How Microlending lost its way and Betrayed the Poor
Confessions of a Microfinance Heretic- How Microlending lost its way and betrayed the poor was a book written by Hugh Sinclair who had first hand experience on working in microfinance institutions and also in some microfinance funds.
This book seems like a sequel to the book “Confessions of an economic hitman” by John Perkins. In an impressive style of writing filled with wits and sarcasm Sinclair shares about Microfinance institutions, microfinance funds, rating agencies and peer to peer microfinance institutions. He however does not find fault with the concept, but with the way in which it is misused by the greedy MFIs. The concept of Microfinance, off late was used with selfish intentions by mushrooming microfinance institutions in developing countries. India is no exception from that. Many microfinance companies operate with profit motive, charging exorbitant rate of interest and poaching the customers of other MFI.
Sinclair says his claims will be neglected and brushed away, by the giants in the field for the fear that it will put an end to the image as “savior of poor”. The books capture the irony of the loans which are meant to benefit poor through productive utilization being used for non- productive purpose by and large. The book also says how exorbitant rate of interests even more than 100 % is charged by many MFIs.
Sinclair narrates his first experience of computerizing the all the branches of a MFI called LAPO (Lift above Poverty organization), functioning in Nigeria. He along with an expert Jose Manuel, tried to install a reasonably good software called M2 in LAPO. The process began with streamlining the manual accounts which turned out to be a very tideous process as the data was inaccurate. He goes into detail about the lending practices of LAPO which is beyond all ethical standards. LAPO not only charged exorbitant interests, but also collects savings from the poor which is against the law, has high turnover of clients, high default rates and which provides false information to funding agencies. Hugh Sinclair also states how the microfinance funds like Grameen Foundation USA, Oxfam Novib, Calvert Foundation, BlueOrchard, Kiva etc.. which funded LAPO turned blind to this fact, even when the real status of LAPO was exposed by rating agencies like Microrate and Planet rate.
Hugh Sinclair states with humor about how proposals are made by few institutions. Sinclair had the opportunity to come across a proposal written by the organization Triple jump( presumably where Sinclair worked) to facilitate funding to LAPO. The proposal to Calvert foundation was nothing but a cut and paste of the proposal submitted to ASN-Oxfam. Triple Jump the Organization which did the due diligence for both the organizations covered the real facts and gave a rosy picture about LAPO to facilitate funding. Sinclair who worked for Triple Jump was forced to quit the job, since he questioned these anomalies but won a court case in his favor and got a lump sum settlement in the process.
The Microfinance funds, the MFIs and the so called experts in the field were very careful enough to protect the image of MFIs as savior of poor and neglect the facts. He also captures how multiple lending and bad appraisal led to downfall of MFIs in Nicaragua and Andrapradesh in India. He also analysis how Compartamos and SKS floated shares, which only benefited the workers in the respective organizations and also the CEO of Accion, who earned a substantial income because of her decision to invest in Compartamos.
Sinclair also notes the double standard of Mohammed Yunus of Grammeen Foundation,who speaks against MFIs which act as loan sharks but in reality continue to have relationship with them. Sinclair also quotes how the same photo of a women beneficiary that appeared in the website of three different NGOs including Kiva. Kiva the P2P model clearly exploits the emotions of the donors in best of interest of its growth. The P2P model of the Kiva, boasts of the individual donor to know who the ultimate beneficiary was even while donating online. The case studies of the members and groups along with their photo will feature in the website of kiva. The donor can choose which member and which activity they can finance and he was facilitated even to lend amount even as low as twenty dollars. Kiva also assures that the amount will be returned to the donor in the span of three years without any interest. This no cost fund thus received Kiva from donors, when ultimately reaches the poor comes with an exorbitant interest rate tag.
He also mention about the “no pago” movement in Nicaragua, which is the result of unhealthy lending practices and multiple lending. A single kite maker managed to get loan from all the 19 MFIs that were the part of Nicaraguan Microfinance association.
Sinclair also notes that there are also good MFIs which follow ethical standards in lending. Some these MFIs are smaller MFIs but the impact they make on the lives of poor are great. To solve the problem of exploitation by MFIS Sinclair suggests for a cooperative model in microfinance.
The member owned people SHG federations operates on cooperative principles built on a suitable model was perhaps the one Sinclair means.