As the Central Illinois 9/12 Project has briefly written about in the past, one form of banking in which Shorebank is engaged is microfinance, especially in foreign countries. As this is not a type of finance that is well known to the general public, we will discuss briefly what microfinancing is, how it is used in conjunction with green initiatives and Sharia law, and how Shorebank is using this type of financing in their banking processes.
The Consultive Group to Assist the Poor (CGAP) defines microfinance as simply “the supply of loans, savings, and other basic financial services to the poor.” These loans are generally relatively small, but carry with them a high interest rate due to costs incurred by defaulting on loans and the transaction costs that are disproportionate to the size of the loan. (The cost of manpower and other factors needed to make the loan are the same regardless of the size of the loan — thus for smaller loans, the percentage of these costs in relation to the amount of the loan is greater.) Specifically, the microfinancing industry enables people to receive loans when they would not otherwise be able to do so, whether due to poverty, lack of a bank account, inability to provide collateral, and/or inability to prove employment. In 2007, there were 873 microfinance institutions worldwide serving more than 133 million loan recipients.
Microfinance was initially, and oftentimes still is, aimed at providing loans and opportunities to those who otherwise may not have the funds to get a business off of the ground, but microfinance is sometimes tied into other things such as green initiatives. Shorebank, a community development bank whose practices the Central Illinois 912 Project has highlighted before, is a partner in an eco entrepreneurship through a project called “Yurtcozy.” This initiative allows individuals to “offset their carbon footprint” by buying carbon credits which enable a microfinance loan recipient to receive funding for things such as energy efficient appliances and solar lighting. It may also finance education on clean energy for microfianance recipients and partnerships in green initiatives. Yurtcozy asserts that if the carbon credit purchases were made for all microfinance loan recipients worldwide, then loan recipients could decrease their carbon emissions by 260 million tons, and thirty percent of their income would be unlocked.
One of Shorebank’s first forays into microfinance was through the establishment of Grameen Bank in Bangladesh in 1983. Grameen Bank was founded by Mohammed Yumus, a Noble Peace Prize Recipient in 2006 and 2009 recipient of the Congressional Medal of Freedom from President Obama. Yumus’ description of the features of Grameencredit includes stating that “credit is a right,” and it’s built on “trust” (i.e., social justice in banking.)
Additionally, Yumus asserts:
Grameen believes that the poverty is not created by the poor, it is created by the institutions and policies which surround them. In order to eliminate poverty all we need to do is to make appropriate changes in the institutions and policies, and/or create new ones. Grameen believes that charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away individual’s initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.
Additionally, a Yumus biographer in a 1997 Washington Post piece, states that “[m]icrocredit not only liberates the poorest of the poor from hunger, it liberates them, and us, from fanatical extremists.” These “fanatical extremists” were Muslims who did not see fit that Muslim women should received microfinance loans. The author later asserts that support of microfinance is necessary in order to stop “pariah states exporting terrorism.”
Microfinancing, through Shorebank, is also at work through a $80 million program through the United States Agency for International Development (USAID) called Agriculture, Rural Investment and Enterprise Strengthen Program (ARIES). This program was created in 2006, and its initial success was due to the system adapting for “Afghans eager to enter the financial system but unwilling to compromise their religious beliefs.” The mechanism under which this microfinancing system was instituted dealt with Sharia-compliant (that is, compliant with Islamic law) banking practices. Such practices mean that no interest can be charged for these financial services. The efforts of USAID in conjunction with Shorebank and other entities have provided loans to 44,000 people in Afghanistan while remaining compliant with Sharia principles. You can read the USAID document describing the program by clicking on this link:
ARIES and Microfinance (document uploaded on Scribd)
Microfinancing, in its goal to provide financial services that the poor would not otherwise have, is often piggybacked with social agendas such as green initiatives, social justice, and religious issues. Are the recipients of such loans being taken advantage of in order to advance a green agenda? Is microfinancing a mechanism that allows Sharia law to continue to work its way into the world’s financial system? While assistance to the poor is a noble goal, are some mechanisms used to provide it promoting a social/political/religious agenda?