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Microfinance sector still needs to become responsible – Insider account of the industry shows that there is a pressing need to get stakeholders to seriously responsibilise and regulate the sector for sustainabiltiy in the access to financial services worldwide

A book has been making a storm and reports on an interesting development in the microfinance sector which may be of some interest and an intriguing read. Recently a series of scandals and critical academic papers have shed serious doubt over the sector and as we have reported on the ECRC website in 2011, the World Bank’s CGAP and the industry has elaborated some principles for better practice such as the Smart Campaign’s Client Protection Principles:

1. Appropriate product design and delivery
2. Prevention of over-indebtedness
3. Transparency
4. Responsible pricing
5. Fair and respectful treatment of clients
6. Privacy of client data
7. Mechanisms for complaint resolution

Are these Principles being taken seriously enough by practioners? Hugh Sinclair, author of the book, has been working in the microfinance sector for the last decade and tells of the frustrations he has faced in trying to make microfinance an effective tool to help the poor. He has written a book, called Confessions of a Microfinance Heretic – How Microlending Lost Its Way and Betrayed the Poor, published by Berrett-Koehler (publishers of the best-selling Confessions of an Economic Hitman).

It may be the first time an insider has blown the whistle on what is actually going on in the poster-child industry that once claimed to be the main means to eradicate poverty. Hugh Sinclair has taken a gargantuan professional gamble because he felt he could no longer ignore what was so blatantly going on. Some institutions are already making great progress in cleaning up “the mess that is microfinance”, but others will resist the invitation to discuss the merits of microfinance openly and tranparently and will challenge those voices that question the sector’s “undocumented claims to be eradicating the world of poverty while earning decent returns in the meantime”.

Below is a message from him about his book:

“In an attempt to finally shed some light on how this sector works, all supporting documents, emails, audio recordings and video footage will be available on the website. Although the book is likely to incur the wrath of those mentioned, the first reviews have been overwhelmingly positive and it has been endorsed by some of the leading voices in the sector. For those of you in the US this July, I am doing a series of events that you may wish to attend, and I’ll be in Europe later in the year.
This is not a dry text-book, but a memoir/detective-story. It is not technical, and is not aimed at microfinance insiders as much as the proverbial “man on the street”. The goal is to spread the message that microfinance can and does work, but has been hi-jacked by a relatively small group of individuals and institutions that profit substantially from the exploitation of the poor, while maintaining a powerful PR machine to ensure well-meaning individuals, NGOs and governments continue to hand money to these intermediaries on the basis of often knowingly false evidence. Sad, controversial, but alas true.”

The book was recently featured in the UK Telegraph, and German Spiegel. His message is on the website, his book is available to order and is written in a way to read easily and it documents in detail how many of those from the top of the sector down are directly involved in a major deception. 

The ECRC is interested to discuss some of the claims of this book and to help encourage the responsible actors of the sector to get the upper hand again. ECRC partner iff has developed Principles of Microlending and warned of the dangers when alternative innovative solutions are not sufficiently objectively assessed using the same yardstick as existing structures and institutions.

ID: 48094
Publication date: 11/07/12

Previous ECRC post from 2011 about the CGAP and SMART Campaign Principles

European Code of Good Conduct for Microcredit Provision

iff principles of microlending

iff Principles (various, in German)

Link to iff website and Reifner Lecture for Amnesty International (Mythos Microlending - Zur Ideologie des Finanzsystems, German, 2011)

Created: 11/07/12. Last changed: 11/07/12.
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