Home » Community Actions to the Water Crisis and the Impact of the Landfill in Eastern Zaachila Location: Oaxaca’s Central Valleys region.Communities that will directly benefit from the project: The Vicente Guerrero Municipality and the Lomas de la Cuesta and El Manantial neighborhoods Other Organizations Involved: Group for the Promotion of Education and Sustainable Development (Grupedsac) the Metropolitan Autonomous University (UAM) the National Commission for Protected Natural Areas (Conanp) the Zapoteca Espiga de Maíz (“Corn Cob”) Collective and a group from the Coordinating Committee of the United Peoples for Water Defense and Stewardship which initiated the project @ Centro de Derechos Indígenas Flor y Canto A.C The Vicente Guerrero Municipality and the Lomas de la Cuesta and El Manantial neighborhoods which are in the Villa de Zaachila Municipality in Oaxaca’s Central Valleys region are communities afflicted by severe water shortages since 2016 This situation has since turned into a severe drought which now affects most of the state of Oaxaca the state’s water wells recorded their lowest-ever water levels the area is impacted by a landfill that was in operation for nearly 40 years which received solid waste from 28 municipalities has contaminated various water sources and has put at risk the health of local inhabitants as well as compromised the availability of the precious water resource the biodiversity that still exists is at risk in the region’s high country which is the region’s only intact green space and serves to mitigate the effects of pollution and drought You are using an outdated browser. Please upgrade your browser to improve your experience Connecting decision makers to a dynamic network of information Bloomberg quickly and accurately delivers business and financial information 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 are instead channeling hundreds of millions of dollars earmarked for poverty alleviation into some of the most predatory lenders Interviews with dozens of borrowers in Cambodia as some lenders prioritize profits over helping the poor In Cambodia, the average loan provided by so-called microfinance institutions has ballooned sevenfold over the past decade to about $4,200, almost three times the country’s average household income, data compiled by the Cambodia Microfinance Association show Women there have been pressured to sell their homes to repay loans according to human rights groups and academics who have studied the matter one of the few countries that still imprisons people for nonpayment of debt more than 23,000 women were wanted by the police in 2019 for owing less than $1,400 each consumer-advocacy groups estimate 200 women indebted to microfinance companies committed suicide in the past three years Watch the Bloomberg documentary “The Dark Side of Microfinance” → Among the 26 lenders it’s funding are three accused of pressuring borrowers to sell land in Cambodia Five of the largest development banks committed almost $15 billion to microfinance and small-business lenders in more than 80 countries from 2011 to 2020 the World Bank’s International Finance Corp. a small country with a population of 17 million received an outsize proportion of funds: $519 million over 10 years A wave of suicides in India a decade ago challenged the idea that microlending might eradicate poverty but today’s more modest goal of financial inclusion an attempt to reach people without access to the banking system The expansion of the loosely regulated business—all those loans added up to $160 billion in 2020 according to industry estimates—has resulted in millions of new borrowers for whom the dream of inclusion has turned into a nightmare of debt Read more: Tesla-Backed Startup Made Solar Power a Burden for the Poorest Agency for International Development for microfinance programs from 2015 through 2018 had produced “little evidence of sustained effects.” One is a unit of a company in Sri Lanka owned by one of that country’s richest men As the market has evolved, many microfinance companies have strayed from their original mission of providing loans for income-generating activities to offering credit for daily living expenses, consumer goods, home improvements and loans to pay off other loans. Some have started lending to small and medium-size businesses. It’s a long way from the vision of Muhammad Yunus the Nobel Peace Prize-winning economist who founded Bangladesh’s Grameen Bank in the 1980s to lend small sums to people too poor to qualify for bank loans who once predicted that microfinance might relegate poverty to museums is distressed by how things have turned out “The development banks promoted this personal profit-making version and brought in business investments along with their own investment,” says Yunus who’s no longer associated with Grameen Bank “The concept of microcredit was abused by some and turned into profit-making enterprises for owners of microcredit institutions Many went in the inevitable direction of loan-sharking I felt terrible that microcredit took this wrong turn.” The roots of today’s microfinance industry can be traced to a $27 loan was searching for ways to help people find a path out of poverty he met farmers and artisans too poor to qualify for bank credit who financed their businesses with small loans at usurious rates Yunus helped them refinance to a much lower rate by calculating the total debt of the village’s business owners and lending that amount to 42 women who agreed to act as co-guarantors That model—small loans at low interest rates to groups of borrowers—became the template for Grameen That feel-good story ended with the first microfinance IPO Founded in 1990 as a nonprofit that followed the teachings of Mother Teresa Compartamos converted to a commercial bank in 2000 then used investments from the World Bank