I finally read Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor by Hugh Sinclair, a book that had been on my list for a while.
As a development finance practitioner, I already knew Sinclair’s work. I had appreciated his Talks at Google session back in 2013, and I had read his blog on and off ever since. A decade later, I finally bought his book.
It has several layers, and I enjoyed them all: Hugh’s firsthand adventures in the field, the HQ dynamics, and the soul-searching in the face of dysfunctional practices that are well protected and perversely incentivised all along the microfinance value chain.
At face value, this could be read as a fierce critique of the microfinance sector. But there is more to it than that. I read it as a love letter to the sector and its clients, with some tough love for its partners and stakeholders. The fact that, more than two decades after he first started asking uncomfortable questions, Sinclair is still working in the sector, consulting with MFIs and writing articles and papers, says everything.
The book reads as part of an ongoing effort to steer a methodology that became a fad, and ultimately an industry at scale. Something not every client can benefit from, and something exposed to the inherent risk of “enshittification“, if I can borrow Cory Doctorow’s term.
It is also full of colourful anecdotes from Hugh’s time in the field: dietary adventures, the struggle to “automate” a management information system, the inevitable camaraderie among colleagues and partners, and the uncompromising drive to get things done for partners and clients.
For anyone who wants to better understand the microfinance sector and its value chain, from its origins to the present day, Hugh provides a succinct, clear and still relevant overview.
Reading it reminded me of Esther Duflo, who shared the 2019 Nobel Memorial Prize in Economic Sciences with Abhijit Banerjee and Michael Kremer, and of her insistence on financing evidence-based projects rather than falling for the latest hype.
We all need to educate ourselves more on the matter and curb our enthusiasm. Media, public donors, private investors, intermediary brokers, local financial providers, agents and clients alike: we all love a nice, heartwarming do-good story, and we are ready to get excited and embrace the latest solution. We are the first to fool ourselves. We are starved for good news and quick fixes.
Hugh is careful not to throw the baby out with the bathwater. There is room for optimism, but we need more transparency and rigour. This matters most when public money, or private investors’ savings, is directed to vulnerable clients. That is why the sobering lessons of this 2012 book remain highly relevant today, and well beyond microfinance.
Sinclair had already written, almost prophetically, about the trends worth watching. Impact investing, a young niche that superficially seemed to offer some of the same promises as microfinance (the triple bottom line of profit, people and planet), was already attracting some of the same investors. That should still give us pause. You can read about a recent take on Ïmpact Mafia” here.
Looking further up the ladder, to the missing middle of informal entrepreneurs and not just the poor, he imagined an ironic sequel: Confessions of an SME Heretic: How the Same Idiots Who Broke the Bottom Rung of the Ladder Are Now Climbing the Next Rung Up. He hoped not to be its author.
While you won’t find that second book on any shelf, I warmly recommend his Confessions of a Microfinance Heretic.