Microcredit and religions : with a focus on Hinduism Dr. Arvind ASHTA Microfinance Chair Burgundy School of Business CEREN, CERMi European Microfinance.

Microcredit and religions : with a focus on Hinduism

Dr. Arvind ASHTAMicrofinance Chair

Burgundy School of Business CEREN, CERMi

European Microfinance Week, Luxemburg3 -4 nov 2011

My thanks to Banque Populaire de Bourgogne Franche Comté

Religion and Microfinance

2

RelIgion Microfinance

Yet not much research done on theseAbstracts in EBSCO on Dec 21, 2009

Default terms Alone (Religion or religious) AND

(Religion or religious) AND (entrepreneur OR entrepreneurial Or entrepreneurship) AND

(Religion or religious) AND (finance Or Financial) AND

Religion OR religious

49031 xxx xxx xxx

entrepreneur OR entrepreneurial OR entrepreneurship OR business OR enterprise

2051476 4426 xxx 614

Finance or financial

1499043 2447 614 xxx

Microfinance OR microcredit

1699 16 6 2

Microentrepreneur OR microenterprise

412 4 1 3

Note: last two columns are subsets of preceding column)

3 are common, so 17 total

Ashta & De Selva, 2010)

Our possible research QuestionsAshta & De Selva 2010

The spiritual and the material

Very broad questions…. Lybbert (2008)

Backgound information on some religionsAttuel-Mendes, Ashta & Pic, 2011, Ashta 2011

Hinudism Judaism Christianity Islam

Origin 3000 BC or before 3000 BC 0 600 AD

Gods MonotheistPolytheistPantheistDualisticQualified monism

Monotheist Monotheist Monotheist

Scriptures Vedas, Upanishads, ShastrasPuranas

Pentateuch of the Bible (Torah)

Bible and Gospels Koran

Sects Many, examples: Sanatam Dharam, Arya Samaj but also offstreams such as Budhism, Jainism, Sikhism

OrthodoxRoman Catholic, Protestants (many)

SunniShiitesIsmailies (Aga Khan)

Symbols

6

How is money viewed in these relgions

Hinudism Judaism Christianity Islam

Duty, Money, Pleasure and Salvation are the four principles virtues / aims

Divergent interpretations on the texts of Genesis

Roman Catholics don't talk about money

Trade and Allah mentioned by the prophet

Central role given to Lakshmi, the Goddess of fortune

Protestants consider it as a reward for hard work

Distinct field of islamic finance

The Goddess is fickle and the Gods and the Rakshasas fight over her

Questions the possibility of making money with money

Money by itself is unproductive

7

Interest rates and religion

Hinduism/ India Judaism Christianity IslamManusmriti: up to 60% per annum according to casteArthashastra: up to 240% per year for sea voyages (high risk)

Prohibition of Tarbes (practical interest)Initially between Jews,

Prohibition in Antiquity and Middle Ages: "Money does not use"

Riba is one of three major prohibitions

Pious obligation: with real estate, three generations have to pay with interestDampudat (with no inheritance) sons still need to pay with interest but next two generations without interest (Sharma 2011)

Can charge interest for non-Jews

Thomas Aquinas (thirteenth century): relaxation of the ban

No prohibition of money lent for remuneration or profitPrinciple of sharing profits and losses

The role of Karma: Cannot leave a loan unpaid in this life… because may be indebted in future ones(Seibel & Nurcahya 2009)

Today: Legitimacy of lending at interest

In many countries, both islamic finance and normal finance

Ordinance in October 2010 to 100% capping the interest rate in Andhra PradeshMay 2011: RBI caps at 26% if MFI wants to benefit from priority sector status

Ceilings in some developed countries and not in others

Ceilings of 27% in B'Desh and W. Africa

8

MFIs and religion

Hinduism/ India Judaism Christianity Islam

The power of customary governance in financial institutions of thecustomary village and the Balinese culture of honoring one’s obligations have played a role. (Seibel & Nurcahya 2009)The customary system is comprised of customary villages (desa adat, desa pakraman) and constituent customary communities (banjar)

United Jewish Social Fund

Catholic Committee against Hunger and for Development (CCFD)

Study in Indonesia (Seibel, 2008)

SKDRDP Rural development program started from a Hindu Temple run by a Jain priest.(Harper et al , 2008)

Not exclusively reserved to the Jewish community

Oikocredit coopertive (protestant) but loans to all

Rural banks, including Islamic rural banks, have not done well in Indonesia. Unsupervised cooperatives, including Islamic, are dangerous to savers(Seibel 2008)

Interest rates of 12.5% to 13.5% (compared to 24% to 30% by for-profit top ten MFIs)

Interest Rate 0%

Interest rate varies with the country

Mudarabah (investing)Murabahah (purchase and sale)Charitable Loans : Qard al-hasanDevelopment of a microfinance based mainly on Islamic Murabahaj (purchase and resale)

9

Figure 1: The development perspective places the microentrepreneur at the centre

MicroEntrepreneur

SKDRDP furnishes raw

material

SKDRDP does the

marketing

SKDRDP furnishes

microfinancing

SKDRDP furnishes technical advice

The temple creates the trust in SKDRDP

Ashta 2011

Figure 2: SKDRDP uses outside processing

SKDRDP

Microentrepreneur

Microentrepreneur

Microentrepreneur

Raw Materials

Finished Goods

Outside processing

Ashta 2011

References

• Harper, Rao and Sahu (2008), « Development, Divinity and Dharma: The role of religion in development and microfinance institutions», Practical Action Publishing, Rugby, UK

• Lybbert, T.J. (2008). Exploring the Role of Spiritual Capital in Poverty Traps and Microfinance. Faith and Economics(51), 57-79

• Seibel, H.D. (2008): Islamic Microfinance in Indonesia: The Challenge of Institutional Diversity, Regulation, and Supervision, Joumal of Social Issues in Southeast Asia Vol. 23, No. 1, pp. 86 -103

• Seibel & Nurcahya (2009): Growth and Resilience of Savings-based Microfinance Institutions in the Face of Adversity: The Case of the Lembaga Perkreditan Desa in Bali

• Ashta & De Selva (2010) Religious Practice and Microcredit: Literature Review and Research Directions

• Attuel-Mendes, Ashta & Pic (2011): Microcrédit et religions : regards croisés, présentation à Strasbourg

• Ashta (2011): Hinduism and Microfinance

• Sharma, A. (2011): Principles of Finance in Hinduism, Agefi, Luxemburg

12