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The Dark Side of Microfinance - YouTube
Channel: Bloomberg Quicktake: Originals
[3]
Madhuka Kumari took out a loan
[5]
from a microfinance company.
[8]
She pretty quickly became unable
[10]
to make the $30 monthly
payments on those loans.
[16]
And when she fell behind,
[17]
she started getting
visits from loan officers,
[20]
and they became increasingly aggressive,
[23]
demanding their money back.
[27]
Ultimately, it led Kumari to
attempt to commit suicide.
[31]
She poured kerosene over her
head and set herself alight.
[54]
Microfinance was the
development world's attempt
[57]
to help do away with poverty
by giving small loans
[60]
to people in the developing world.
[62]
In much of the developing world,
[63]
people don't have access to capital.
[65]
They call them unbanked
[66]
because they can't get bank accounts.
[68]
So, it started with this
kind of noble aspiration.
[70]
It began as a charitable endeavor
[72]
and it has since morphed into
something quite different.
[77]
In many societies, it's
doubly hard for women
[80]
to get access to financial services.
[82]
And microfinance was seen as a panacea
[87]
in terms of targeting women in particular.
[91]
What we found was a network
[94]
of predatory microfinance
institutions operating
[98]
around the world who were
promising to lift people
[102]
out of poverty and include women
[105]
in the financial services system.
[107]
When in reality, what
they were actually doing
[109]
was forcing women to sell
property to repay small loans,
[114]
putting them in prison in some instances,
[116]
and in Sri Lanka, more than 200 suicides
[120]
have been linked to microfinance loans.
[125]
Despite these problems,
it is still being funded
[127]
by public money and publicly
funded development banks.
[130]
So, public money that's supposed
to be helping the poor is,
[134]
in some cases, being given
to people who exploit them.
[175]
Modern microfinance traces its roots
[177]
back to the economist, Muhammad Yunus,
[181]
who in the 1970s, really
pioneered this form of lending
[186]
in Bangladesh after a
devastating drought there.
[190]
With no means of support
and no place to go,
[193]
they're in government camps.
[195]
And his innovation was
to lend these people
[198]
small sums of money
with low interest rates.
[202]
And they would build their
businesses on that investment.
[206]
And he found that, actually,
it was very successful,
[210]
and these people repaid their loans.
[213]
And a global movement
was born out of that.
[218]
I never had any intention
or any plan or any thought
[222]
that I will ever lend money
to become a banker of a sort.
[226]
I was looking for opportunity
to do some tiny little thing
[230]
which will be helpful to another person.
[232]
And one thing hit me very
hard is the victimization
[236]
of people by the loan sharks.
[239]
Giving tiny loans, as
little as $1, $2 loan,
[243]
and grab everything the other person has.
[245]
And the poor people are
desperate to find some money
[248]
for survival and so on.
[249]
So they had to borrow money.
[252]
Seeing this repeatedly in the village,
[254]
I was wondering whether I can protect them
[257]
from the loan shark.
[259]
All people are entrepreneurs.
[261]
All they need is money.
[263]
Money is the oxygen for entrepreneurship.
[270]
Within a couple years, you know,
[271]
he won the Nobel Peace Prize.
[273]
The UN declared it the Year of microcredit
[276]
because it was the hot idea
in the development world.
[279]
Poverty is in the system.
[280]
So, we sort out the system,
correct those system,
[283]
nobody will remain poor.
[285]
It's a very simple logic.
[290]
I believe that Dr. Yunus is a person
[292]
that understands that love is a verb.
[295]
That love is an action.
[298]
This is an important trend
[300]
in an era of economic instability
and entrenched poverty.
[305]
The Clinton Global Initiative,
the Gates Foundation,
[308]
Matt Damon, Bono, I mean, it
really captured the imagination
[313]
of people because it had
everything that you wanted.
[315]
It had profit.
[316]
You can make some profit while doing good.
[318]
So that's kind of the neoliberal dream.
[320]
And it also depended upon, you know,
[324]
people being self-reliant.
[325]
And everyone wants to
think that, you know,
[327]
that a little entrepreneurial
spirit can help people.
[332]
What was particularly
seductive about microfinance
[335]
was that the microfinance institutions
[338]
that were receiving government funding
[341]
would one day transition to profitability
[344]
and have a sustainable business model.
[347]
But by making these
institutions profit-seeking,
[352]
there's an inherent conflict there
[353]
between doing social
good and making money.
[360]
Banco Compartamos really was the big bang
[362]
of commercial microfinance.
[364]
It had been founded by a
group of religious people,
[366]
and it was a charity.
[368]
But they wanted to scale up,
[369]
and they thought the best way to do that
[371]
was to become commercial.
[374]
They had an IPO in 2007 as a small lender
[378]
which had come to dominate the
microfinance world in Mexico.
