Book Review: Confessions of a microfinance heretic

Sinclair, Hugh. Confessions of a microfinance heretic : how microlending lost its way and betrayed the poor. Berrett-Koehler Publishers, 2012.

Microfinance pioneer and Nobel Peace Prize winner Muhammad Yunus was the commencement speaker at Duke University in 2010 and he has been involved with Fuqua’s Center for Social Entrepreneurship since 2004.  The renowned “Banker to the Poor” has been one of the most successful social entrepreneurs of our time, beginning in 1976, when he loaned $26 to 42 women in rural Bangladesh to enable them to purchase bamboo to make and sell stools.   In 1983, he founded Grameen Bank to provide similar loans on a larger scale.  Soon after, international NGO’s with missions to serve the poor added microfinance programs as a simple and effective way to break the cycle of poverty.

Beginning in 2005, microfinance lenders began shifting their status as nonprofit organizations to commercial enterprises.  To make a profit on their loans, these MFI’s (microfinance institutions) raised interest rates – up to 100% in some cases — and hired aggressive loan collectors to hound borrowers– to the point of suicide for some.  In 2011, Yunus wrote an opinion piece in the New York Times, “I never imagined that one day microcredit would give rise to its own breed of loan sharks.”

In a new book, Confessions of a Microfinance Heretic, author Hugh Sinclair agrees.  Using his experience over 10 years with several MFI’s, he shows that what began as a good idea has been hijacked by large investors and banks.

In this fly-on-the-wall account, Sinclair begins his story in 2002 as a new MBA graduate from IESE in Barcelona, who accepts an offer as a consultant with an MFI in Mexico.  At the time, the industry is small, but through Sinclair’s daily interactions with executives, coworkers and clients at various MFI’s over the next decade, Sinclair shows how shady practices emerge as the sector grows and changes into the modern $70 billion microfinance industry.  His story illustrates a wide range of problems. As currently practiced, microfinance is  ineffective and most loans are made to buy consumer goods or to repay another loan.  Interest rates are usually over 30%.  Children are pressed into labor to repay the loans.  Borrowers are not protected in their unregulated economy.  Sinclair concludes that profit incentives and lack of oversight allow most MFI’s to ignore the negative impact they have on poverty.  This engaging book is recommended for anyone interested in emerging markets or social entrepreneurship.

© Reviewer: Meg Trauner & Ford Library – Fuqua School of Business.
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