More Heretic

More Heretic

Hugh Sinclair offered a 1,300 word response to my 900 word review of his book. See my comments below. 

HS: Dear Kim,

Thank you for your review of the book and kind words of support. 

KW:Glad you liked the words - they were intended to be niether kind nor supportive, but fair. 


HS: The reason for naming and shaming institutions and some individuals was simple: this sector is so woefully non-transparent despite promises to the contrary that it is, in fact, the best weapon to instigate change. For this reason every source document is listed and available on the book website. 

On page xviii of the preface I state that some names have been changed to protect the identity of people. The first mention or actual names appears with an “*”. The young woman you refer to did in fact undergo a name change specifically because her identity was superfluous to the story.

KW: Without naming names myself I think there are some real names you cite (at least one anyway) that unfairly represent(s) the commitment of those particular women or of that particular woman to bettering the microfinance industry. I would say she is doing every bit as much as you or I or others, perhaps with less rant. 

HS: As I carefully describe in the book, I diplomatically pointed out cases of abuse to a number of MIVs/P2Ps with supporting evidence, and they took no action, despite the evidence being overwhelming, clear, and corroborated at the time and subsequently. They refused to take action despite accepting the evidence. When newspapers started investigating, they immediately took action. This is the only effective means to prompt change in this opaque sector, and for anyone doubting this, do read the book. The cases of Calvert and Kiva are particularly illuminating. 

Regarding why I failed to name the “good” guys is a more disturbing question. (KW: More disturbing than …?I explicitly and repeatedly state that not all MFIs are “bad”, and that there are good P2Ps, MIVs and networks. I attempt to equip the reader with the tools to distinguish between the “good and bad” players, with tangible steps to take and questions to ask when analysing an intermediary. But you are correct, there is an asymmetry regarding naming the good and the bad players. There are three reasons for this. 

Firstly, the “good” guys are few and far between. Secondly, I take an asymmetric risk when naming a “good” player. I provide supporting evidence for all my claims of malpractice, none of which have been denied by a single player to date. Not a single press release has been issued by anyone, which is an interesting observation itself. However, to name a “good” player, I need to be 100% certain they are 100% perfect, as only one observation to the contrary will undermine the institution and my argument. I know of none that are demonstrably 100% perfect, and those implicated would go to extraordinary lengths to undermine a single sentence in my book.

Indeed, I stated that Mongolia was an exemplary country for microfinance in my opinion, only to read a recent report firmly challenging that. This is the danger of singling out the “good” players. 

KW: Refusing to single out good players is a brilliant hedge. It keeps standards vague as the reader can never calibrate what they might think is good to what you “know” to be good. 


HS: Thirdly, I could also face conflicts of interest by promoting any institutions that I work with.

KW: Nice try. You could resign and allow them to find another director so that you might take up the larger cause.


HS: Should they be as solid as you assert, these mystery institutions would sustain a change in directors or advisors. 

If anyone refutes my claims that there are good institutions on the grounds that I do not name them - what is their conclusion - that there are none? 

Alas, between assuming all microfinance is good (the standard assumption) and that all microfinance is bad (I argue that the truth lies somewhere in-between), the latter assumption may be safer. I lament this result, but it is perhaps the wisest default stance.

Regarding your comment about the role of women - that is a fascinating observation. Personally I am closely linked to the women’s movement, not simply in microfinance. I have noticed, empirically, that female repayment rates are better than male rates in the majority of cases. Women appear substantially less likely to commit fraud (or substantially better at committing fraud thus avoiding detection!), and I find that women tend to make better managers, although this is a very subjective view which is hard to corroborate. 

KW: This is a strain of the women’s movement with which I am unfamiliar. The women’s movement I know has as much to do with repayment rates, reduced fraud or good management as Gandhi’s resistance had to do with the sale of spinning wheels. The women’s movement – the real one - has sustained a decades-long rebellion against injustice, applied the methods of civic force where injustice occurs, and worked to remedy exploitation though public policy and local action. Perhaps this is the problem with microfinance and so many other services that purport to help women; providers are mesmerized by small artifacts.


HS: However, to the extent that women constitute the majority of microfinance clients, they may also be the principal victims of “bad” microfinance. Are the elevated repayment rates of women due to their vulnerability? Women may be easier to bully? They may face fewer alternative employment opportunities or access to credit than men, and thus be more desperate to repay their loans and retain access to credit? 

KW: Yes, or they may be simpler to locate and for physical and cultural reasons, more easily collared and tamed. You are correct - more work needs to be done in this area. Women may be the ultimate targets for so many “services”.


