Dhaka—In August, Bangladeshi police broke up a ring of human organ dealers operating in Joypurhat, a district in the north of the country. Investigators say that three local “brokers” preyed on a large pool of indebted farmers, who agreed to part with a kidney or a chunk of their liver for a couple thousand dollars—enough for them to pay down their debts. Mosammat Rebeca and her husband sold their kidneys to help pay back 180,000 taka ($2,358) owed to five separate lenders—a massive sum in a country where the per capita annual income hovers around $1,700. Rebeca’s husband was paid 135,000 taka ($1,768) for selling his kidney last year, but it wasn’t quite enough. “We were about 65,000 taka short, so I had to donate my kidney as well,” she told me in a recent interview.

Rural indebtedness is as old as the earth in South Asia, but what was notable in this case was its source. Instead of the usurious village moneylenders of old, many organ sellers say they were victims of a new, apparently virtuous, engine of economic empowerment—microfinance. While such micro-loan programs have been widely touted as a ladder out of poverty, they had become a crushing burden for many in Joypurhat, who spoke to me of entangling webs of debt and the aggressive tactics of NGO debt collectors. Indeed, stories like the ones I heard in Bangladesh speak to a larger backlash, both on the ground and in the academy, against the practice of offering micro-loans as a tool for international development. While the majority of microcredit institutions are doubtless well-intentioned, in many places an unregulated and overzealous lending market has led to rashes of personal indebtedness and desperation that are a far cry from the development outcomes originally envisioned by experts and donors.

THE PRACTICE OF OFFERING micro-loans as a tool for poverty alleviation has a long and multifaceted history, but most popular accounts begin with Mohammad Yunus’s decision to establish the Grameen Bank in 1976, handing out small loans to impoverished households in rural Bangladesh. In the view of Yunus and other early boosters, access to credit was directly linked to poverty reduction: Granting access to funds at reasonable interest rates would allow the poor to avoid the usurious rates of traditional moneylenders and use the funds to start small businesses and cottage enterprises. In addition, one of Grameen’s key innovations was to target its financial services at women, who bear a disproportionate burden of poverty and are thought to be more reliable financial clients than men. Given the chance, Yunus came to believe, Bangladesh’s rural women could form self-reinforcing networks of trust that would guard against defaults. In short, the poor could be made “bankable.”

Since then, microfinance institutions (MFIs) have revolutionized the field of development, and the global clients of these organizations number in the hundreds of millions. From a narrow focus on credit, MFIs have expanded to encompass a wide range of “micro” financial services, including savings accounts, insurance policies, and skills training programs. Yunus’s Grameen Bank has become an institutional behemoth supporting MFI operations on three continents and hawking everything from mobile phones and knitwear to software and business development plans. In awarding the 2006 Nobel Peace Prize to Yunus and Grameen, the Nobel committee stated that the bank had become “a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.”

But in recent years, microfinance has developed a macro-image problem. Anger has exploded in Andhra Pradesh, India, where journalists and politicians have linked MFIs, including SKS Microfinance, one of India’s largest, to dozens of rural suicides. Opposition came to a head there in October of 2010, when the state government approved an ordinance designed to prevent the “harassment” of small borrowers by debt collectors. Caught in Micro debt, a 2010 documentary by Norwegian journalist Tom Heinemann, turned the spotlight on Yunus and the Grameen Bank, accusing the Nobel laureate of tax evasion—an allegation that was partly used to justify Yunus’ removal as head of Grameen by the Bangladeshi government in March. (Yunus and his supporters deny the film’s allegations.)