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Ramesh, a 27-year-old farmer in India
lives happily with this family, with his wife and two kids.
Everyday, morning, he goes to his farm,
works hard, grows his crops, comes back tired and
exhausted in the evening to have a meal with his family.
On one day when his wife could not find him back home,
she took the kids and went out searching for him.
She found him hanging dead on a tree above his farm.
Ramesh committed suicide because he could not repay
a $200 loan that he took from a microfinance institute.
I did not know Ramesh.
But as I sat in my highrise apartment in Abu Dhabi,
having built a career in financial services, I felt I'd betrayed
my grandfather and generations before him who were farmers.
I felt I'd betrayed the community and small village in India that I come from.
In 2006, when the Nobel Peace Prize was given to Muhammad Yunus for
microfinance, I was excited and happy because
it was considered the ultimate financial solution that would help the poor.
Foreign aid organizations, wealthy philanthropists, and global corporations,
invested millions of dollars into microfinance.
Even us, who had a few dollars to spare, went on the websites like Kiva, and
on click of a mouse, lent money to farmers in Ecuador.
Microfinance appealed to the emotions of a lot of people because of the simple model.
It would lend tiny loans to the poor who could invest,
grow business, see great returns, and then climb out of poverty.
Today, ten years after the Nobel Peace Prize,
40 years since microfinance has started,
there's little evidence that microfinance helps the poor.
On the contrary, there are several studies that shows it does not.
A study done here at Stanford University, across 87
in Bangladesh, found microfinance to have no impact
on the income of the poor, and in certain cases, found it to have a negative impact.
A study done at MIT, across 52 neighborhoods in
Hyderabad in India found microfinance did not have any impact on health,
education or income of the poor people.
Finally, a study done at Yale University in Philippines
found no impact on income of the poor due to microfinance.
Microfinance, as it stands on a shaky foundation due to three main reasons.
First, it considers every poor person to be an entrepreneur.
You give him capital, he could invest and
grow a business, which is in fact not true.
Studies have found that less than 2% of
microenterprises survive for more than three years.
Number two, the high interest rates.
I was speaking to a CEO of microfinance firm recently and
one of the first questions I asked him was, what's your interest rate?
Obviously, he did not give me an answer but he explained how it works.
This is what he said, we give a loan of $10 for
two weeks and expect $12 in return.
If you do the math like I did, that works out to 20% interest for two weeks.
If you compute that on an annual basis,
it works to thousands of percentage in interest.
Thousands of percentage in interest every poor person has to pay.
Microfinance justifies this saying,
it's to cover the cost of operation, it's to cover the risk of the business.
Forbes Magazine published a list of top 50 microfinance institutes.
On an average, it found these firms generating 80% return on capital,
80% return.
There are very few businesses in the world which generate 80% annually on capital.
And finally, their abusive collection practices.
Microfinance claims 95% collection rate but how do they achieve this?
Was a debt collector for Grameen Bank in Bangladesh.
He was asked to retire early because he questioned their collection practices.
They were asked to threaten and abuse poor borrowers who were not able to repay.
Poor borrowers were asked to sell their clothes,
or even sell their children, to repay the loan.
Microfinance started off with the best
of intentions but has failed to deliver on the promise to the poor.
As I did my research, even I failed to
find a silver bullet solution for the problems of the poor.
Problems of the poor are big, complex and challenging.
Today, Ramesh's wife faces the challenge
of feeding her young children at least one meal a day.
Millions of people across the globe face similar challenges and
tough choices, each and every day of their lives.
What they need is not a microfinance law that could make their life difficult.
What they need is a regular source of income that can make their life easier.
I am in quest for searching for a solution and
I need your help and support to find the solution.
I've launched this website which is
ipledgeworld.com to source solutions that
could help solve the problems of the poor.
Let us take this first step together,
to change the lives of the poor people,
to change the way organizations interact with the poor,
and to dream of a changed world that would have a better tomorrow.
Thank you very much.
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