Microfinance has rapidly developed and is now an important part of the financial sector in many countries. More than two hundred million clients use the services offered by microfinance institutions. Nevertheless, the microfinance sector has been regularly accused of unfair and unethical practices, leading to various crises in Africa, Asia, and Latin America. A diverse set of ethical accusations has been levied against microfinance, including overindebtedness, coercion, and usurious practices.

To date, a number of papers and books have addressed the specificities of the group lending methodology, the impact on clients, or the governance of microfinance institutions. Yet little research has analyzed the ethical criticisms directed at the microfinance sector or, more generally, at the practice of microfinance. This book undeniably contributes to filling this gap. It provides an original analysis of the ethical debates surrounding the microfinance sector, classifying them into two main groups. The first group covers “microethics” issues (part 2 of the book), which are related to the practice of microfinance and the relationship between the microfinance institutions and their clients. Issues such as exploitation, coercion, and paternalism of microfinance institutions are addressed in this part of the book. The second group encompasses “macroethics” issues (part 3), which concern broader societal implications, such as the distribution of the benefits and burdens of microfinance, the informality of most microfinance clients, or the macro impact of microfinance. Before tackling these issues, part 1 of the book provides a rich, historical overview of microfinance practices and the empirical evidence related to their impact. The data and methods combine theoretical arguments with anecdotal evidence and data analysis from large, international datasets.

Can Microfinance Work? helps not only to understand the variety of ethical issues in microfinance, but also offers some answers to these issues from microfinance practitioners. This book is particularly helpful to understand the character of the ethical debates related to microfinance. The author argues that many of these criticisms are related to the inherent practice or model of microfinance, such as the group-lending methodology where borrowers are jointly responsible for the reimbursement of loans or the high interest rates of microcredits that are often charged to cover operating expenses. Nevertheless, some ethical issues stem from the evolution of the sector, a phenomenon frequently called the commercialization of microfinance, which has subverted the original, benign intentions of the sector. These evolutions have seemingly generated the context in which exploitation and coercion could occur.

This distinction between inherent practices and the evolution of the sector is obviously crucial to determine the various responsibilities related to these ethical lapses. Sheratt argues that, in most cases, rather than a clear and deliberate intention, it is a lack of duty of care that can work against the good intentions of the microfinance industry. In other words, in many instances, practitioners choose to ignore a duty of care while their clients or beneficiaries are in particularly unfavorable conditions.

I would like to highlight two strengths of the book. First, we could praise the multiple links that are made to more general ethical debates or concepts used in ethics. For instance, the chapters on coercion, exploitation, and paternalism combine a theoretical section—with an introduction to the conceptual debates on each of these terms—followed by an application to the case of microfinance. Most of the literature on ethical issues in microfinance is empirical and lacks conceptual clarity; this book is definitely a valuable step in this direction.

Second, this book moves one step further and suggests some clear guidelines to make microfinance more ethical. While most of the literature on ethical issues in microfinance is descriptive, there are some clear prescriptions in the book. One important step is to cease group liability (171) due to the various potential negative consequences related to this methodology. The author clearly explains these consequences, such as the high social tensions in microcredit groups formed by borrowers, who are typically poor women. These women need to deal with the risk of being obliged to reimburse others’ loans. While ceasing group liability could indeed reduce ethical risks in microfinance, there is a competing risk that it would be done at the cost of even higher interest rates. Many microfinance clients do not have any form of collateral, and group liability typically serves as an original form of “social collateral.” Some microfinance institutions may therefore be tempted to increase their interest rates in the absence of this social collateral.

Another prescription is the call for more transparency in the uses of loans (175). A central argument asserts that clear and distinctive procedures to avoid harming the poor should have been implemented and that there was insufficient transparency, feedback, and accountability in the sector (184). The application of the duty-of-care concept to the case of microfinance is both original and enlightening as it stresses a key responsibility or duty of microfinance managers. The call for more transparency is a crucial one because of the fragility of the microfinance clientele and the complexity of some microfinance operations. For instance, calculating the total costs of a microcredit is particularly complicated not only because of the various costs and expenses related to the microcredit but also due to the way interest rates are computed. The discussion of microcredit interest rate fairness provides some clear insights on non-exploitative pricing policy. Sherratt recommends the use of rates for uncollateralized loans as the fair rate benchmark since rates for uncollateralized loans would not take advantage of the poor’s exclusion from financial services (169).

While the book tackles a wide range of important issues, it perhaps could have included more discussion of the other types of microfinance products, such as savings and insurance. The primary focus of the book is on microcredit, which is obviously a central product for microfinance institutions and probably the most visible one. Nevertheless, some recent impact surveys suggest that savings has some clear potential in terms of poverty reduction, maybe even more so than microcredit, while research on microinsurance is also showing some promising results (Armendáriz and Morduch Reference Armendáriz and Morduch2010; Hudon and Sandberg Reference Hudon and Sandberg2013).

Another topic that might have been further elaborated is how governance mechanisms can help to curb ethical lapses. Good governance practices could help to avoid the ethical lapses discussed in the book, or simply to avoid the mission drift of microfinance institutions that no longer serve their target of poor clientele.

All in all, the book provides a very interesting review of most core ethical debates in microfinance, and is a must read for scholars interested in social enterprises.