Over on his blog and on Indian financial news site Moneylife, microfinance expert Ramesh Arunachalam has started an interesting series of posts. They investigate the charges levied by Hugh Sinclair against microfinance investment vehicles (MIVs; or microfinance investment funds) in his recently published book, Confessions of a Microfinance Heretic. Arunachalam is approaching the questions raised by the book with his characteristic meticulous diligence; very data-driven. As usual, he raises poignant questions rather than easy answers, and I strongly suspect his detective work will remain a delight to follow.

Incidentally, some of the points raised by Sinclair’s book are very close to Arunachalam’s fascinating causal reconstruction of the Indian microfinance crisis. The two most obvious ones are: (1) lack of transparency and meaningful regulation in the microfinance industry, in Indian microfinance as well as in the global microfinance investment sphere. (2) The pressures of capital, in that agents bestowed with large amounts of easy money under these circumstances are unlikely to make wise decisions (let alone decisions truly benefitting their stakeholders). These are Indian MFIs who lend as if throwing money from helicopters, or global MIVs investing in low-quality-high-profitability MFIs because they need an easy outlet for their money.

Particularly interesting is that Arunachalam asked investors for statements or rebuttals to Sinclair’s allegations, apparently to no avail or evasive answers. Also, reports promised by the microfinance transpareny/labeling initiative LuxFLAG were not available. So it will be interesting to see if Arunachalam finds out what some investors’ explanations are for having continually invested in the evidently non-law-abiding Nigerian MFI LAPO.

Also, David Roodman at the Centre for Global Development has reviewed the book, his main contribution being to “add nuance”.  He too sees the key message of “Confessions…” in its exposition of the uniquely problematic role played by MIVs in the microfinance money chain, even though he criticises it for its critical tone. No comment on Roodman’s discussion of different people’s character traits (at bottom).

Last-minue addition: Sam Mendelson, co-author of the Microfinance Banana Skins reports, concludes “Ultimately, Confessions is frustrating and fascinating in equal measure” in a similarly even-handed but more personal review on microfinance focus.