Is it possible to change a whole industry? How about a multi-billion dollar industry? That’s the question that The Great Exchange is asking. Can we change the world of Microfinance?

Now, most people think of Microfinance as being an industry that isn’t really in need of change. It’s long been touted as the perfect solution to the problem of poverty. You give someone a loan to buy something like a sewing machine, from which they can make a profit and pay back the loan using the extra money they earn. Lives changed, stories and photos published.

Sometimes that is what happens, but a lot of times it isn’t. Even if a person’s business does go well and makes a profit, then there is no guarantee that the family will be better off. It’s possible that the husband/father will take that money and spend it on something like alcohol, gambling or prostitutes. The family is actually worse off for the money, not better. Other businesses fail and the families are left with loans they cannot repay. Or… well you get the idea. Sometimes it works great, sometimes it doesn’t produce the results that anybody wants to publish in their newsletter.

Unfortunately the root of generational poverty is not a lack of resources, the solution isn’t just money. To really see lives changed you need wholistic intervention – training, truth and support.

There’s another problem facing the Microfinance industry—sustainability.

Oversimplifying wildly, we can say there are two types of Microfinance projects. One exists within a non-profit where they have raised funds to provide all sorts of support services. Things like someone to visit families, health training, money management training, and agriculture training that ensures that families are really getting the support that they need, not just a $50 loan. These NGO-supported programs reach the poorest who need more than just cash to change their lives around. The model goes a long way toward addressing the human need for wholistic transformation. The only drawback of this model is that it is really expensive. You need to continually raise a pile of cash to pay for all the support services.

The other model is the Microfinance Institute (MFI). In this model, investors and/or banks loan money to an institute who gives out micro-loans. The benefit of this model is that it can, theoretically, sustain itself without massive fundraising efforts and reach those in need on a massive scale. However, the profit margins are narrow and there is next to no space for extra services. Generally, MFIs cannot serve the poorest of the poor, because they cannot afford to risk loan defaults and they aren’t able to offer business and life-skills support that the poorest need to be successful.

The Great Exchange, our newest partner, is a tiny player in the MFI world (the second model described). They serve 35,000 borrowers. There are lots of great stories of lives impacted amongst those 35,000. But the questions they are asking, and challenging others with are:

How do we have a truly transformative impact, yet remain financially sustainable?

How can we reach those who are even poorer than our current clients?

Reconciled World is partnering with them to try to answer those questions. We are looking at what an MFI would look like If they started to apply the seven core principles that Reconciled World believes are key to seeing lives changed. It’s a hard journey. For example, the MFI world is funded through competitive proposals for investors. If you want to get funded, your proposals need to highlight successes, downplay weaknesses and show that you are the best investment risk. The proposals can get pretty creative with numbers.

What would happen if you were depending on God for your funds and determined to pursue God’s ways? You’d have to write investor proposals with transparency and integrity. From experience we know what happens next. Your proposal may well not be funded. Then you would have to hope and pray that God brings along other investors. Investors that see signs on the wall that talk about transformation, believe in your vision and want to take a risk. It’s a rocky path.

Reconciled World is working with The Great Exchange to set up a Culture Change Department. We are hiring two people and helping to equip and train them to be able to bring this new vision to the staff, empower them to implement the new vision, and put new systems in place that measure the success of the whole organisation by transformational (not just financial) indicators.

We are excited to see where it will lead. The opportunity to impact the lives of 35,000 borrowers is amazing. What is even more incredible is that the leader of this MFI is well respected in India. There are many other MFIs watching to see if it is possible to bring wholistic transformation and maintain financial sustainability. Any success has the opportunity to be multiplied many times over.

We would love to have you join us on this journey. If you would like to give towards our portion of the Culture Change Department and invest in this vision of changing the world of microfinance, click here. If you would like to join their team, we will be posting new positions in the next month or two – please email Tessa and she will get back to you when we have all the details.