Madhuka Kumari took out a loan
from a microfinance company.
She pretty quickly became unable
to make the $30 monthly payments on those loans.
And when she fell behind,
she started getting visits from loan officers,
and they became increasingly aggressive,
demanding their money back.
Ultimately, it led Kumari to attempt to commit suicide.
She poured kerosene over her head and set herself alight.
Microfinance was the development world's attempt
to help do away with poverty by giving small loans
to people in the developing world.
In much of the developing world,
people don't have access to capital.
They call them unbanked
because they can't get bank accounts.
So, it started with this kind of noble aspiration.
It began as a charitable endeavor
and it has since morphed into something quite different.
In many societies, it's doubly hard for women
to get access to financial services.
And microfinance was seen as a panacea
in terms of targeting women in particular.
What we found was a network
of predatory microfinance institutions operating
around the world who were promising to lift people
out of poverty and include women
in the financial services system.
When in reality, what they were actually doing
was forcing women to sell property to repay small loans,
putting them in prison in some instances,
and in Sri Lanka, more than 200 suicides
have been linked to microfinance loans.
Despite these problems, it is still being funded
by public money and publicly funded development banks.
So, public money that's supposed to be helping the poor is,
in some cases, being given to people who exploit them.
Modern microfinance traces its roots
back to the economist, Muhammad Yunus,
who in the 1970s, really pioneered this form of lending
in Bangladesh after a devastating drought there.
With no means of support and no place to go,
they're in government camps.
And his innovation was to lend these people
small sums of money with low interest rates.
And they would build their businesses on that investment.
And he found that, actually, it was very successful,
and these people repaid their loans.
And a global movement was born out of that.
I never had any intention or any plan or any thought
that I will ever lend money to become a banker of a sort.
I was looking for opportunity to do some tiny little thing
which will be helpful to another person.
And one thing hit me very hard is the victimization
of people by the loan sharks.
Giving tiny loans, as little as $1, $2 loan,
and grab everything the other person has.
And the poor people are desperate to find some money
for survival and so on.
So they had to borrow money.
Seeing this repeatedly in the village,
I was wondering whether I can protect them
from the loan shark.
All people are entrepreneurs.
All they need is money.
Money is the oxygen for entrepreneurship.
Within a couple years, you know,
he won the Nobel Peace Prize.
The UN declared it the Year of microcredit
because it was the hot idea in the development world.
Poverty is in the system.
So, we sort out the system, correct those system,
nobody will remain poor.
It's a very simple logic.
I believe that Dr. Yunus is a person
that understands that love is a verb.
That love is an action.
This is an important trend
in an era of economic instability and entrenched poverty.
The Clinton Global Initiative, the Gates Foundation,
Matt Damon, Bono, I mean, it really captured the imagination
of people because it had everything that you wanted.
It had profit.
You can make some profit while doing good.
So that's kind of the neoliberal dream.
And it also depended upon, you know,
people being self-reliant.
And everyone wants to think that, you know,
that a little entrepreneurial spirit can help people.
What was particularly seductive about microfinance
was that the microfinance institutions
that were receiving government funding
would one day transition to profitability
and have a sustainable business model.
But by making these institutions profit-seeking,
there's an inherent conflict there
between doing social good and making money.
Banco Compartamos really was the big bang
of commercial microfinance.
It had been founded by a group of religious people,
and it was a charity.
But they wanted to scale up,
and they thought the best way to do that
was to become commercial.
They had an IPO in 2007 as a small lender
which had come to dominate the microfinance world in Mexico.
All of a sudden, it had a valuation worth $2 billion.
Some of the NGOs that had invested in it,
like ACCION, which is based in the U.S.,
took a million dollar public money from USAID,
the U.S. development agency, invested in Compartamos,
and after the IPO, boom,
they had $350 million worth of value in it.
It made a lot of people very rich.
But it also, in the financial world
was like ringing the dinner bell.
Because people saw how much money could be made,
and so, it changed everything.
I think the big hope was that
by bringing in the commercializing
and bringing in, you know, more capital,
you could do more good.
But when big money comes in, it often demands big returns.
And what we've found is the world
kind of turned its attention away from it.
And as that's happened,
the financial world has continued to do it.
And people's tax dollars are underwriting
a huge amount of it.
In 2020 alone, there was more than $50 billion worth
of committed funds from development banks,
commercial lenders, non-governmental organizations,
and socially-minded impact investment firms.
That was a record.
Sri Lanka is a country where the consumer protections
are very sparse.
And there is a burgeoning microfinance industry there.
Lending ever-larger amounts of money to poor,
mostly financially illiterate people
who are getting stuck in a vicious cycle of debt.
LOLC started out as a leasing company in Sri Lanka
with the backing of the World Bank in the 1980s.
It has since morphed
into one of the world's biggest microfinance lenders,
backed by hundreds of millions of dollars
of financial assistance
from pretty much every development bank
that you can think of.
For the next generation,
a new dawn has arrived,
full of promise.
Today, LOLC is Sri Lanka's most profitable listed company.
And its owner is one of the country's richest men.
And the lion's share of that money has come
from microfinance: from lending to poor people.
There's very little regulatory oversight
of these microfinance institutions.
And so, what you find is that they are operating
really on their own terms.
We found multiple instances of LOLC microfinance companies
using pressure tactics to force women to repay money
that were leading these women into real despair and torment.
Cambodia became the first foreign market
that LOLC expanded into.
It bought a stake in a microfinance lender there,
called Prasac,
which was co-owned by a bunch of development banks.
Cambodia has become a poster child
for what can go wrong with microfinance.
It's one of the world's poorest countries,
and now, one of its most overindebted.
In Cambodia, loan sizes have ballooned over the past decade.
And now, more than one in five adult Cambodians
has a microfinance loan.
Not in my wildest dream did I thought
our work would be used by someone
to make themselves loan sharks.
So that's a very sad part of the story.
You are driven by self-interest,
and this is translated as maximization of profit.
So basically, you became money-making robots.
And you can destroy all the poor people's lives.
You don't care less because you make money.
When you make the point to many people
in the development banking world
that there is little evidence to show
that microfinance has achieved its aims
of lifting the poor out of poverty,
they often say that it's much better than the alternative,
which is that these poor people
would have to resort to loan sharks.
While that's difficult to dispute,
It really doesn't justify the hundreds of billions
that has been put into this industry
with very scant evidence of it having any long-term impact.
The U.S. government, the British government,
the World Bank, Proparco, the French bank,
they give to different banks.
And when you ask them, "Well, why did you give
to this lender who has a history
of forcing people to sell their land
and of throwing people into debtors' prison?"
And they'll say, "Oh, we didn't know that."
That someone else was supposed to vet it.
And ultimately, they can just pass the buck
of responsibility onto someone else.
No one wants to say what is an acceptable amount of interest
and what is an acceptable amount of profit level
for a lender that says it's a socially-minded institution.
So, people all just kind of look the other way.
And I think people don't wanna reckon that
because there's a lot of people
making a lot of money off of it.