Deadly Debt: Microfinance Suicides
As unwholesome debt goes, the kind that drives debtors to suicide is some of the saddest and most infuriating.While there are multiple sides to every story, and certainly many cases of microlending that appear to have happy endings, it's crucial to pay attention to the stories of people severely damaged by the practice. Make no mistake: despite the seasonal shine surrounding major microloan businesses like Kiva, the practice of lending includes collection, not just feel-good giving. (Otherwise loans would be gifts.)And as the Associated Press reports, collection can get ugly.
One woman drank pesticide and died a day after an SKS loan agent told her to prostitute her daughters to pay off her debt. She had been given 150,000 rupees ($3,000) in loans but only made 600 rupees ($12) a week.Another SKS debt collector told a delinquent borrower to drown herself in a pond if she wanted her loan waived. The next day, she did. She left behind four children.One agent blocked a woman from bringing her young son, weak with diarrhea, to the hospital, demanding payment first. Other borrowers, who could not get any new loans until she paid, told her that if she wanted to die, they would bring her pesticide. An SKS staff member was there when she drank the poison. She survived.
Back in August, fellow BPFer Siyarathana Jayasuriya shared a link on our Facebook page highlighting a book on the subject: Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor.Former microfinance believer Sinclair lives up to his muckraking name, detailing how his decade of work in the microfinance industry left him disillusioned. From a review by Berrett-Koehler Publishers:
Very little solid evidence exists that microloans make a dent in long-term poverty. Sadly, evidence does exist for negligence, corruption, and methods that border on extortion. Part exposé, 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.Hugh Sinclair worked with several microfinance institutions around the world. 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. 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.Sinclair weaves a shocking tale of a system increasingly focused on maximizing profits—particularly once large banks got involved. He 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 explains 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.
Whether or not we agree that microfinance could provide a path for ending poverty (if you can't tell, I have my strong doubts!), when people are losing their lives over debt, shouldn't it at least give us pause about the approach?What do you think, BPFers? Have you had any experiences yourself with microloans? Or with unwholesome debt of this kind? No need to agree with my take; all perspectives welcome. And thanks again to Siyarathana for sharing the link with us!