Can Microfinance Work?: How to Improve Its Ethical Balance and Effectiveness

253 Pages·2016·2.869 MB·English

by  Lesley Sherratt

can microfinance work?

Can Microfinance Work?
HOW TO IMPROVE ITS ETHICAL
BALANCE AND EFFECTIVENESS
Lesley Sherratt
1
1
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Library of Congress Cataloging-in-Publication Data
Names: Sherratt, Lesley, author.
Title: Can microfinance work? : how to improve its ethical balance and
  effectiveness / Lesley Sherratt.
Description: Oxford ; New York, NY : Oxford University Press, [2016] |
  Includes bibliographical references and index.
Identifiers: LCCN 2015035120 | ISBN 9780199383191 (alk. paper)
Subjects: LCSH: Microfinance. | Financial institutions—Moral and ethical
  aspects.
Classification: LCC HG178.3 S536 2016 | DDC 332—dc23
LC record available at http://lccn.loc.gov/2015035120
9 8 7 6 5 4 3 2 1
Printed in the United States of America on acid-free paper
For Christine
In memoriam

Contents
Preface ix
Acknowledgments xi
Introduction xiii
part i | empirics
1. The Double-Edged Sword: The Microfinance Model and the Moral Hazards
Inherent within It 3
2. Poverty’s Panacea, or Snake Oil Salesmen: Does Microfinance Work? 23
part ii | microethics: the practices of microfinance
3. From Empowerment to Exploitation: MFIs and Their Borrowers 47
4. From Solidarity to Coercion: The Dynamics of Group Liability 71
5. The Dog Not Barking: A Duty of Care in Microfinance 87
part iii | macroethics: the industry of microfinance
6. Silenced Stories: The Distribution of Benefits & Burdens within
Microfinance 109
7. Hear No Evil, See No Evil, Speak No Evil: Microfinance
and the Informal Economy 125
8. The Macro Impact of Microfinance 144
vii
viii Contents
part iv | making microfinance more ethical
9. Keeping the Good, Eliminating the Bad, Transforming the Ugly: How to Practice
Microfinance Ethically 167
10. Wider Lessons: What We Can Learn from Microfinance for Antipoverty
Development Efforts 183
bibliography 197
index 215
Preface
my interest in microfinance was first sparked when the UN declared 2005 the “Year
of Microcredit” and made microcredit central to its Millennium Development Goals,
particularly that of halving extreme world poverty by 2015.
At the time, I was an investment manager running $1 billion in portfolios dedicated to
investing in financial stocks for a large fund management firm. I had nearly twenty years’
experience of investing in banks and financial institutions, but, being publicly traded
commercial enterprises, very few of them indeed ever reached the poorest in society—
and some of those that did had the roughest reputations.
So the idea that a form of banking existed that could lift the poorest out of poverty was
something I wanted to know more of. It was not (then) an investable idea, so instead I
explored it in a private capacity, as a donor and through sitting on the advisory board of
a UK MFI operating in sub-Saharan Africa.
Ten years on, has microcredit helped deliver the Millennium Development Goals?
The answer to that, sadly, is no. The proportion of people in extreme poverty in the world
has reduced,1 but much of that improvement has come from China’s development, and
without the involvement of microcredit. Many of the early studies that trumpeted mi-
crocredit’s success have been discredited. The most recent and thorough randomized
1 See, for example, the World Bank Poverty Overview at www.worldbank.org/en/topic/poverty/overview, where
the number of people living on less than $1.25 per day is expected to have about halved between the 1990 base-
line used there and 2015. (The proportion of people below this line has fallen more sharply, from 43% to 17%, but
that owes part of its success simply to a rising global population).
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