Wednesday, April 14, 2010
In my previous posting, I pointed to my work on mutuality and religious law. Now, here is a feature article about a Christian co-op's mutuality in health care provision. I don't understand why the article highlights the "faith" aspect so much, when this appears to be a mutual insurance scheme, not that different - say - from State Farm's. I also don't understand why the article says that health care reform is irrelevant for this. The fear is that many may abandon this mutual scheme, in which case one may be left without healthcare insurance. The new law reduces this penalty by allowing people to buy into another conventional insurance scheme if this one were to fail, so I would think that healthcare reform is in fact good for this kind of mutual health insurance. In the end, customers should also compare prices and quality of service, and it should all be for the customers' (and by inference, in the long run, for the health providers') benefit.
Mistakingly limiting 'sustainability' to 'profitability' and the consequences
Unfortunately, good intentions, such as CGAP's initiatives in microfinance to help the poor, continue to focus on profitability as the main engine for sustainability of the financial institutions. In other words, non-profit mutual institutions are discouraged in favor of profitable banking practices, which invariably can turn predatory.
A recent New York Times article is a painful reminder of this fallacy of profitability being good in the arena of microfinance. My understanding of the ancient rules of usury (which predate Islam, and Islamic scripture never claimed that it introduced a new prohibition in this regard) is that the extension of credit for profit (whether through direct interest-based lending, as in conventional banking, or through credit sales and leases, as in "Islamic finance") is the essence of usury. It defeats the social insurance aspect, and easily turns profit motives into predatory incentives on the part of lenders and irresponsible spending on the part of borrowers (and, again, structuring the loan through credit sales or leases changes nothing in this regard!).