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A Microfinance 'Heretic' on How to Fix the Industry

Sharda Bhandare cuts towels to make gloves at a workshop in the Dharavi slum of Mumbai, India
Sharda Bhandare cuts towels to make gloves at a workshop in the Dharavi slum of Mumbai, IndiaPhotograph by Adeel Halim/Bloomberg

The gloss surrounding microfinance has faded in recent years. Although everyone from Oprah to Bill and Hillary Clinton has touted the idea of using small loans to help developing-world entrepreneurs lift themselves out of poverty, reports of high interest rates driving impoverished borrowers in India to suicide and academics’ claims that the loans do little to impact poverty have tempered some of the enthusiasm.

In Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor (July 2012, Berrett-Koehler Publishers), British author Hugh Sinclair recounts what he calls the corruption of banks and ineffectiveness of loans he saw during his 10 years in the microfinance industry. A former investment banker, Sinclair went to work for microlenders in Mexico and Mozambique, among other places, starting in 2002. He says many of the problems he witnessed arose when profit-driven investors rushed into microfinance, driving up interest rates and pressuring borrowers to repay.