While the financial markets in the United States and elsewhere plummet to depths presently unknown, we recently made our first of what I hope will be many subprime home loans. Hafiz, TIE's night guard, recently told Asma that he was building a home for his family and asked if TIE would loan him $400 for materials. We agreed to make the loan on his terms, $50 a month for 8 months.
TIE's microcredit loans are interest free. Why? Interest free loans remove the objection some followers of Islam have to interest. In addition, it's very difficult to judge how much interest is appropriate when making loans to people struggling to survive. What isn't perceived as "loan sharking" in a country where policemen earn $40 a month and teachers $60?
 I have been questioned about the wisdom of providing interest free microcredit loans. It's a lousy business model, I know. Without interest, the loan program's share of overhead must be subsidized by donations. It's not a self financing program and not likely to qualify for a government bailout.
Consider the worst case scenario of our subprime loan program failing. Afghan families end up owning homes they might not otherwise be able to build. I should also mention that we have a no foreclosure policy as well. The reality is we want to help Afghan families build homes, whether the loans are repaid or not. By the way, this view is not widely publicized in Afghanistan.
Some (including Afghans) have asked why we have a loan program at all. Why not just give the money away? There are two reasons. First, a loan program builds a pool of funds that can be loaned to others as loans are repaid. Our long term goal is to help create a community fund that Afghans will manage themselves. More importantly, the beauty of a loan is that it isn't charity. It's an instrument of trust. We trust in their ability to succeed and in their intent to repay. We prefer an act of trust over charity and so do they.
Hafiz with this two sons
standing alongside their new home
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Join us at the Art and Wine Festival in Lafayette this weekend (Sat/Sun). This year our booth is opposite A.G.Ferrari in Lafayette Square. Bring your home loan applications. No jumbo loans please!
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