Wednesday, March 08, 2006

Micro-lending in Practice: Usury; Property Rights, Culture and Responsibility

A friend from a Northern country writes:
"I am likely going to the ABC Republic in the summer and we will be talking with people about Micro Enterprise Development. I’ve been thinking about your comments on usury. Micro lending could fall in that category! What is the alternative? It seems to me one is trying to get them to gain ownership of the business, and our taking a stake in that business might be counter productive? Any thoughts you may have?"

My reply:
On financing without usury: an interest-free loan is fine, a grant is fine (to a group, so that they can recycle the money between themselves and grow it through productive enterprise). Also fine, as you suggest, is your folks actually taking a stake in the local businesses – which could be counter-productive if your stake is too large. But if it is less than 50%, and if you continue to support the business with skills, expertise, contacts... then that could be very beneficial. Naturally, you don't want the local folk to feel that it is "your" business, and the level of involvement that is appropriate for your team depends on their skills/availability, but it depends much more on the local culture (as that determines whether they feel it IS "their" business)

His response:
Thanks, Prabhu. The challenge, as I understand it, is to even do an interest free loan in the area we are going because there is no sense of the responsibility to pay it back. I have lots of reading to do before the trip, but am looking forward to it, Lord Willing. Where we are going is very primitive,….

I replied:

I know these sorts of situations well from my own experience in India.

Usually, the sense of responsibility is lacking for 2 reasons:
(1) because the immediate needs for survival are so great that people
cannot think any further than that, and
(2) because there is an inappropriate sense of responsiblities – e.g. responsibilities to relatives and friends come before responsibilities to strangers, even though the strangers are actually giving them money and the relatives are, parasite-like, taking money….

Logically speaking, (1) needs to be addressed before (2)…. but in fact the two are tied long as poor people don't save and invest productively they will never come out of the poverty trap…

What seems absolutely obvious to you and me, brought up as we are in a culture that was built by the Bible (even though people may choose to reject it), is basic notions such as the right to earning, buying and using property, and keeping your word (all this is of course declining, as the culture decays, as it must do if the Bible is rejected)….

In any case, before the money will make any difference in practice, they need instruction on what the Bible teaches about property rights, about keeping your word, about breaking with the negative aspects of the current culture while preserving the positive aspects of the current culture, and so on.

People don't have to be followers of Jesus to do this, and not all Christians are good at such things: In Roman Catholic and Eastern Orthodox countries, for example (not to speak of Hindu, Buddhist and tribal societies), there was till recently very little sense of everybody's obligation to work, of the duty to save and to apply resources wisely, of creative hospitality and philanthropy but not to people who don't deserve it if they are lazy or spendthrift. By contrast, the resurgence of Japan from the middle of the 18th century, and specially after World War II, and the current resurgence of China, is testimony to the fact that any society can put at least some Biblical principles into practice and prosper….


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