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1 Inspired Finance

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3 Inspired Finance The Role of Faith in Microfinance and International Economic Development Michael Looft Kiva Microfunds, USA

4 Michael Looft 2014 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Looft, Michael, 1971 Inspired finance : the role of faith in microfinance and international economic development / Michael Looft. pages cm Summary: Inspired Finance argues that much of the world s poor need access to financial services through vehicles such as microfinance rather than a continued reliance on charity. It demonstrates how modern microfinance traces its roots to various religious traditions, exploring the tension between charity and self-reliance in those traditions. Through thoughtful investigation and engaging case studies, Inspired Finance examines the impact these historical religious legacies have had on designing and developing financial services for the poor. Ultimately, Inspired Finance challenges you to consider how these religious influences can be restructured to help a rapidly growing industry target the poor in a way that truly helps them rise out of poverty, while at the same time respecting their inherent worth and dignity Provided by publisher. 1. Finance Religious aspects. 2. Microfinance. 3. Charities. 4. Poverty Religious aspects. 5. Economic development Religious aspects. I. Title. HG103.L dc Typeset by MPS Limited, Chennai, India.

5 For my beautiful son Zachary, who inspires me every day

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7 Contents List of Figures Acknowledgments ix x Introduction 1 1 Charity Revisited 5 Loving one s neighbor 6 Aristotle and generosity 10 Giving for human flourishing 13 2 Financial Services for Poverty Alleviation 18 Cooperatives, credit unions, and Catholicism 18 The poor and their money 25 Saving up 26 Saving down 28 Saving through 29 Origins of modern microcredit 32 Microfinance: beyond microcredit 39 3 Protestant Influences 46 The Protestant Ethic revisited 47 Self-reliance and the limits of the American dream 51 Individualism vs. the power of groups and social connections 57 Case study: Mormon engagement in microfinance 61 Microfinance and the Church of Jesus Christ of Latter-day Saints 65 Mormon entrepreneurship redefined 72 4 Theology and Development 74 Religion, gender, and culture 74 Caste embeddedness 78 The Prosperity Gospel and traditional African religions 80 Scholarship and traditional African religions 81 Traditional perspectives on wealth 83 vii

8 viii Contents Wealth, religion, and morality 85 The need for new leadership 93 Case study: the Iranian bonyads 95 History of the charitable foundations 96 No longer the Shah s foundations 99 Occasional brief glimmers of hope 102 Thwarting another revolution through transparency Usury 107 Judaism 109 Christianity 111 Islam 117 Murabaha (reselling an asset) 119 Musharaka (joint venture) 120 Mudaraba (limited liability partnership) 121 Qard Hassan (free loan) 122 Navigating Muslim religion and culture Inspired Microfinance 126 Center for Community Transformation (Manila, Philippines) 128 Kaibigan Ministry 132 Education 133 Social security and health 133 Yayasan Sosial Bina Sejahtera (Cilacap, Indonesia) 135 Education 137 Microfinance 139 Asasah (Lahore, Pakistan) 140 Agro Capital Management (Simferopol, Ukraine) Can God and Mammon Work Together? 146 The role of faith 147 Bibliography 154 Index 163

9 List of Figures I.1 Poverty pyramid in microfinance Growth of Islam and Christianity in Sub-Saharan Africa since ix

10 Acknowledgments I am very grateful to Dr M. Christian Green for introducing me to the primary source literature at Harvard Divinity School and for her extremely constructive comments and guidance on the initial draft of this book. Thank you also to Rev. Dr Emily Click, Rev. Dudley Rose, and Dr Milton Kornfeld at Harvard Divinity School for their enduring guidance and advisement throughout my time there. I am grateful to Kim Wilson and Dr Ibrahim Warde at the Fletcher School of Law and Diplomacy for teaching me many of the microfinance and Islamic banking concepts that I brought to my work and explored in this book. A very special thanks goes to Rev. Dr Frederic J Muir, William Easterly, Dr Muhammad Yunus, Brett Matthews, and Stuart Rutherford for teaching me to think differently about microfinance and international development. A special thanks to Juan Mejia for introducing me to my first work experiences in microfinance in the Guatemalan highlands. Thank you to the members of the Unitarian Universalist Association that gave me the opportunity to participate in foundational economic development experiences in India, Romania, and the Philippines: Rev. Eric Cherry, Cathy Cordes, Eileen Higgins, Dr Richard Ford, Bob Guerrero, Rev. Rebecca Siennes, Rev. Nihal Attanayake, and Rev. Helpme Mohrmen. Thank you to Dr Jon Bart from Village Hope International for the opportunity to learn what works and what does not work in rural Sierra Leone. Thank you to Cristina Trullols from the IE Business School; Aimee Dibbens, my editor at Palgrave Macmillan; Gemma d Arcy Hughes from Palgrave Macmillan; and to the following people and institutions that contributed in one way or another to the formation and substance of this book: Teresa Yung, Michael Mazur, Asasah, Tabinda Jaffery, Agro Capital Management, Stephen Wright, Oleg Osauluk, Yayasan Sosial Bina Sejahtera, Father Charlie Burrows, Cristina Widiantarti, Center for Community Transformation, Ruth Callanta, Leah Katigbak, Michelle Taway, Arthur Trinidad, Chris Dunford, Freedom from Hunger, Pew Forum, Kara Levy, and Adrienne Kelly. And finally, a very special thank you to my colleagues and friends at Kiva Microfunds, who have taught me much about microfinance and passion in the unique way that only Kiva can do. x