Roy Mersland University of Agder, Kristiansand, Norway

1. The effect of religion in development efforts – evidence from the microfinance industry and a research agenda Roy Mersland University of Agder, Kristiansand, Norway Bert d’Espallier Hogeschool-Universiteit Brussel, Belgium Magne Supphellen NorwegianSchool of Economics, Bergen, Norway

2. Religion is a hot topic in development • “Neglected factor” • May influence: • Recipients • Moral guidance, will and effort etc. • Some studies (e.g. TeerHaar and Ellis, 2006) • Providers • This study • Policy interest: • UK, Holland, Norway, World Bank • Former president Bush

3. The debate • Supporters • Faith based organizations can produce important social outcomes because: • They take people’s faith into account • They have access to local networks (churches) • They are motivated • Skeptics • Public money will be used for religious purposes • Unprofessional organizations • “Rice Christians”

4. Faith based organizations on many arenas • Schools / education • Hospitals / health care • Nursing homes / homes for retired • Here too, the effect of religion on providers’ performance remain an unsolved and debated puzzle

5. The Weber theorem • “The protestant ethic and the spirit of capitalism” • Claims that protestant ethic, with its focus on personal responsibility and diligence, spur economic development • Protestant countries should therefore have higher economic growth than catholic countries • Still uncertain whether Weber was right • What is happening in Latin countries moving from being mainly catholic to having larger protestant populations?

6. What do we know about performance differences between Christian and secular actors? • Very little actually • Compared to secular actors Christian development actors (Harper et al. 2008): • Receive lower portions of their budgets from public donors • Have more donors • Have more volunteers • Pay lower salaries to top management • Pay equal salaries to the rest of the employees • Have equal fundraising costs

7. Why should we expect Christian and secular actors to be different? • Institutional theory: Organizations become similar when: • They all depend on the same donor (e.g. Norad) • They all need to follow the same regulations (e.g. Riksrevisjonen and Innsamlingskontrollen) • They all depend on the same networks (e.g. Bistandstorget) • They have sub-networks tailored especially for them (e.g. Bistandsnemnda)

8. Christian organizations and individuals have long been involved in entrepreneurship and finance • Pawn shops in Italia 500 yearsago (Franciscans) • Hans Nielsen Hauge • “The father of savings banks” (Duncan) 200 yearsago • Catholicpriests’ involvement in thesavings and creditcooperativemovement 150 yearsago and ungoing • MEDA in Paraguay in the 1950-60ties • David Bussau and Al Whittaker (1971) • Misjonsalliansen 1991

9. There are many Christian microfinance initiatives • Opportunity International • 43 MFIs in 26 countries • World Visión • 41 MFIs in 41 countries • Habitad International • World’s largest housing finance initiative for poor • MEDA • Pioneers • Catholic Relief Services • Have moved down market • Funds: • Oikocredit • Eclof • Cordaid • Norway • Misjonsalliansen • Strømmestiftelsen • NCA • PYM

10. Our study • We use data from the microfinance industry to study the effect of Christian religion on organizational performance • Data from 405 microfinance providers over up to 8 years in 73 countries • 1 in 6 institutions have a Christian origin

11. Performance areas that we study • Social performance • Outreach to poor clients • Outreach to female clients • Financial performance • Maximizing income • Minimizing financial costs • Minimizing operational costs • Minimizing loan losses • Bottom line performance • Return on assets • Financial sustainability

12. Why should Christian actors perform better? • Social performance • Outreach to the poor • Care for the poor is a Christian virtue • "If you would be perfect, go, sell what you possess and give to the poor, and you will have treasure in heaven; and come, follow me." • Outreach to women • Female empowerment may in some contexts still be against Christian doctrine • But, women are poorer and Christians should care for the poor

13. Why should Christian actors perform better? • Financial performance • Maximizing income • Charging high interest rates is a stark dilemma for Christian actors • An antithesis of charity inherent in Christian organizations • The mission is to “help” the customers • Cost of funds • Fewer local networks (operate in isolation) • Larger international networks (easy access to funds) • Many Christian international lenders

14. Why should Christian actors perform better? • Financial performance • Minimizing operational costs • Being Christian should foster self-regulation and self-control (less corruption) • More motivated work force • Greater goals, more rewarding, a divine calling • BUT; • Work goals at odds with efficiency? • Uncompetitive organizational cultures? • Low staff efficiency ratios? • Difficult to fire staff? • Only hiring staff with the “right faith”? • Too focused on the mission and lack financial control? • Management and boards focusing on theology and not efficiency? • Minimizing loan losses • Slack loan enforcement because want to help the customers • Ethical challenges related to loan enforcement

15. Hypotheses Christian versus secular actors

16. Initial findings simple statistics

17. Social performance differences – advanced statistics (RE-model)

18. Financial performance differences – advanced statistics (RE-model)

19. Bottom line performance differences – advanced statistics (RE-model)

20. Are there differences between Catholic and Protestant actors?

21. Are there differences between Catholic and Protestant actors?

22. Summary of findings • Christian actors are as good in enforcing loan repayment as secular actors • Christian actors struggle in reaching female clients • Christian actors don’t reach poorer clients than secular actors • Christian actors have lower cost of funds probably because they have better access to international networks and thereby funding • Are they being spoiled? • The lower cost of funds are in Catholic institutions brought forward to the clients (lower interest rates) while the protestant actors become inefficient

23. Implications for Christian practitioners • Reaching out to women is still an issue in Christian development efforts • Local partners are a challenge? • Reaching the most vulnerable does not come automatically because you are a Christian organization • Easy access to international funding may result in inefficiencies • Donors need to strengthen their monitoring role • Christian actors disappear if they don’t assure their financial performance • International donors need to strengthen financial monitoring and somewhat loosen social monitoring? • Time to use our Christian motivation to become better and not use it as a “sleeping pillow” • Christian actors should be the most efficient actors servicing the most marginalized groups while assuring their long term survival

24. Remember that statistics is about averages • Several Christian top performers • E.g. Diaconia FRIF in Bolivia