The video explores the impact and evolution of microfinance, initially introduced as a means to combat poverty by offering small loans to the unbanked in developing nations. Originally designed with noble intentions and as a charitable cause, microfinance aimed to empower women and provide access to financial services. However, the approach has morphed over the years and revealed adverse effects, such as aggressive debt collection leading to extreme outcomes, including suicides in places like Sri Lanka.

The origins of modern microfinance trace back to Mohammed Yunus in the 1970s in Bangladesh, who demonstrated its potential for aiding the poor in entrepreneurship post a devastating drought. The concept gained widespread popularity, receiving support from notable figures and organizations due to its self-sustaining appeal and the opportunity to do social good while profiting. However, the commercial turn of microfinance led to social and ethical conflicts when institutions prioritized profitability over their original mission.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. microfinance [ˈmaɪkrəʊfaɪˌnæns] - (noun) - A type of banking service provided to unemployed or low-income individuals who would otherwise have no other access to financial services. - Synonyms: (small loans, financial assistance, banking service)

microfinance was the development world's attempt to help do away with poverty by giving small loans to people in the developing world.

2. unbanked [ʌnˈbæŋkt] - (adjective) - Referring to individuals who do not have access to traditional banking services, like a bank account. - Synonyms: (non-banked, without banking access, banking excluded)

They call them unbanked because they can't get bank accounts.

3. panacea [ˌpænəˈsiːə] - (noun) - A solution or remedy for all difficulties or diseases. - Synonyms: (cure-all, universal remedy, answer)

And microfinance was seen as a panacea in terms of targeting women in particular.

4. predatory [ˈprɛdətɔːri] - (adjective) - Seeking to exploit or oppress others, especially financially. - Synonyms: (exploitative, rapacious, greedy)

What we found was a network of predatory microfinance institutions operating around the world.

5. entrenched [ɪnˈtrɛntʃt] - (adjective) - Firmly established and difficult or unlikely to change. - Synonyms: (ingrained, established, rooted)

This is an important trend in an era of economic instability and entrenched poverty.

6. Ipo (Initial Public Offering) [ɪˌnɪʃəl ˈpʌblɪk ˈɔfərɪŋ] - (noun) - The process of offering shares of a private corporation to the public in a new stock issuance. - Synonyms: (public offering, stock launch, new issue)

They had an IPO in 2007 as a small lender which had come to dominate the microfinance world in Mexico.

7. vicious cycle [ˈvɪʃəs ˈsaɪkəl] - (noun) - A situation in which an attempt to solve one problem gives rise to a new problem which in turn leads back to the original problem. - Synonyms: (downward spiral, self-perpetuating chain reaction, cycle of events)

... financially illiterate people who are getting stuck in a vicious cycle of debt.

8. burgeoning [ˈbɜːrdʒənɪŋ] - (adjective) - Beginning to grow or increase rapidly; flourishing. - Synonyms: (expanding, rapidly growing, proliferating)

Sri Lanka is a country where the consumer protections are very sparse, and there is a burgeoning microfinance industry there.

9. leasing company [ˈliːsɪŋ ˈkʌmpəni] - (noun) - A business that provides the use of equipment or other assets for a specified period in return for periodic payments. - Synonyms: (rental company, lease provider, finance leasing firm)

LOLC started out as a leasing company in Sri Lanka with the backing of the World bank in the 1980s.

10. regulatory oversight [ˈrɛɡjʊlətɔːri ˈəʊvəsaɪt] - (noun) - The supervision or governing of an area or process to ensure compliance with laws and regulations. - Synonyms: (supervision, governance, monitoring)

There's very little regulatory oversight of these microfinance institutions.

The Dark Side of Microfinance

Maduka 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 Kamari 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 aspirations and 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 Mohammed 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 thought that I would 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 $$1.02 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 loanshark.

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 micro credit because it was the hot idea. In the development world, poverty is in the system. So we sort out the system, correct those systems, nobody will remain poor. It's a very simple logic. I believe that Doctor 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, you know, that 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.

Bangkok comparthalmos 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 had a valuation worth $2 billion. Some of the NGO's that had invested in it, like Accion, which is based in the US, took a million dollar public money from USAID, the us 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. Estono yamu no pussy al moham puja no say those messes. I think the big hope was that by bringing in the commercializing and bringing in 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 a 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 tormented, UM managers. May sari and katagaladi hapala ghetto a kanye so, yeah. Pratti sol natu level tina dina sandaguma, 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 over indebted. In Cambodia, loan sizes have ballooned over the past decade, and now more than one in five adult Cambodians has a microfinance loan. Moy born by hand along my TP Madre and Macham Nungukok shai from Nala song Madray and Panhajam noon at full ban chijim noka katbata rabakuat nabai san sampra song prabra micro karanai oshambru, lasaknikla Juncto by Jin Kunta Bandoka song all of Kamikaro Kuinta, Nayobaye not in my wildest dream that 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 this 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 us 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 on to 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 want to reckon that because there's a lot of people making a lot of money off of it.

Microfinance, Economics, Finance, Poverty Alleviation, Social Justice, Nonprofit, Bloomberg Originals