and Accion International to transform itself into the model of a for-profit microfinance company the company had an implied valuation of more than $1.5 billion providing a windfall to founders and early investors The World Bank made $210 million. Accion, which invested $1 million it received from the U.S. government, saw the value of its stake balloon to $350 million much of which was used to seed additional profit-seeking microlenders Those gains came at the expense of borrowers who paid interest rates higher than those at other Mexican banks and credit unions and often took on more debt than they could handle Accion didn’t respond to requests for comment has helped channel hundreds of millions of dollars to microlenders including Compartamos and Jordan’s Tamweelcom which has reported dozens of delinquent borrowers to authorities legal filings reviewed by Bloomberg News show A spokesperson for Citigroup said the bank only works with “microfinance institutions whose lending and collection practices are best in class and who treat all borrowers respectfully.” Tamweelcom didn’t respond to requests for comment While Citigroup CEO Jane Fraser has been closing some consumer operations in the developing world the bank remains committed to microfinance—to being what former global director of inclusive finance Bob Annibale once called “the bank to the bank to the poor.” Last year it sold a $1 billion social finance bond as part of a wider pledge to invest $1 trillion in what it calls sustainable finance by 2030 It also arranged $70 million in loans for Compartamos through the U.S and the Japan International Cooperation Agency is “to empower micro-entrepreneurs around the world.” That’s not how things have worked out for Compartamos customer Cristina Pina The 58-year-old baker in Villa de Zaachila got sucked into a vortex of debt two years ago After saving to make a $2,500 down payment on a piece of land She took out a $500 Compartamos loan at an annualized 100% rate to help finish paying for the land and avoid losing her equity to repay Compartamos and is now juggling six loans pay,” Pina says at a coffee shop near the town’s central plaza one day in September opening a small floral print notebook where she keeps track of past and future payments A spokesman for Compartamos said in an email that Pina has been “a valuable and responsible client” for many years and that the bank allowed her and others to defer payments for three months during the pandemic Chief Executive Officer Patricio Diez de Bonilla says it’s not always easy to know if customers have other loans so it is better than not having credit or going to loan sharks.” Compartamos is now the largest microlender in Latin America It has 40% of Mexico’s microfinance market and is one of the country’s most profitable financial institutions posting a return on equity in 2019 and 2021 that exceeded 20% almost double what Mexican banks earn on average Despite those profits and advertised charges for microloans that put its annual interest rates well above 80% Compartamos continues to receive U.S taxpayer money from development bank DFC declined to comment about Compartamos but said the agency has a robust vetting process and is committed to funding only those lenders that are both financially solvent and socially responsible But those due diligence reviews downplay consumer protection according to half a dozen current and former DFC executives who asked not to be identified because they aren’t authorized to speak about the program Microfinance lenders are required to open their books to show their long-term viability and they’re asked questions to ensure they aren’t involved in child labor human trafficking or environmentally damaging businesses They’re also supposed to follow client-protection standards developed by the industry-funded Smart Campaign which include transparency and responsible pricing Yet the reviews contain few specific guidelines about what debt loads profit levels or collection tactics should be considered unacceptable The Smart Campaign said in 2020 that it was suspending operations ending its certification program and handing off its library of resources to two other industry-funded groups CEO of the Consultative Group to Assist the Poor said in an email that although microloans have helped millions of low-income people around the world investors and lenders can do more to protect borrowers “Development funders should incorporate consumer protection considerations in their funding’s due diligence,” she said She cautioned against focusing on capping interest rates might “make it unviable to serve excluded or underserved segments and may push responsible providers to close.” donors pressured microlenders to release balance sheets and loan terms pressed for responsible pricing and published details about costs and profit margins But as the industry became more commercial After it published a report showing some microlenders making profits of more than 25% lenders had become so reluctant to release information about the cost of loans that he disbanded the organization Waterfield says that when he spoke at conferences and described business models that would allow a reasonable profit “someone from an impact investing firm would come up and tell me ‘You’re right about all that.’” Then they’d tell him they had clients who wanted 25% returns Cambodia is a poster child for what can go wrong The loan portfolio of microfinance companies there has increased about 13-fold in the decade that ended in 2021 according to the Cambodia Microfinance Association as lenders expanded into offering new credit products including household finance and loans to small and medium-size businesses reported that micro loans accounted for 99% of its gross loan portfolio and household finance just 1% micro’s share fell to 65% and household finance