Big Money Backs Tiny Loans That Lead to Debt, Despair and Even Suicide

Microfinance has generated returns for banks and government aid agencies—and exploited millions.

Suicides, debtors’ prisons and delinquent borrowers forced to sell their land—the grim social costs linked to microfinance a decade ago were supposed to be a relic of the past. But efforts to clean up the industry lost momentum, and today billions of dollars are flooding into a system that promises the world’s poor a better life while often compounding their misery.

Government aid agencies, commercial banks, nonprofits and socially minded investment firms are pouring record amounts—more than $50 billion of committed funds in 2020, industry data show—into an international array of lenders. The infusion of capital has continued despite annualized interest rates that can top 100% and aggressive debt-collection tactics that have left some borrowers homeless.

As financiers have replaced philanthropists in the microfinance industry, consumer protection has been weakened. Taxpayer-funded development banks, which could fix the problem, are instead channeling hundreds of millions of dollars earmarked for poverty alleviation into some of the most predatory lenders.

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