Monday, 25 February 2013

Book review: A well-rounded book to learn all about the real microfinance sector

"Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor" by Hugh Sinclair

Hugh Sinclair is a former quant trader in London, a heterodox economist, and he once driven a motorcycle from the tip of Alaska down to the edge of Argentina and landed in the Guinness Book of Records. An interesting guy. When he switched to microfinance (first in Mexico, then Mozambique, then 51 other countries) he experienced, saw first hand, and questioned the greed, corruption, manipulation and all the dark side of the industry, which made him ended up in a Dutch court battle, and eventually prompted him to write this book. And what a huge eye opener.

Like many other people, I first learned about the existence of microfinance when Muhammad Yunus won the Nobel Peace Prize. And when I read Muhammad Yunus' book "Banker to the Poor" I thought, what a great concept! Instead of giving the poor fish, help them to provide the means to buy their own fishing tools, then they'll eat for a lifetime. I even opened a Kiva account, though I have deleted it ever since I read this book.

It didn't cross my mind that 90% of loans actually used for consumption and thus trapped the poor in debt spiral. Nor did I realise that microfinance can be treated as some kind of ponzi scheme, or used as yet another financial tool to generate lucrative profit for the investors but screwing the poor through charging murderous interest rates. It never occurred to me that Muhammad Yunus is just a pawn, a PR icon groomed for the sector, though Sinclair had kept it ambiguous throughout the book. But even Muhammad Yunus himself once commented "I never imagined that one day microcredit would give rise to its own breed of loan sharks."

The result of this plunder can be seen in the Human Development Index that is mentioned in the book, and it does makes me wonder. If Nicaragua's and Bangladesh's rankings slipped down after the introduction of microfinance why do we have the microfinance sector at all? It led to suicides, abductions and forced prostitutions in India, while the microfinance institutions and microfinance funds keep on reaping profits. Moreover, the book sometimes give the impression that the big microfinance players such as BlueOrchard, responsAbility, Triple Jump, Deutsche Bank, Calvert Foundation, and Kiva closely resemble the untouchable too-big-to-fail investment banks. And their silence or cover up over their investment in Nigerian microfinance institution called LAPO (the central focus of the book) represent only the tip of the iceberg.

But perhaps asking why do we have the microfinance sector at all is like asking why do we have the global financial market at all, after the too-big-to-fail Wall Street banks have spectacularly damaged the world economy. Just because a lot of bad apples are corrupting the sector, doesn't mean the sector itself is a bad concept. And to his credit Sinclair does provide the best-case scenario on how the microfinance sector should operate, and even give examples of those who do work out very well such as the ones he encountered in Mongolia.

All in all, in this very well-researched book Sinclair managed to explain every single functionality of the microfinance sector within the amazing stories he has to tell, making it a well-rounded book to learn all about the real microfinance sector. 5 stars!

For more reviews, please visit my book review page on Amazon