grew to 22% according to a Bloomberg analysis of data compiled by the Microfinance Information Exchange Cambodia is also one of the only countries that requires microfinance borrowers to post collateral such as land titles 45% said seizing asset collateral was the second-most common means of collecting delinquent loans after verbal reminders It warned that “client protection regulation needs substantial strengthening to ensure long-term market sustainability.” One borrower who could have used some protection is a 47-year old widow named Nan who took out a $4,500 loan from LOLC Cambodia three years ago to repair her one-room wooden house who asked that her last name not be used because she feared retribution stopped making her $129 monthly payments after Covid-19 ripped through the country and her daughter lost her job as a garment worker That’s when loan officers on motorbikes started showing up at night in her village in central Cambodia telling her to go out and find money to repay them they pressured her to sell her home and land to repay the debt She sold the property two years ago and moved in with her daughter “They forced me to go out to find money for them at night” and wouldn’t leave until she paid them sitting in a makeshift bedroom under a house built on stilts protected from the elements only by sheets of corrugated metal LOLC said in an emailed statement that it never received any complaints from Nan and that it does not pressure borrowers to sell their homes to satisfy their debts substantially less than the $20,000 it was worth because the loan officers told her she had to sell quickly She says she used the proceeds to pay back LOLC Cambodia and others she’d borrowed from Nan is one of thousands of women forced to sell their land or homes to repay microloans according to estimates by the Cambodian League for the Promotion and Defense of Human Rights has been documenting reports of abuses by microlenders for years “This is a massive crisis that demands urgent action from investors and regulators as well as relief for borrowers,” says Naly Pilorge its average loan size had increased more than fourfold to about $3,000 the lender said it plans to more than quadruple its loan book by 2025 and boost net profit by about 350% LOLC didn’t report what share of its portfolio was for microfinance in 2015 its portfolio was for microfinance in 2015 While Nan and many other borrowers lost income during the pandemic, LOLC Cambodia posted a record net profit of $45.4 million in 2020 more than three times the average for commercial lenders in Cambodia it has received more than $25 million from French and Norwegian development banks since 2020 officials were so concerned about borrowers in Cambodia losing their homes that many argued against subsidizing microlenders that accepted land titles as collateral “It’s unethical to create secured lending to the poor based on mortgages or land titles because the poor “What you end up creating is a homelessness project.” The IFC arranged $425 million in loans in the past two years to three microlenders implicated by Licadho in land sales The IFC said it had received assurances from government regulators that there hadn’t been any forced land sales It said it vets all recipients according to strict guidelines regarding responsible finance particularly in overheated markets like Cambodia and is working with local microlenders to bolster client-protection principles “We have become much more selective about who we do business with in Cambodia” and have stopped funding some lenders declining to identify which lenders were cut off a subsidiary of France’s taxpayer-funded development bank said it had halted new investments in Cambodia a few years ago because borrowers were over-indebted But it said it had found no evidence of “systemic unethical behavior,” and it defended its existing investments in LOLC and two other microlenders “We are only rolling over our positions with existing clients with whom we are really confident on the client-protection front and with their responsible attitude,” says Jeremy Brault Proparco’s director of financial inclusion “Some worrying reports have been out in the press very focused on the reliability of the institution to avoid such cases.” LOLC Holdings said in an email that it hasn’t received any complaints from borrowers about pressure to sell their homes “We have a rigorous policy on fair and ethical business practices which is compliant with the regulatory requirements as well as global best practices,” the company wrote The firm said its profit projections are based on expanding lending to small and medium-sized businesses The Cambodia Microfinance Association said in a 2021 report that it had found no evidence that forced land sales were a widespread problem the central bank asked microlenders to restructure delinquent loans during the pandemic While that may have helped borrowers temporarily “I wanted everything to be over,” says Madhuka Kumari sitting on the veranda of her sister-in-law’s house near an elephant preserve in central Sri Lanka Kumari had borrowed $425 from LOLC Finance a Sri Lankan lending unit of LOLC Holdings When heavy rains made roads impassable and she fell behind on her monthly $30 payments loan officers came to her house near the town of Minneriya shouting at her in front of her family and neighbors telling her she had to sell her possessions she poured kerosene over her head and set herself on fire as her children slept Kumari’s husband doused the flames and got her to the hospital loan officers showed up at her bedside and demanded payments LOLC denied that its agents put any pressure on Kumari or visited her while she was in the hospital “This incident was due to a domestic dispute and not due to over-indebtedness,” a company spokesperson said in an email Kumari said it was the aggressive