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Three Myths of Microfinance

Jeff RuttMany individuals have been motivated by the model of microfinance and have joined to help those in poverty around the globe provide for their families. As microfinance has grown and professionalized over the years, practitioners have learned a number of lessons about implementing this model well.

In his article titled, “3 Myths about Microfinance,” Peter Greer, president and CEO of HOPE International, debunks three myths of microfinance and invites those who employ this tool to take into consideration some of the important lessons learned.

The first myth of microfinance is that everyone should borrow. It was primarily thought that if every person received a microloan, then poverty would be eradicated completely. The reasoning behind this was that any person could receive a small loan and start their own business. However, not everyone has a thriving business plan or requires supplementary capital. A person may even be worse off if they obtain capital and use it irresponsibly. But the industry is continuing to realize that while not everyone should borrow money, everyone should save it. This shifts the primary focus from loans to placing a considerable importance on savings.

The second myth of microfinance is that profits are the only thing that matter. This approach results in the elimination of anything that doesn’t directly contribute to the bottom line. It also eradicates some benefits for clients and has made some microfinance institutions appear less like a community-minded organization, and more of a money-making scandal. Microfinance institutions that are truly successful focus on investing in their clients by providing assets and training opportunities for them to grow professionally, personally, and communally.

The final myth is that microfinance will eradicate global poverty. While savings services, stronger community relationships, access to small loans for expanding businesses, and cash flows can help alleviate poverty, none of them can exterminate poverty on their own. Issues such as justice, property rights, education, health, infrastructure investment, social constructs, and corruption all come into play. No one single approach can eliminate poverty. When we understand that each of these elements has an important role and resourcefully connect organizations engaged in a variety of interventions, we can have a real impact.

At HOPE International, we work to address poverty by providing discipleship, biblically based business training, saving services, and small loans. Over the past decade, our services have expanded to include savings for families, as well as programs and events that continue to invest in our clients’ spiritual lives to help them grow and thrive. For more information, visit www.hopeinternational.org.

-Jeff Rutt