Confessions of a Microfinance Heretic: How Microlending by Hugh Sinclair

By Hugh Sinclair

Very little good proof exists that microloans make a dent in long term poverty. unfortunately, proof does exist for negligence, corruption, and strategies that border on extortion. half exposé, half memoir, and half monetary detective tale, this can be the account of a one-time actual believer whose decade within the grew to become him right into a heretic.

Hugh Sinclair labored with numerous microfinance associations worldwide. He couldn’t aid yet detect that regardless of a booming $70 billion on their aspect, the negative didn’t appear any at an advantage. Exorbitant rates of interest led debtors into endless debt spirals, and competitive assortment practices led to instances of pressured prostitution, baby hard work, suicide, and national revolts opposed to the microfinance community.

Sinclair weaves a surprising story of a process more and more eager about maximizing profits—particularly as soon as huge banks obtained concerned. He information his discovery of numerous scandals, essentially the most annoying regarding a wide African microfinance establishment of questionable legality that charged rates of interest in way over one hundred pc consistent with 12 months, and whose traders and supporters integrated probably the most celebrated leaders of the microfinance region. Sinclair’s objections have been first met with silence, then threats, tried bribery, and a court docket case, and at last led him to develop into a precept whistleblower in a zone that had misplaced its soul.

Microfinance can work—Sinclair describes relocating studies with a number of moral and powerful businesses and explains what made them various. yet with out the elemental reforms that Sinclair recommends the following, microfinance will stay an “investment chance” that would depart the terrible with hole provides and empty pockets.

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Extra info for Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor

Sample text

Bankers were skeptical of a practice that focused exclusively on poor people without collateral. Early applications of microfinance beginning in the 1970s had yielded some positive results, and practitioners began to dream of it becoming a key tool in the eradication of poverty. There was certainly some profit to be made from microfinance for those who provided the original capital if the banks could reach a sufficient scale. It would require public acceptance to propel microfinance from the fringes of development and finance to the forefront of the battle against poverty.

Preface The microfinance community often resembles a religious cult. Criticism is considered heresy and is not tolerated. Impact on poverty is dogmatically claimed but demonstrated in only exceptional cases. Above all, the sector is highly profitable, and the origin of this profit is simple: the poor. Criticizing microfinance thus antagonizes those who have power and money at stake—the owners of the microfinance institutions (MFIs) and those who control their funding. The goal of my heretical act in writing this book is to shed light on the actual practices of the microfinance sector and to prompt changes that will skew the odds slightly in favor of the poor.

The added bonus was that an MFI could start as an NGO, enjoy this structure as long as it suited, and then convert into a for-profit company. It seemed like a no-brainer which structure was best. Any extraction of wealth from the MFI could be via salaries, so the inability to have shareholders or pay dividends seemed irrelevant. An MFI then makes loans to the poor in two main ways: group lending or individual lending. Individual loans are self-explanatory, similar to those from most commercial banks.

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