tactics of LOLC’s loan officers that pushed her to attempt suicide Aggressive collection tactics are common in Sri Lanka’s microfinance market, according to a 2019 report by Juan Pablo Bohoslavsky, an independent UN expert on foreign debt and human rights. He wrote that he had been told about numerous instances in which women were pressured into trading sexual favors or had offered to sell their kidneys to repay loans The aggregate amount of loans in Sri Lanka rose more than 50-fold from 2006 through 2020 to more than $3.2 billion LOLC Finance is one of the country’s biggest and most profitable microlenders In 2018, after newspapers reported on the suicides and protests around the country the government said it would write off the debts of 75,000 women in areas affected by drought and the central bank capped interest rates at 35% too late as the waiver didn’t cover many of the country’s most indebted borrowers and the rate cap applied only to new loans leaders of both major parties promised to cancel all microloans prompting many borrowers to stop repayments But lawmakers failed to deliver on that pledge leaving thousands of women burdened with unmanageable loans “It was the suicides that brought it to the top of the political agenda,” says Indrajit Coomaraswamy Sri Lanka’s central bank governor at the time He says canceling all debt would have wreaked havoc with microlenders’ balance sheets “There was no easy fix,” Coomaraswamy says microfinance hasn’t worked out as well as it could have at helping people at the bottom of the pyramid get out of poverty There is also a big gap when it comes to consumer protection This has meant that vulnerable women have not got the protection they deserve and are suffering as a result.” a consultant for Dutch development bank FMO and the former Asia director of the Smart Campaign “The concept of consumer protection needs more attention from the Sri Lankan central bank and microfinance industry,” she says “There are big issues of over-indebtedness The regulator is not equipped to deal with the crisis.” Kumari is worried LOLC may still take her to court to retrieve the money she owes Her husband has been mostly unemployed since the pandemic began “I don’t know what will happen to me now,” she says Bloomberg compiled data from development banks and lenders for its analysis of microfinance trends The data from financial services providers come from the Microfinance Information Exchange (MIX) Market maintained by the World Bank which is self-reported and runs from 1999 through 2019 contains performance metrics for FSPs that target the unbanked in developing countries Bloomberg looked at annual filings submitted by FSPs over 10 years because most FSPs stopped reporting data in 2019 and those that continued submitted quarterly reports only through the third quarter of that year A few FSPs that submitted annual reports twice in the same year were excluded Bloomberg confined its analysis of MIX Market data to those FSPs that reported data for every year during the period: 175 for-profit providers out of 362 that submitted data in 2018 and four firms for which status could not be determined ● For-profit ● Nonprofit ● Unknown profit status Of the 347 FSPs that provided data every year 10 didn’t report gross loan portfolio information for one or two years They were included in the analysis since they provided other information over the 10-year period Only 145 FSPs reported what percentage of their total loan portfolios was for microfinance and the analysis of changes in portfolio composition was restricted to that smaller group such as average loan balance or gross loan portfolio such as comparing return on equity in Cambodia in 2018 The data show how much money these institutions provided to FSPs from 2011 through 2020 Bloomberg manually downloaded all publicly disclosed projects categorized as  “finance,” “equity investments” or “investment funds” on the bank’s website Only active investments that DFC made public as of April 22 all publicly available investments categorized as “financial investments” were downloaded from the bank’s website and filtered for sectors that included “microfinance.” Only board-approved amounts are included and there could be a time lag between when the budget was approved and when the money was disbursed during which the amount might have changed Because exact amounts disbursed couldn’t be determined FMO loans were programmatically downloaded from the bank’s website using the keyword “micro” after filtering for “financial institutions.” Proparco sent Bloomberg an accounting of financing to institutions that provide microfinance EIB sent a list of investments just for microfinance it’s impossible to discern what portion of the development bank money is going for microfinance as opposed to other types of financial services Bloomberg reviewed every loan from the development banks and assessed which ones to count based on publicly available descriptions and documents including loans for operational efficiency as well as funding to help FSPs offer a wider range of financial products Investments in FSPs that make microfinance loans or have in the past were included even if their business now focuses on small and medium-size enterprises Investments in fintech and microinsurance companies that are building infrastructure for the microfinance industry were also counted But loans to FSPs that lend only to small and medium-size enterprises and have no history of microlending were not included The data from the development banks came in different formats and were cleaned and standardized Funding amounts in other currencies were converted to U.S using Bloomberg’s foreign-exchange calculator Financial assistance from development banks that went to multiple countries was categorized as  “multi-country global” so it would not be counted twice.