Problem & Solution

The myriad problems due to interest!

As the cost of living in cities is high, most poor families cannot subsist on the earnings of the man alone. Most of the women in the slums are economically active and work hard to contribute to the earnings of their families to make ends meet. In many cases, women are the sole earning members, due to widowhood, desertion, separation or have dependent husbands! Due to their lack of assets and knowledge, they are unable to access formal financial institutions for their credit needs. Therefore, they usually depend on money-lenders or pawn-brokers to secure finance. However, the usual rate of interest charged by them is usually in the range of 100 to 200%! This usually means that though the poor women are putting in 8 to 10 hrs into hard work per day, more than half of their profits usually get paid back to the money lenders at interest, leaving them with very little surplus, with which they are not even able to pay off their principal or release their assets. This keeps them in the vicious grip of poverty, and though they work hard, they are not able to get out of indebtedness!

The Microfinance Institutions (MFI) industry in India is undergoing a crisis since 2009. This is primarily due to them being for-profit entities without focusing on giving benefit to the poor. Most MFIs in India lend in the high range of 24 to 36% interest. Though this is lesser than the rate charged by money lenders, it is still very high for the poor (It is ironic that rich people in India borrow at between 8 to 16%, while the profits are being made by the financial institutions out from the poor!). Moreover, the MFIs are making windfall gains and huge profits and are guilty of following poor credit practices by targeting the same set of borrowers, leading to a situation where most poor have availed loans from one MFI to pay off the other – and giving them no benefit at all. In fact, it is complicating their monetary situation and indebtedness!

Interest-free microfinance – the answer to poverty alleviation!
Therefore, a truly workable solution to actually help poor to escape from poverty, and give them a rightful reward for their hard earned wages is to provide them with access to credit which is free of any interest. This way, they get to retain all the profits made from their business, and have surplus disposable income through which they can address their consumption needs, or further invest it into growing their business. The poor do not need mere charity; indeed, charity has not removed poverty anywhere! But the poor need a fair deal and access to funds easily, along with guidance and support to navigate in an increasingly complicated world!

The basic foundation of interest-free credit (as founded in Islam) is in the principles of social justice and equity with the core belief that money is not an earning asset in and of itself. Islam does not allow any fixed gain (such as interest) from a financial activity unless the financial capital is also exposed to the risk of potential loss. Islam deems profit, rather than interest, to be closer to its sense of morality and equity because earning profits inherently involves sharing risks and rewards. The Lifeline Foundation believes that all the benefit of the hard work done by our members needs to stay with them. It has therefore embarked on a unique attempt of providing interest-free microcredit to its members. TLF does not differentiate or discriminate on the basis of race, religion, caste, creed, gender or colour, as our attempt is to root out usurious lending to any poor person.