World Bank’s IFC recently uncovered alarming practices by Cambodian microfinance lenders, which pressured impoverished borrowers into repaying unaffordable loans. The report, published Wednesday, revealed lenders advised some borrowers to sell their children to avoid default—a stark deviation from microfinance’s original mission. This scandal stems from a multibillion lending program once hailed as a global poverty solution, now exposed as a failure. The IFC’s findings highlight a systemic neglect of borrowers’ financial realities, prioritizing repayment over sustainability.

Microfinance, pioneered by economist Muhammad Yunus in the 1970s, aimed to empower the poor through small loans. Backed by the World Bank and private investors, the sector grew to disburse hundreds of billions globally. However, the Cambodian case reflects a troubling trend: lenders increasingly ignored borrowers’ repayment capacity, resorting to coercive tactics. The WSJ investigation underscores how this model, once celebrated for its inclusivity, has been co-opted by profit-driven motives, eroding trust in microfinance as a tool for equitable development.

The fallout threatens investor confidence and the sector’s credibility. For businesses relying on microfinance in emerging markets, these revelations signal heightened risks. Regulators may face pressure to tighten oversight, while lenders could face reputational damage. The IFC’s report serves as a wake-up call: without accountability, microfinance risks becoming another casualty of unchecked capitalism. Investors and policymakers must now weigh whether the sector can recover or if this marks a permanent shift away from its poverty-alleviation roots.