I have lived and travelled extensively in developing countries. I live in one now. In fact, the very term “developing countries” irritates me. I call it “home.” London and New York are as strange to me as Mexico City and Ulaanbaatar may appear to an American or a Brit. I once lived on $1 a day for four months, which was quite enough. I’ve set up my own micro-enterprises in developing countries, and invested my own funds into such enterprises on numerous occasions.
I had somewhat stumbled into microfinance in 2002. By 2007 I was wondering how long I could go on peddling over-priced credit to the poor with zero evidence of it having much effect. Surely there was more to life than this? I vowed that 2008 would be my last year in microfinance. In 2009, my wife and I went to Mongolia for “one last project”, and actually much of the year was spent on non-microfinance work. We left when my wife became pregnant, having assessed the array of Mongolian hospitals.
On August 29th 2010 I was sitting in my office in Buenos Aires, working on some futile microfinance project once again. I needed to make some money as I was planning some time off. 3 days later our daughter was born. Although I could take a few weeks off, my boss had insisted that I attend a microfinance conference in Montevideo, hardly ideal timing. The same people, the same inane talks about how we are saving the world, the same discussions of profitability and returns on equity. Admittedly this conference would be a little muted following the collapse of the Nicaraguan microfinance sector and the unfolding financial crisis worldwide, but otherwise it was a frustrating few days I had to endure.
I could never understand how the microfinance sector was growing so rapidly. Who were these people pumping in so much money? Why did they not care what actually happened to the poor people? The flaws were so painfully obvious. I had tried all manner of techniques to wake people up to reality, but frankly, they had failed. Now that I was a father, I was at the beginning of a whole new chapter of life. What other options were left? Joining one of the emerging private equity funds and earning a fat salary from the hard work of the poor just didn’t appeal.
Contemplating all this, I recalled how Confessions of an Economic Hitman by John Perkins had inspired me a decade before. I had never written a book, just endless reports about shady banks. Perhaps that could be my last option. I looked up the publisher – Berrett-Koehler. Never heard of them. I opened Word and began tapping away.
I never actually expected a reply. An unheard of author in a strange country daring to criticise the sector most of the world thought was the salvation of the poor. It took a few months to finish the proposal, and once submitted, my editor got back to me almost immediately. He loved it. There was no messing around, we had a contract signed a few weeks later, and it was only then that I paid much attention to Berrett-Koehler’s motto: “Creating a World That Works for All.” That’s why they published the book. But does that explain why I wrote it?
We can all moan about the injustices of the world. We’ve done it for millennia. But the injustice in microfinance seemed unnecessary. We can do so much better, and the source of the problem is asymmetric information. I wanted to correct this. I firmly believe that donors and investors across the world have the right to know what is being done with their money. Those responsible for our savings and pensions need to be held accountable. People were occupying streets complaining about unaccountable banks on Wall Street paying large salaries with little perceived benefit to the average layperson. Wasn’t something pretty similar happening with microfinance?
Meanwhile the poor were being encouraged to take out loan after loan, with the promise that this would somehow help them. If it was, why was there so little evidence? I hadn’t seen much with my own eyes, having worked in countless countries. In fact I had seen a lot of damaging over-indebtedness and bankruptcy. Interest rates of 195% are obviously exploitative, but actually an apparently “modest” interest rate of 50% does little to most micro-entrepreneurs. The poor remained poor, it was as simple as that. A few lucky investors became filthy rich, and an industry was born, paying nice salaries and offering pleasant lifestyles to an army of ambassadors touting the merits of debt to the remotest corners of Africa. I was helpless to stop this, or even to draw people’s attention to the problem. In fact, most insiders don’t even deny the problem, only the true fanatics claim otherwise, and they usually have large vested interests in keeping the sector growing perpetually.
So, I wrote the book to get an important message out there. My options were simple: play ball; quit quietly; or shout loudly. Shouting, I decided, was the responsible thing to do. Berrett-Koehler agreed. Will people listen? Will they act? We can transform microfinance to be a genuine tool for good in the lives of some poor people, but will people bother, particularly if it serves their own interests to do otherwise?
I don’t know, but I’ve done my bit. The evidence that something is wrong with microfinance is now overwhelming. No one can claim they weren’t warned. Sovereign debt is one of the preferred tools of control over poor countries and their populations. Microfinance is only different in that it is even more opaque and unregulated.
I wrote the book to correct a wrong. To skew the odds slightly in favour of the poor. To take a small step on the path of creating a world that works for all.