When Helping Hurts: How to Alleviate Poverty Without Hurting the Poor . . . and Yourself

by Steve Corbett

In 1976, a virtually unknown economics professor was visiting a village in rural Bangladesh during a devastating famine. There he encountered Sufiya, a very poor woman who was struggling to support her family by weaving bamboo stools. Sufiya was trapped. She needed to borrow twenty-two cents per day to buy materials, but banks would not lend to her because she did not have acceptable collateral and her desired loan size was too small. As a result, Sufiya was forced to borrow from loan sharks, whose exorbitant rates of interest left her with only two cents of profit at the end of a twelve-hour workday. Sufiya’s neighbors expressed similar frustration, facing interest rates ranging from 10 percent per week (520 percent per year) to 10 percent per day (3,650 percent) per year. The professor reached into his pocket and lent Sufiya and forty-one of her neighbors a total of twenty-seven dollars. To the amazement of observers, the loans were fully repaid on time.1 Contrary to the received wisdom, it was possible to lend money to very poor people and get it paid back! Thirty-five years later, that economics professor, Dr. Muhammad Yunus, is a Nobel laureate, and the Grameen Bank, which he established to provide credit to the poorest people of Bangladesh, has 7.58 million poor borrowers and has lent $7.4 billion since its inception in 1976. More than 98 percent of Grameen’s loans have been repaid, meaning that Grameen’s money can be lent and re-lent