HS: Their maternal instinct may amount to little more than fear of the consequences of non-repayment that male clients do not feel so greatly? To what extent does microfinance simply exploit the vulnerability and elevated responsibilities of women? To what extent is the traditional focus of the microfinance sector on female clients simply driven by the relative profitability of female versus male clients? These are open questions, but one cannot help observing that of the 54 suicides in Andhra Pradesh, 53 were female suicides, and one involved the death of a women who was murdered by her husband. Have any men committed suicide?

Could women have done a better job in microfinance over the last decade? I think we all could have. And there are certainly some women who have been involved in some fairly questionable activities within the sector, some of whom are mentioned in the book. Likewise with men. Personally, I would place marginally more faith in women getting us out of this mess than men, but am certainly not generalising to suggest that “all women are great”. 

KW: Well and good but why should women (in dirt of the fields or in the comfort of the office) shoulder the burden of getting us out of this mess? Perhaps with a dash more yin, the men and women who have gotten us all here can muster the forces of a newer cadre that promises not to shed their ideals so quickly and help help dig us out. 


HS: A particular concern of mine, and one that has received little attention, is the role of children being denied an education in favour of working in a micro-sweat shop, also known as a micro-enterprise. To the extent that this is happening (evidence of the impact of microfinance upon child education is mixed), could this possibly be women who are removing children from school to work in their shops instead? 

KW: Yes, there is anecdotal evidence of this. Perhaps some scholarship as well. But, far more attention must be paid. You make this point well in your book. 


HS: And of vulnerable women being mis-treated at the hands of unscrupulous MFIs, simply educating women of their legal rights when confronting an aggressive MFI would be a huge step in the right direction. If dedicated NGOs had assisted defaulting clients in India regarding their rights, could we have avoided some suicides? The recent case of SKS inappropriately naming themselves as beneficiaries of life insurance payments is a case in point. MFIs may simply act illegally, but their clients are unaware of this and the regulators may be ineffective to prevent it.

Although microfinance and regular banking appear more similar each passing day, a fundamental difference is the relative vulnerability of the clients combined with the relative ineffectiveness of the regulators. Large parts of the microfinance sector conveniently overlook these differences, for the profit of some and to the detriment of many – as reflected in the paltry academic evidence supporting the claims of microfinance as a poverty-alleviating measure, and the vast profits earned by some lucky institutions and individuals.

The fundamental point of my book is that we have to take extreme care entrusting our money to the microfinance intermediaries who claim to act in the best interests of their investors and the poor alike. I challenge this assumption entirely. 


KW: This point came across perfectly in your book. And I would say there is the “two masters” problem that will never be reconciled. They ought simply concede they can’t manage a double bottom line, must serve the profit motive and then let the forces of the press and civic pressure do the rest (which I think is at least part of your point).


HS: We have to place the interests of the poor back in the centre of the equation - we have allowed the quest for profit to replace their central position. Let’s reduce the number of profiteers, regardless of their gender, and increase the number of genuine beneficiaries of microfinance regardless of theirs.

KW: Dare I say this is welcome but naïve? The best we can do is to curtail the harm. I am not at all convinced the industry will increase the number of genuine beneficiaries since, as you point out in Confessions, the industry is a riptide of agendas and clashing values. Replacing the phrase “genuine beneficiaries” with “zero-damaged customers” might be a start, with the hope that some/many benefit along the way.


More zero-damaged customers might signal a better fate for the world than fewer, falsely imagined, well-served beneficiaries. 


HS: I name these players with full supporting evidence so this is no longer a hypothetical, academic debate, but very tangible. Only when the ultimate investors start voting with their wallets and demanding answers from their trusted intermediaries will these folk start to take concerted action. Nothing else has proved so effective. Regualtors need not be aware of some vague risks, but now have very concrete examples of what, and whom, to watch out for.

KW: Fine, but as mentioned, you got one name wrong. I do not doubt your transcripts. Yet, you bore down on a particular set of instances and words without considering character. Perhaps she was a victim of the very culture you repudiate. I know her to be concerned about all that concerns you. I have worked closely with her and know that you owe her an apology. Would you like a name, Mr. Sinclair? I would like a name too. Identify your laudable MFI and I will identify her - the inappropiately named woman in your book. But we both know I would not release her name so that she should endure further public embarrassment any more than you would give up your MFI lest your livelihood be lost. You have put us in a pickle. 


HS: Many of us initially accepted “the lies of the Microcredit Summit when we knew they were lies, or at the small fibs perpetuated by MFIs”, myself included. The difference is that some people continue to do so even now. There is a remarkable correlation between those who still believe microfinance (as currently practiced) is the panacea for world poverty and those who have the most to gain from perpetuating the myth. I don’t care what your gender is, where you’re from, what your background is – let’s return to our core mission, learn from the mistakes of the past, and try to make a difference. This will involve a culling of the less scrupulous players. I am happy to say this process has started already.


KW: Let the journey begin.

Confessions of a Microfinance Heretic

Confessions of a Microfinance Heretic

Saving Machine