◼FINANCE BloombergBusinessweek December 7, 2020into formal financial institutions, another goal of
microlending. In Asia about 90% of the 180 million
poor households lack access to banks, while most
formal financial institutions deny the poor their
services because of perceived risk, according to the
Asian Development Bank.
In an interview, Yunus defends microlending
as practiced by the Grameen Bank in Bangladesh.
There, borrowers don’t put up collateral. The bank
also has rules to protect borrowers during disasters,
such as issuing fresh loans to compensate for lost
capital, suspending repayment, or extending a loan
period. Many other lenders, he says, are not guided
by social principles, and may ask for collateral or
push loans for consumer goods. “We have to distin-
guish between the right microcredit and the wrong
microcredit,” Yunus says. “Microcredit lenders who
follow the social business principle of zero personal
profit—andtheotherswhowanttomakeprofitfor
theowners,supportedbybiginvestors,andbanks,
saying,‘We’redoingmicrocredit.’”
Signs of trouble for the microcredit indus-
try were there long before Covid. After years sup-
porting microfinance institutions, the U.S. Agency
for International Development in a 2018 report to
Congress cast doubt on the loans. For the very poor,28
PHOTOGRAPH BY NICHOLAS SENU ADATSI FOR BLOOMBERG BUSINESSWEEKdefined then as those who lived on less than $1.90
per day, “even small debts—most frequently used
to meet immediate consumption needs—can eas-
ily become a significant burden that push a family
deeper into poverty,” the report said.
About a third of microfinance companies say they
anticipate “a solvency issue” by early 2021, accord-
ing to a report from Washington-based Consultative
Group to Assist the Poor. If the deterioration con-
tinues, the group warns, the sector “could get into
global crisis territory soon,” leaving strapped gov-
ernments to bail out lenders.
In India, which instituted microlending reforms
almost a decade ago following allegations of aggres-
sive collection practices, the central bank projects
that the share of loans in default will jump from 8.5%
to 12.5% by March. Lenders are now focused on col-
lections and reluctant to renew loans. That’s a big
problem for Anil Kumar Gupta, a carpenter in Uttar
Pradesh who’s subsisted on microloans to feed his
family of nine. “No bank wants to lend money with-
out security,” he says. �Philip Heijmans, Emele Onu,
MosesMozartDzawu,andSuvashreeGhoshTHE BOTTOM LINE Microfinance can provide low-income people
with the money they need to run a small busines, but the pandemic
is making the loans riskier for them—and their lenders.▲ Manu sells his wares“We have to
distinguish
between
the right
microcredit
and the wrong
microcredit”