The darling of world development for more than 30 years, microfinance has thrived on the promise of empowering poor entrepreneurs in regions like east Africa and India to lift themselves out of poverty. Banks such as Grameen or Compartamos might lend a sum as small as $25 to women in Bangladesh to set up a food stall or start planting vegetables. In return, she will repay the debt at a reasonable rate well below the interest level charged by local loan sharks.
The concept is simple. But since the godfather of microfinance, Muhammad Yunus, first entrusted a group of impoverished villagers with $27 in 1974, lending to the world’s neediest has become big business. In India alone, more than 15 million borrowers owe $2.3 billion to microfinance banks, while the average household’s microfinance debt has increased fivefold in the last five years. Lured by remarkable repayment rates – some institutions claim to get back up to 98 per cent from their customers – private equity funds have piled in, pumping cash into the banks that service small townships.
