PSC vs
Microfinance
Microfinance recycles capital through legal obligation and interest. PSC achieves 71% more system value through voluntary pay-forward—with zero interest and no debt burden.
What Microfinance Got Right
Microfinance revolutionized how we think about the poor. Muhammad Yunus and others proved that low-income individuals aren't charity cases—they're creditworthy. Give them capital and a structure for repayment, and they'll build businesses, educate children, and lift families out of poverty.
The insight was profound: poor people don't lack capability, they lack capital. Microfinance recycled that capital at scale—reaching over 140 million borrowers globally. PSC builds on this insight about recycling and beneficiary capability.
The Structural Gap: Beneficiary Risk
Microfinance recycles capital by putting all downside risk on beneficiaries.
The Risk Asymmetry
In microfinance, the capital provider takes upside (interest income) while the borrower takes downside (debt burden, legal consequences for default). This asymmetry works—repayment rates are high—but at a human cost.
When Things Go Well
Borrower repays principal + 15-30% interest. Lender profits. Borrower keeps whatever margin remains.
When Things Go Wrong
Borrower still owes full amount. Credit damaged. Social pressure from group lending. In extreme cases: asset seizure, legal action.
Why This Matters
The debt model creates high recycling rates precisely because borrowers face consequences for non-payment. But for social programs—scholarships, healthcare access, community support— punishing beneficiaries who struggle defeats the purpose.
PSC achieves recycling without coercion. Beneficiaries pay forward because they want to, not because they must. This creates different outcomes: slightly lower recycling rates, but a fundamentally different relationship between capital and people.
The Fundamental Difference
Both recycle capital. But the mechanism and human experience are completely different.
Microfinance / Debt
Capital is lent with interest. Repayment is legally required. Failure to repay has serious consequences.
Perpetual Social Capital
Capital is given as a gift with a moral (not legal) expectation to pay forward when successful. No interest, no debt.
System Value Over 30 Years
Microfinance plateaus as market saturation and defaults accumulate. PSC continues compounding.
Microfinance: 95% repayment with 20% interest | PSC: R=0.9, 0% interest
Feature Comparison
| Feature | Microfinance | PSC |
|---|---|---|
| Initial Capital | $100,000 | $100,000 |
| Interest Charged | 15-30% APR | 0% (pay-forward) |
| Repayment Obligation | Legal requirement | Moral commitment |
| 30-Year System Value | $1.92M (19.2×) | $2.67M (26.7×) |
| Default Consequences | Credit damage, legal action | No penalty |
| Beneficiary Stress | High (debt burden) | Low (voluntary) |
| Recycling Rate | ~95-100% (required) | ~80-95% (voluntary) |
| Community Culture | Transactional | Gratitude-based |
The Human Difference
Beyond the numbers, PSC creates a fundamentally different experience.
Debt Experience
"I owe $5,000 plus 20% interest. I must repay or face consequences."
Feelings: Obligation, anxiety, pressure
Relationship: Transactional, adversarial if default
PSC Experience
"Someone believed in me. When I succeed, I want to give others the same chance."
Feelings: Gratitude, empowerment, belonging
Relationship: Community, mutual investment
When Each Model Makes Sense
Choose Microfinance When:
- •You need guaranteed capital return
- •Beneficiaries are for-profit businesses
- •Legal enforcement is acceptable
- •Revenue model depends on interest income
Choose PSC When:
- •You want to avoid debt burden on beneficiaries
- •Building community is as important as capital
- •Long-term system value matters more than short-term
- •Gratitude culture aligns with your mission
Extractive vs. Regenerative Capital
The Regenerative Capital Theory paper explains why debt and PSC produce such different outcomes: debt operates on extractive logic—capital providers extract value (interest) from beneficiaries. PSC operates on regenerative logic—value flows back into the system to benefit future participants. Same recycling rate, radically different relationship between capital and people.
Read the RCT Paper (Theory)Interactive Tools
Explore the math behind PSC vs debt-based models with our interactive dashboards.
Explore Debt-Free Impact Capital
See how PSC achieves higher system value without interest charges or debt burden.