Huffpost WorldPost
Shivani Siroya Headshot

Making Microfinance Benefit the People and Not the Sharks

Posted: Updated:

Neil MacFarquhar's April 14th piece in the New York Times about the commercialization of the microfinance industry paints a bleak picture of the future of microcredit, a "do-gooder" institution that's recently suffered from a barrage of public controversy. He's right to point out that, in the wrong hands, it can be a corrupt industry that exploits impoverished businesses, charging interest rates as high as 100% or more and making it all but impossible for borrowers to actually help themselves. But in the right hands, microcredit can be a truly empowering opportunity, enabling hardworking entrepreneurs to become self-sufficient business owners and improve the livelihood of whole communities.

What's needed first, however, is a drastic change in the current microfinance landscape. For one, we must demand greater transparency and accountability from intermediary lending organizations. Such organizations must actively monitor how funds are used by their partners on the ground and refuse to provide funds to microfinance institutions that charge high interest rates or otherwise engage in predatory lending practices. We must also find ways to reduce microfinance's current emphasis on the loan-based model and offer debt-free alternatives. For while microloans have done much to help individuals cope with poverty, only rarely have they opened the door to self-sufficiency or tackled the underlying causes of widespread inequality.

New organizations in this industry are already finding innovative ways to overcome the pitfalls identified by MacFarquhar and others, and, in doing so, they maximize microfinance's potential to alleviate poverty. The organization I founded, InVenture Fund, is one such player; from the beginning our model has focused on connecting developing businesses with micro capital so that they can escape the loan cycle and grow risk-free. By opening access to this kind of financing, InVenture and others like us enable businesses to expand and create marketplaces in which others can also compete and prosper.

We also believe that economic development efforts such as microfinance will not be successful unless they're enacted alongside community development. Good capital can grow businesses, and good businesses can grow communities, but not if microfinance and development are operating in isolated spheres. As an example, InVenture Fund promotes sustained development by requiring entrepreneurs to reinvest a portion of profits in the infrastructure of their own communities, in initiatives such as public health and education. Business owners are both the economic and ideological center of any microfinance solution, and by partnering with organizations on the ground that prioritize their needs, microfinance can encourage a culture of grassroots development and enable businesses to be the agents of their own lasting change.

Ground-up development is possible, especially when socially responsible businesses are leading the effort. So let's begin to focus on the end goals of growth and empower small businesses to be the driving force for the future of microfinance and their own communities.