twaha K Ddungu wrote on 9 June, 2011, 4:53

    If there is a way microfinancing can exsist without charging interest then i can say its compatible with religion especially Islam,But its doesnot exist.
    As of views that”the Lord was happy with the two guys in the christian parables who invested and 100% profited”…..I Thnk this never meant credit with interest.

    The world would be a better place without usury.Think about it?

  • Remy Ssali wrote on 12 October, 2011, 13:20

    Mr. Ddungu while I respect your views I would like to reaffirm that Matthew Chapter 25 verse 27 says: “You ought therefore to have put my money to the exchangers, and then at my coming I should have received my own with interest.”

    Microfinance is and will remain a business involving granting credit to the socially underprivileged people. You can only do it successfully by charging high interest rates or else it will in no time cease to be a worthwhile business.

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