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Hugh Sinclair is a (self-described) whistleblower who recently published a book coming clean with the microfinance industry. Paul Lagneau-Ymonet and Phil Mader had the privilege to ask him how microfinance went astray and “betrayed” the poor, and why the public and donors are being deceived. His book “Confessions of a Microfinance Heretic: How Microlending Lost its Way and Betrayed the Poor” has been widely noted by international media and his blog follows the day-to-day antics of the microfinance industry.

Hugh, you worked in microfinance for 10 years, so you must have at least for some time believed in this as a tool for reducing poverty. When did you become disillusioned, and why?

I can’t say there was one moment of revelation. The first concerns started on my very first project. I was working in Mexico with a Grameen replica institution, and right from the beginning I noticed many of these people aren’t using the money for a productive use, and many of them aren’t actually very poor at all. But I told myself maybe I’m just in a bad institution.

I worked in Mexico for a couple of years, then I moved to Mozambique. There I discovered an even worse situation. Not only was microfinance not having much impact, but the institution that I was working at was misappropriating the savings of the clients. They were forcing the clients to make a savings deposit, and then they were using that deposit to subsidise their own operating costs, which generally involved paying high salaries to ineffective expat senior managers to fly business class and drive around in fancy 4x4s, which to me didn’t seem like a particularly good use of the client savings. It’s theft – I mean, you can’t just take people’s savings and spend them on your salary.So I thought: wow, this is a terrible institution. But maybe I’ve just been unlucky that I’ve stumbled into a few bad ones. Why don’t I go over to Europe and work at a microfinance fund, and my knowledge about the difference between a good and a bad microfinance institution will be useful to direct their money towards good microfinance.

“The problem is that [microfinance funds] have a weird set of incentives that aren’t aligned with their own investors, and also aren’t aligned with the interests of the poor.”

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The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
January 2019
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