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Selling organs to pay off debt: Microfinance needs reforms

Governments and microfinance institutions must continue taking steps to reform the industry and provide the impoverished with a variety of financial services, including savings options and grants, which better meet their needs.

By Vishnu Sridharan / January 9, 2012

Tairabi Pathan, who took a loan of 10,000 rupees ($220) from a microfinance company to start her own business, arranges her goods for sale at the side of a road in a slum area in Mumbai in October 2010.

REUTERS/Danish Siddiqui

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Washington

When Muhammad Yunus won a Nobel Peace Prize in 2006 for his work on microfinance with the Grameen Bank in Bangladesh, he would have been mortified to know that a version of his model would one day force his country’s poor into the organ trade.

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At the time, microfinance (particularly the practice of giving small loans to the unsalaried poor with low to no collateral) was revered for its ability to “do good while doing well.” In other words, it enabled people to escape poverty while turning a profit.

In 2010, microfinance euphoria was dampened when aggressive money collectors drove more than 30 Indian farmers to suicide to escape their debt. Although regulations followed that outlawed such practices, last summer’s revelations of Bangladeshis selling kidneys to pay off loans highlight deeper flaws in microfinance’s traditional approach, and show once again that giving loans to the poor sometimes just exacerbates their plight.

Fortunately, governments and microfinance institutions are taking steps to reform the industry and provide the impoverished with a variety of financial services, including savings options, which better meet their needs. These institutions’ ability to continue those improvements will not only determine microfinance’s future but the well-being of aspiring households around the world.

The desperation caused by debt in Bangladesh makes the need for change even more urgent. When Selina Akter from Berendy village took out loans to start a vegetable farming business, she couldn’t have imagined what it would cost her to pay them back. When her business went through a bad streak, Ms. Akter was unable to meet the required payments and had to take additional loans from another microfinance nongovernmental organization. All told, she amassed 400,000 taka ($5,280) in debt.

As first reported by the GlobalPost in October 2011, to get out from under her loans, Akter had surgery. The 25-year old Bangladeshi received 220,000 taka ($2,676) for her kidney. To cover the rest of her loans, her husband, father-in-law and brother-in-law chipped in. By selling their kidneys. Experts estimate that the Akter family is just one of the many in Bangladesh who get caught up in a “web of loans,” with 250-300 people selling their organs each year for quick cash.

Although no one would deny that microfinance has helped countless entrepreneurial households find their way to self-sufficiency, it’s become clear that in some contexts loans – the traditional focus of microfinance institutions – are not appropriate interventions. As the World Bank’s Consultative Group to Assist the Poor puts it, “Microfinance is…inappropriate for the destitute.... Grants are a more efficient way to transfer resources to the destitute than are loans that many will not be able to repay.”

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