Microloans are saving the world. At least the Norwegian Nobel Committee decided they were when it gave banker Muhammad Yunus the Nobel Peace Prize for starting a bank that helps “the poorest of the poor.”

The Grameen Bank, started by Yunus, is the first major bank to give impoverished people small loans to improve their businesses, and this trend of philanthropy has also spread throughout Third World countries.

Jerremy Hanley, a Seattle University MBA student, spent over two years with the United States Peace Corps in Mamfè, Cameroon, conducting feasibility studies, which means he decided if applicants were capable of paying off loans.

He gave the example of a farmer who wanted the U.S. equivalent of an $800-900 loan to buy a grinding machine for his farm. Before, the farmer grinded the cassava plants (think potato) by hand. Hanley calculated that the farm was large enough to produce enough revenue to pay back the loan at about 33-36 percent interest. His organization then took the loan out through the village bank.

Hanley said about 90 percent of the loans taken out were paid back on time. In the beginning, the loan committee would process about three to four loans a month, and about seven to eight customers applied for loans each day. However, he said that once the word got out, the loan committee was able to process more loans.

Their operation was small, and they worked out of a one-room shelter with concrete floors. “We didn’t have computers or anything,” he said. Payments were tracked through pen and paper, but they did own a safe.

In the United States, even a 30 percent interest rate is exorbitant. However, in Third World countries, where there isn’t a system for people to build credit, it’s often impossible to even get a loan, and if one did manage it, the interest could be above 100 percent. So a 36 percent rate of interest is considered low.

According to a Seattle Times article, many microloan operations take on for-profit business investors who expect a return. Although the general attitude of the investment is that it is a work of philanthropy, the banks attract more investors by hope of some type of return.

In the Times article, however, Yunus warned about over-emphasizing profits: “I would just appeal to them, ‘Don’t go all the way to maximize profit in a kind of literal sense, not to grab as much money as you can.’”

If giving return to investors is an effective way to attract their giving, then using for-profit businesses’ willingness to take a risk on a non-profit organization shouldn’t even be a question. Although it hasn’t been common in the past, it is possible for philanthropic causes to turn profits and still be ethical.

To help increase the ability for customers to pay back loans, Hanley said his organization used a model of communal, group-oriented loans. That is to say, a small group of people would take out a loan together. Every month each customer would pay their dues, but if one customer wasn’t able to pay, the group was expected to compensate. As a result, some communities have been able remedy their own poverty together, and Hanley attributes the high level of repayment to this model.

The biggest problem this movement has come across is corruption in the banks. “You can get loan officers … who treat the deposits as a personal piggy bank,” Hanley said. However, he also pointed out that corruption happens in large NGOs like the World Bank. He said one of the most effective solutions to corruption is raising strong, ethical leaders in Third World communities. These leaders would more effectively know and understand the needs of their people than a good-willed foreigner. It’s something that should be on everyone’s mind when they think of long-term change.

Every human organization that involves money is bound to have some level of corruption. However, looking at all the people who have benefited from these microloans and investors’s increased willingness to participate, the success outweighs the problems.

The interest rates are high, but far from unreasonable for what the customers are asking for. Although using for-profit businesses to run a non-profit is controversial to some, it’s effective, and the loans are arguably better than handouts because the poor are responsible for using the money toward something that will benefit them in the long run.

Reach columnist Celeste Flint at opinion@thedaily.washington.edu.