[383]
All of a sudden, it had a
valuation worth $2 billion.
[387]
Some of the NGOs that had invested in it,
[390]
like ACCION, which is based in the U.S.,
[393]
took a million dollar
public money from USAID,
[396]
the U.S. development agency,
invested in Compartamos,
[400]
and after the IPO, boom,
[401]
they had $350 million
worth of value in it.
[406]
It made a lot of people very rich.
[409]
But it also, in the financial world
[410]
was like ringing the dinner bell.
[411]
Because people saw how
much money could be made,
[414]
and so, it changed everything.
[488]
I think the big hope was that
[490]
by bringing in the commercializing
[492]
and bringing in, you know, more capital,
[494]
you could do more good.
[495]
But when big money comes in,
it often demands big returns.
[499]
And what we've found is the world
[500]
kind of turned its attention away from it.
[502]
And as that's happened,
[504]
the financial world
has continued to do it.
[505]
And people's tax dollars are underwriting
[508]
a huge amount of it.
[511]
In 2020 alone, there was
more than $50 billion worth
[515]
of committed funds from development banks,
[518]
commercial lenders,
non-governmental organizations,
[521]
and socially-minded
impact investment firms.
[524]
That was a record.
[527]
Sri Lanka is a country where
the consumer protections
[531]
are very sparse.
[533]
And there is a burgeoning
microfinance industry there.
[537]
Lending ever-larger
amounts of money to poor,
[541]
mostly financially illiterate people
[544]
who are getting stuck in
a vicious cycle of debt.
[550]
LOLC started out as a
leasing company in Sri Lanka
[554]
with the backing of the
World Bank in the 1980s.
[560]
It has since morphed
[561]
into one of the world's
biggest microfinance lenders,
[566]
backed by hundreds of millions of dollars
[568]
of financial assistance
[570]
from pretty much every development bank
[572]
that you can think of.
[574]
For the next generation,
[576]
a new dawn has arrived,
[578]
full of promise.
[581]
Today, LOLC is Sri Lanka's
most profitable listed company.
[587]
And its owner is one of
the country's richest men.
[590]
And the lion's share
of that money has come
[592]
from microfinance: from
lending to poor people.
[597]
There's very little regulatory oversight
[600]
of these microfinance institutions.
[602]
And so, what you find is
that they are operating
[605]
really on their own terms.
[607]
We found multiple instances
of LOLC microfinance companies
[612]
using pressure tactics to
force women to repay money
[617]
that were leading these women
into real despair and torment.
[679]
Cambodia became the first foreign market
[682]
that LOLC expanded into.
[685]
It bought a stake in a
microfinance lender there,
[689]
called Prasac,
[691]
which was co-owned by a
bunch of development banks.
[696]
Cambodia has become a poster child
[698]
for what can go wrong with microfinance.
[702]
It's one of the world's poorest countries,
[704]
and now, one of its most overindebted.
[709]
In Cambodia, loan sizes have
ballooned over the past decade.
[714]
And now, more than one
in five adult Cambodians
[718]
has a microfinance loan.
[851]
Not in my wildest dream did I thought
[854]
our work would be used by someone
[857]
to make themselves loan sharks.
[860]
So that's a very sad part of the story.
[863]
You are driven by self-interest,
[865]
and this is translated as
maximization of profit.
[868]
So basically, you became
money-making robots.
[872]
And you can destroy all
the poor people's lives.
[874]
You don't care less
because you make money.
[879]
When you make the point to many people
[881]
in the development banking world
[883]
that there is little evidence to show
[885]
that microfinance has achieved its aims
[887]
of lifting the poor out of poverty,
[890]
they often say that it's much
better than the alternative,
[894]
which is that these poor people
[896]
would have to resort to loan sharks.
[899]
While that's difficult to dispute,
[901]
It really doesn't justify
the hundreds of billions
[905]
that has been put into this industry
[907]
with very scant evidence of it
having any long-term impact.
[914]
The U.S. government,
the British government,
[917]
the World Bank, Proparco, the French bank,
[919]
they give to different banks.
[921]
And when you ask them,
"Well, why did you give
[923]
to this lender who has a history
[926]
of forcing people to sell their land
[928]
and of throwing people
into debtors' prison?"
[930]
And they'll say, "Oh,
we didn't know that."
[932]
That someone else was supposed to vet it.
[933]
And ultimately, they
can just pass the buck
[935]
of responsibility onto someone else.
[940]
No one wants to say what is an
acceptable amount of interest
[945]
and what is an acceptable
amount of profit level
[947]
for a lender that says it's a
socially-minded institution.
[952]
So, people all just kind
of look the other way.
[954]
And I think people don't wanna reckon that
[956]
because there's a lot of people
[958]
making a lot of money off of it.
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