Hugh Sinclair has given us a very important and unnerving look into the world of microfinance. I doubt that any practitioner or student will read this book without self or company-wide reflection as to whether one is implicated in a similar kind of hypocrisy or disconnect between image and reality.
The period of the last 10-15 years could be defined as the commercialization of the microfinance sector – meaning that what began as a borderline grassroots level idea was hijacked by big banks and investing firms, which forces Hugh’s question, “Was Muhammad Yunus’s original dream flawed, or had the sector morphed into an entirely different beast that now faced a serious challenge?”
Hugh begins the book by stating that there is very little evidence that microfinance actually reduces poverty yet it continues because evidently microfinance does not “require evidence to prove it works – since, on the face of it, it seems to work. It works because the poor repay loans, and this is all the proof the sector requires…The fact that crippling poverty persists in countries like Bangladesh, India, Nicaragua, Nigeria, and Bolivia is seen as an irrelevant detail. The persistence of poverty means that we need more microfinance.”
Hugh makes an excellent case that the sector’s often misguided quest for relentless growth, many have lost sight of the human element at stake, that the poor are people. They may indeed deserve credit as Yunus has said, but they certainly deserve our fairest and most respectful treatment in every way.
Even Yunus has criticized the microfinance sector for the extortionate interest rates some microfinance institutions (MIFIs) charged, even to the point of saying, “I never imagined that one day microcredit would give rise to its own breed of loan sharks.”
So what is it that Hugh is speaking out against (except the obvious 150% + interest rates, defrauding the poor borrowers, investors not doing due diligence…etc)?
“The problem is…that greed, lack of oversight, recklessness in investing other people’s money, and ill-aligned incentives have allowed large parts of the sector to ignore the actual impact they are having on actual poverty reduction”.
More than that, the popular ‘image’ of microfinance so often does not match up with ‘reality’ – and many practitioners are not only okay with keeping it that way, but for the sake of gaining investors – continue to perpetuate that false image.
These are large (and somewhat generalized claims), but he goes into painstaking detail and reference points to lay out specific examples of the said issues of bad management and greed – which allows him to succeed in becoming a whistleblower and thus a despised name within the world of microfinance as he continues to implicate a large portion of the microfinance key players (which is disconcerting to say the least, for them and us).
So what does Hugh recommend to be done differently? Well actually – a whole list of proposals based on what a ‘good’ microfinance could look like. But for starters, he suggests what seems so obvious that it’s absurd: a checking account with an overdraft limit.
There are of course, often, legitimate reasons for not offering such a product (like with cultures that allow the community or family to have a say in the placement of one’s funds), but more often than not, one wonders why the most ‘used’ product in western countries is not even thought of as worth being offered to the poorer communities.
In all, Hugh gives us an entertaining look at what can and often does go down in the public (yet secret) world of microfinance – as well as a call for renewed efforts at transparency and the art of matching the ‘image’ of an individual or corporate vision with ‘reality’.
 Sinclair, Hugh. Page 221.