PERSPECTIVE: Microfinance: a powerful tool for social transformation

In the search for practical measures to alleviate poverty and its debilitating impact on humanity and the planet, the microfinance movement offers a set of powerful tools in the service of social and economic development.

Whether in terms of addressing the problems of malnutrition and disease, flight from rural to urban areas in search of work, environmental degradation or the breakdown of families and communities, programs that provide small-scale loans and economic training to resource-poor people are one of the brightest spots in the new development paradigm.

Over the past twenty years, programs that include microcredit, savings, skills training and other related services have increased income and economic empowerment for some eight million people around the world.

In February, the Microcredit Summit will convene in Washington, D.C. The culmination of a 20-month preparatory process, the Summit aims to bring together the institutions, financial resources, and global commitment so that by the year 2005, one hundred million of the world's most resource-poor families - and particularly the women of those families - will have access to credit and other financial services.

Although it still meets with skepticism in some quarters, the notion of making small-scale loans to the poor - and expecting that they will pay them back - has proven to be an eminently sound idea. The success rate for loan repayment in many microfinance programs matches or exceeds loan programs to big business.

The underlying success of microfinance programs stems, in part, from the fact that the principles are based not only on sound economics but also the practical application of spiritual principles.

The founding principle of the movement is a belief in the inherent nobility of humankind - of the integrity, innate capacities, and commitment of the resource-poor to work hard, take responsibility for their own lives, and to repay credit. From that principle, and from other essentially spiritual values like trust and self-reliance, the methodologies of successful microfinance programs worldwide have emerged.

The spiritual principle of cooperation, for example, motivates high loan repayment and supports cost-efficiency in lending - especially within solidarity groups of peers who know and trust one another. Group members collaborate to ensure one another's success and to guarantee loan repayment without physical collateral. Rather, it is the moral collateral provided by the entire group's commitment to cover an individual's loan that undergirds microfinance programs. Cost-efficiency is realized since solidarity groups self-select membership, review and approve members' enterprises, keep financial records, and even disburse and collect members' individual loans.

Thus have spiritual principles facilitated the discovery and implementation of practical measures that have made microfinance programs work.

At this juncture, then, as the world seeks to expand the reach of microfinance, development specialists and program participants alike must recognize and systematically apply the lessons learned thus far about the power of spiritual principles to induce economic and social transformation.

More than any other factor, the degree to which programs of development harmonize with the essential elements of human nature, which are inherently spiritual, they will promote the empowerment of people, the discovery of new aspirations, and the release of new levels of will.

For example, it should become understood and acknowledged that the equality of women - a key element in the success of microfinance programs - is itself a spiritual principle. Throughout the world, women have proven their acumen for investment and repayment of credit, for accumulation of savings, and in their primary use of earnings to provide food, medical care, better housing, and education for their children. By so doing, they have grown in stature, in the eyes of the world, their families, and themselves, thus moving humanity closer to realizing the true equality of women with men. Acknowledging the spiritual foundation of this principle will serve to take this trend to new heights.

The full power of spiritual principles in microfinance likewise has yet to be realized with respect to its role in creating a greater sense of community.

A number of credit agencies have begun to recognize the importance of creating people's organizations - self-sustaining local groups that continue to function even if the outside agency disappears. Yet success in such efforts still requires that the people themselves be motivated, that they have the will to work through conflicts, to evaluate and seek solutions for their own problems, and that they build and sustain a sense of community. Whether in rural or urban areas of the world, it is in this environment of community, where people know and trust one another, where they learn to love, respect and cooperate with one another, that people find connection and can gradually bring about a more just, equitable, and peaceful society.

Currently, however, even in programs that work through solidarity groups, the primary focus of most implementing agencies remains on the progress of the individual rather than community. They laud the success of each woman, each borrower, rather than seeing the individual within the context of community. With all good intent, these agencies may not only perpetuate a very Western obsession with individualism, but may inadvertently undermine the foundation of community.

One institution that has made pioneering efforts to promote a wider sense of community is FUNDAEC (the Foundation for the Application and Teaching of the Sciences), a Bahá'í-inspired development agency in Colombia. FUNDAEC developed training modules that teach unity, solidarity, responsibility, honesty, conflict resolution and an attitude of service to family and community as integral to true development. When the modules were required as pre-credit training for agricultural loans, repayment rates improved significantly. Moreover, villagers consistently say that the greater feeling of unity engendered by the program and their concurrent ability to transcend petty self-interest in service to the common good is perhaps the most important way that the credit program has affected their lives.

A sense of community motivates action for the common good rather than individualistic self-interest - and can result in greater protection of the environment and the promotion of material sufficiency rather than rampant consumerism. It can also create greater opportunities for local economic self-sufficiency, thus helping to stem the out-migration from rural to urban areas. As 'Abdu'l-Bahí said: "When the village is reconstructed, then the cities will be also."

Globally, what is more important than simply providing credit to half the world's severely poor to increase their income, is that we also do it in a manner which truly empowers and uplifts those who get such help.

Microfinance programs, when done well, demonstrate the dynamic coherence between the practical and spiritual requirements of life. In so doing, microfinance can become a powerful tool to promote not only the full potential of the individual, but the force of unity reflected in the concept of community.