December 24, 2012 | 3:28 am
Posted by Rabbi Dr. Shmuly Yanklowitz
Jewish tradition focuses heavily on the importance of gemilut chasadim, or charity. One way today’s globalized world engages in large-scale charity is through microfinancing, a way of offering financial services to the poor or those without access to typical bank lending. The movement is based upon the belief that low-income people can achieve their goals and lift themselves out of poverty if given access to loans. Microfinance Institutions (MFIs) help people in developing countries as well as in developed ones, including the United States. Microfinance includes a number of financial services, such as microcredit, micro-lending, micro-insurance, savings, and money transfer. Today, anyone with access to the Internet can join and contribute to an MFI.
Microfinance is not new. For example, a group of 15th-century Franciscan monks founded community pawnshops, and a European credit union movement began in the 19th century. Jews have also been involved in microfinance for millennia. A gemach (abbreviation for gemilut chasadim, or acts of kindness), interest-free loan fund, is the quintessential example of Jewish microfinancing. The gemach fulfills the positive mitzvah of lending money (Exodus 22:24) and the negative mitzvah against charging interest (Leviticus 25:37). Jews also established some of the first MFIs in America, referred to as Hebrew Free Loan Societies.
Today, Microfinance has grown into a global movement comprising thousands of institutions, each with its own lending practices. Microfinance currently empowers approximately 160 million people in developing countries.
There are three general microfinancing methods: 1) formal financial institutions, including banks and insurance companies, which have been reluctant to service poor populations due to high transaction costs and other risks; 2) non-governmental organizations (NGOs), such as Grameen Bank (created by Prof. Muhammad Yunus, Nobel Prize winner, author of Banker to the Poor,)and head of BRAC in Bangladesh), which currently lend to more than 100 million clients worldwide, and whose safe, secure deposit services make them very popular (though NGOs are not permitted to collect deposits in some countries); and 3) informal organizations, including moneylenders, informal associations, cooperatives, and community-based development institutions, often managed by the poor themselves, which provide flexible, convenient, and fast services, but are highly risky and much harder to study formally.
Do MFIs help people get out of poverty? David Roodman, of the Center for Global Development, is critical of the microfinance movement’s ability to alleviate poverty. He believes that with the rise of large bank participation in microfinance, the world’s poor are encouraged to borrow repeatedly, with increasing liability. Instead, Roodman believes that the poor should be offered ways to save money as a way out of poverty. He is also critical of certain microfinance groups that hold groups of borrowers liable for all the loans, thus putting pressure on members to sell or barter all their possessions in order to come up with the money to repay the loans. Kadita Tshibakaof Opportunity International counters by noting that MFIs are beginning to offer interest-bearing savings accounts, low-cost insurance plans, and financial education programs for the poor that will help them start businesses, hire people from the local population, and help the community rise out of poverty. In addition, Tshibaka argues that pooling borrowers (who are overwhelmingly women) does not lead to desperate borrowers, but has led to a 95 percent repayment rate in 4-month cycles, contributing to stability. Thus, while there are still problems with some MFIs, the overall effect is beneficial.
Kiva is the world's first person-to-person microlending website, relying on a network of microfinance institutions to allow people to donate in small amounts and build community in the process. Kiva partners with MFIs (or “Field Partners”) to find individuals in need of loans. The Field Partner disburses the loan to the individual and passes information about the individual and the loan to Kiva. To support this, Kiva lenders browse available loans online and select a loan they wish to fund. As the borrower makes payments, the Field Partner pays Kiva, who repays the lender. The lender can then choose to make another loan, donate to Kiva, or withdraw the money. Thus far, Kiva has made loans of more than $386 million to more than half a million lenders in 67 countries, with an average loan of about $400, and a 99 percent repayment rate. You can find out more about the way Kiva loans work on its website.
The Rambam famously stated that the best way to give someone charity is to give him a loan, enter into a partnership with him, or give him a means to an income (Mishneh Torah, Hilchot Matnot Aniyim 10:7). Microlending is one of the most important ways we can work to eradicate poverty and empower those in the developing world to build their lives and dreams on their own terms. As a former Uri L’Tzedek fellow Talia Cottrell Furleiter wrote an important article on the importance of microlending and its place in the Jewish tradition for the E-Jewish philanthropy blog.
Uri L’Tzedek has proudly maintained a Kiva lending team since November 2008, with 133 current team members and 847 completed loans, comprising $28,825.
Consider joining the Uri L’Tzedek’s Kiva Lending Team to become part of this larger movement. Encourage your community to purchase products associated with microfinance, including goods made in enterprises funded by microfinance or retailers that donate a percentage to support microfinance. And please help to spread awareness: Tell others about microfinance and encourage them to get involved. For poverty is a solvable problem, and microlending is a great tool to get our world to the point of complete eradication.
To put Uri L’Tzedek’s motivation in Muhammed Yunus’ prophetic words: “Poverty does not belong in civilized human society. Its proper place is in a museum. That’s where it will be. When schoolchildren go with their teachers and tour the poverty museums, they will be horrified to see the misery and the indignity of human beings. They will blame their forefathers for tolerating this inhumane condition and for allowing it to continue in such a large segment of the population until the early part of the twenty-first century.”
Rabbi Shmuly Yanklowitz is the Founder and President of Uri L'Tzedek, the Senior Rabbi at Kehilath Israel, and is the author of "Jewish Ethics & Social Justice: A Guide for the 21st Century.” Newsweek named Rav Shmuly one of the top 50 rabbis in America!"
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