Microfinance: Lending a hand

Fighting poverty with small loans is hot, but microcredit is not a magic bullet for underdevelopment

When Melecio Penafiel wanted to expand his tailoring shop in Guayaquil, Ecuador, last May, he didn't go to the bank or ask his relatives for help. His seed money arrived via the Internet. Using the website Kiva.org a Bay Area software engineer named Nathan Folkert lent Penafiel the $500 he needed to buy two new sewing machines, fabrics and thread for higher-quality suits. Folkert has never met Penafiel but says making the loan "felt like I was giving him a shot at the American Dream."

Folkert is what's known in the philanthropic world as a "microfinancier." Pioneered by last...

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