The world’s largest NGO has been forced to conduct an internal review of a money-lending scheme it runs for the poor in Sierra Leone after some borrowers amassed significant debts and were reported to police when they couldn’t repay loans.
A Guardian investigation into a microfinance programme run by Brac found that the NGO’s staff were failing to fully explain the conditions of the loan to borrowers, or ensure they could afford the high interest rates associated with such loans.
Brac, an NGO that provides financial services for people living in poverty, has 5.6 million borrowers globally, almost 90% of whom are women.
As of May 2019, Brac Sierra Leone had a $5m (£3.9m) portfolio and 46,500 borrowers.
Brac states on its website that its interest rates in Sierra Leone are competitive. However, at 30% they are higher than the 22% average charged by other microfinance institutions in the country, according to the Sierra Leone Association of Microfinance Institutions. The organisation requires repayment to start a week after a small loan is given. Small loans make up 85% of Brac’s portfolio.
Brac Sierra Leone’s pre-tax profits for 2017, the most recent year for which figures are available, were almost $700,000.
The Guardian spoke to 30 women who had taken out microfinance loans, nearly a dozen borrowed from Brac Sierra Leone. The women borrowing from Brac said they did not fully understand the repayment schedule and quickly began missing payments, meaning their debts spiralled. Some claim they were either visited by police, or held at a police station, after missing payments.
Several said they had had to pay a bribe of about $5 to the police to stop the harassment.
Bridget Dougherty, the microfinance programme head for Brac International, said the organisation had completed an internal investigation into these claims, and had “addressed this issue adequately with the staff in Sierra Leone”.
Dougherty said: “We do not disclose internal investigation reports for external research purposes. We have staff training, audit and monitoring mechanisms in place throughout our operations to minimise the risk of such incidents. We have no further comment to add on this matter.”
Sia Mansaray* borrowed about $75 from Brac. For years she had struggled to feed her five children on the $2 a day she makes breaking rocks at the quarry on the edge of Koidu, a city in eastern Sierra Leone. Her husband went to find work in the capital, Freetown, and never came back.
A Brac loan officer visited Mansaray at work and assessed her financial situation. She was told she was eligible for a small loan. With an interest rate of 30%, she faced weekly repayments of $4 for six months.
With a weekly income of just $14 and school fees, food and rent to pay, Mansaray soon began missing payments.
She took out another loan from Lapo, a Nigeria-based microfinance organisation that receives money from the African Development Bank, in an unsuccessful attempt to pay off her Brac debts, and then another loan from a local organisation to try to consolidate the first two. She ended up defaulting on all three loans and wound up with debts totalling $273.
When she couldn’t pay back her loans, both Brac and Lapo reported her to the police, she said.
“These organisations know we’re poor,” said Mansaray. “So how are we supposed to pay it back so quickly? The loan is too small, the interest is too high.”
Her children now miss classes when she can’t afford the cost of transport or lunch. When they’re not in school, they help their mother break rocks at the quarry.
Microfinance, regarded by some as a silver bullet for ending poverty, has come under increased scrutiny. No longer the panacea it promised to be, it has left behind a trail of debt among the world’s poorest people, while creating huge profits for organisations.
“The product they’re offered is not substantially helping their lives,” said Bruce Martinez, who works with Kiva, a microfinance funder that has partnered with Brac in Sierra Leone. “It does feel like a payday loan, it doesn’t feel like it’s working.”
Brac Sierra Leone defended the high interest rates and short repayment windows. Saidul Haque, a microfinance programme manager, said these conditions were needed because of the “risky” nature of lending to poor women.
Archibald Shodeke, the head of the Sierra Leone Association of Microfinance Institutions, said interest rates across Sierra Leone are high because of the country’s rocky financial situation and and rising annual inflation rate. He said that without a robust credit reference system in Sierra Leone, it is difficult to assess borrowers’ risk, or their ability to repay on time.
Haque denied that the organisation contacts the police. “Our focus is on creating a platform of financial inclusion,” he said.
But several Brac credit officers, who asked to remain anonymous, said it was common for them to go to the police after one month of non-repayment. “The police step in to realise the loan,” said one. “They will arrest the individual for the moment, take her to the police station, and one of her relatives will come and sign saying that they’ll pay back.”
A spokesman for Lapo said its loans were predicated upon the market situation, type of loan and exchange rates, as well other business considerations. It added: “Our interest rates are pro-poor and one of the most competitive in the market, amongst other players.
“Our loans to the women are not ‘payday loans’, rather we offered them loans for trade and small businesses to help them improve their lives to [be] repaid within a period of time.”
The spokesman said the organisation makes “a concerted effort” to profile the women before these loans are given.
Sorie Bangura, a Lapo manager in Makeni, a town in northern Sierra Leone, confirmed that the organisation was “working with the police”. Bangura added that police can only “harass” the women, not lock them up.
Brima Kamara, a police spokesperson, said police will only intervene in microfinance disputes to “help people mediate”.
Kiva has suspended its relationship with Brac Sierra Leone due to concerns raised during a separate internal audit process. “We will not be re-activating financing until all of the concerns that have been raised are investigated and addressed,” said Kathy Guis, senior director of partner investments at Kiva.
In response to allegations raised by the Guardian, Kiva sent a member of staff to investigate. Guis said Brac had conducted training around collection practices, which she thinks “will help them ensure that their policies are implemented uniformly throughout their branch network”.
None of the women interviewed for this article had taken Kiva-supported Brac loans.
Kiva also ended its relationship with Lapo in 2012, after a New York Times exposé about the large profits it was making.
Abibatu Kamara*, one of Mansaray’s closest friends, with whom she took out a group loan, said the police showed up at her house six months after she had defaulted on a loan. She said Brac treated her aggressively. “Brac is the worst. They won’t compromise. They’ll put you in a cell,” she said.
“There are no benefits with microcredit. But I need to eat. My children need to eat. So, what am I supposed to do? I have to take it.”
*Names have been changed to protect identities
Reporting for this piece was supported by UC Berkeley’s Human Rights Center Fellowship