Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor

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Berrett-Koehler Publishers, 2012 - Business & Economics - 268 pages
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- A deeply personal story written by a microfinance insider who was once tapped as an anonymous source for a New York Times expos - Reveals the shocking truth of the industry once hailed as the miraculous solution to world poverty- Profiles the few shining exceptions to industry-wide corruption and offers solutions to clean up the rest Offering inspiring success stories, the microfinance industry depends on the faith of investors that small loans can transform the lives of the poor. But as Hugh Sinclair points out, very little solid evidence exists that microloans make a dent in long-term poverty. Evidence does exist for negligence, corruption, and methods that border on extortion. Part expos , part memoir, and part financial detective story, this is the account of a one-time true believer whose decade in the industry turned him into a heretic. Sinclair worked with several microfinance institutions and funds as he traveled from Mexico to Mongolia, with Nigeria, Holland,and Mozambique in between. He couldn't help but notice that even with a booming $70 billion industry on their side, the poor didn't seem any better off in practice. Exorbitant interest rates led borrowers into never-ending debt spirals, and aggressive collection practices resulted in cases of forced prostitution, child labor, suicide, and nationwide revolts against the microfinance community. With characteristic intelligence and biting wit, Sinclair weaves a shocking tale of a system increasingly focused on maximizing profits. The situation worsened when large banks, attracted by the high repayment rates of overpriced loans, hijacked the sector and created a microfinance bubble. Sinclair details his discovery of several scandals, one of the most disturbing involving a large African microfinance institution of questionable legality that charged interest rates in excess of 100 percent per year, and whose investors and supporters included some of the most celebrated leaders of the microfinance sector. Sinclair's objections were first met with silence, then threats, attempted bribery, and a court case, and eventually led him to become a principle whistleblower in a sector that had lost its soul.Microfinance can work - Sinclair describes moving experiences with several ethical and effective organizations and analyzes what made them different. But without the fundamental reforms that Sinclair recommends here, microfinance will remain an "investment opportunity' that will leave the poor with hollow promises and empty pockets.
 

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Contents

1 Thou Shalt Not Criticize Microfinance
1
2 Baptism in Mexico
15
3 Bob Dylan and I in Mozambique
29
4 Another Mozambican Civil War
55
5 The Developed World
69
6 Something Not Quite Right in Nigeria
83
7 Something Not Quite Right in Holland
107
8 In Front of the Judge
125
11 Enter the New York Times
167
12 Collapse Suicide and Muhammad Yunus
193
13 The Good the Bad and the Poor
215
Microfinance Economics 101
239
Notes
251
Acknowledgments
261
Index
262
About the Author
268

9 Rustling Dutch Feathers
135
10 Blowing the Whistle from Mongolia
149

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About the author (2012)

Hugh Sinclair has worked in microfinance with numerous global organizations, banks and funds for over a decade. He currently consults on microfinance strategy and portfolio management. Previously, he worked in traditional finance at ING Barings, CDC Capital Partners, and BZW Securities -- now Barclays Capital. Hugh holds a Master's degree in International and Corporate Finance from the University of Durham and an MBA from IESE Business School.

Among his accomplishments are being the first to deliver a Harvard Business case study in Mongolian and achieving the Guinness World Record for the fastest motorcycle tour from Prudhoe Bay, Alaska to the tip of South America. He speaks frequently at business schools and microfinance conferences.

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