New Orleans Working with ACORN International, Melanie Craxton from the University of Edinburgh and I produced a hard hitting report, Mega Troubles for Microfinance, calling into question the claims that microfinance reduces poverty and the entire model of unsustainable practices, collection methods, and the resource bubble fueling their growth. Sadly, a story written by the AP’s Ericka Kinitz largely focused on the Indian company SKS, formerly one of the largest players, once non-profit and now owned by investors, including Boston-based Sandstone Capital, now SKS’ s largest investor, and U.S. private equity firm Sequoia Capital eviscerates the industry once more.
Kinitz was able to obtain internal company documents, verify with outside investors, and conduct interviews with ex-employees and others familiar with the suicides and SKS. She found:
An independent investigation commissioned by the company linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. Neither study has been made public.
Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, the SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.
The story is shocking even if not surprising. The company continues to try and deny responsibility and even the existence of an internal investigation. The families are now worse than destitute. The uproar caused by various states banning such collection practices and Indian politicians in some cases calling for borrowers to cease payments seems more responsible than some of the strong arm tactics of SKS and other microlenders.
The AP piece is a long and painful read, but if you ever thought you were helping someone in the developing world by putting your own dollars in an MFI or thinking this might work, please read every word!
