Got an email from the Grameen Foundation giving anecdotal evidence for the wonders of microfinance, “It was a beautiful mid-June day for the two-hour drive to the rural village of Gashora, Rwanda…”
How is microfinance different from mailing credit cards to people who can ill afford paying credit card interest rates?
On the Grameen Foundation website we are informed that “MFI [Microfinance Institutions] interest rates can range from 15 to 35 percent, depending on the conditions in each MFI’s service area.”
Some people will invariably overextend themselves. Is it ethical to make money off poor people who have been given access to credit, if their ventures fail?
Islamic finance bans interest, and the lender can either take an equity stake in the venture, or, under profit and loss sharing, take all the responsibility for any losses. The lender therefore has a strong incentive not to induce the borrower to overextend herself.
Providing credit for poor people is good, but providing microfinance based on Islamic finance principles would be better.