How Microfinance Failed the World's Poor

**Jessica Mendoza** (0:14)
Pram Tor is a farmer in northwest Cambodia. He's 40 years old. He and his wife have three kids.
He grows vegetables like curly cabbage and wax gourd that he harvests by hand.

**Gabriele Steinhauser** (0:32)
He rents a plot of land from the government, and he grows vegetables. And his wife sells those vegetables on the local market.

**Jessica Mendoza** (0:42)
Our colleague Gabriele Steinhauser went to meet him near his farm in Battambang province.
A few years ago, Pram Tor and his family wanted to expand their small farm. The hope was that they ultimately could start earning more money. So he took out a loan from a local lender.

**Gabriele Steinhauser** (1:08)
He took a first loan of $1,000 to buy some farming inputs and increase his yield. He thought, I can earn more money and make a better life for my family.

**Jessica Mendoza** (1:29)
The monthly payments were manageable, and he was able to pay the loan back easily. And that small loan of $1,000 helped grow his business.

**Gabriele Steinhauser** (1:39)
The perfect definition of microfinance and what it was supposed to do.

**Jessica Mendoza** (1:47)
Microfinance was created to provide small loans to poor people in developing countries.

**Gabriele Steinhauser** (1:53)
The idea is to allow people to pull themselves up by the bootstraps, to lend them money so they can start businesses, become entrepreneurs.

**Jessica Mendoza** (2:04)
That's the way it was supposed to work. And it did work for Promptor, at least at first.
Then in 2023, his loan officer encouraged him to take out a second loan.

**Gabriele Steinhauser** (2:16)
That loan officer was like, yeah, we can, you know, we can lend you more money and, you know, we can lend you $5,000 this time.

**Jessica Mendoza** (2:24)
With that $5,000 loan, Promptor could rent more land and hire some other workers. And how did that second loan work out for Promptor?

**Gabriele Steinhauser** (2:37)
It hasn't been that great. His plan to, you know, sort of massively increase his yield and income hasn't panned out.

**Jessica Mendoza** (2:47)
That year, the crops weren't bountiful enough. Promptor's costs outpaced his revenue.
Now, the debt has become a serious burden. The family makes only around $400 a month, and a third of that goes toward paying off the loan. The family has had to go to extreme lengths to save money, including eating fish paste and rice instead of more nutritious food. And if Promptor doesn't make his payments, he risks losing his family's land.

**Gabriele Steinhauser** (3:15)
It's the thing that keeps him up at night, right? I mean, this is something that I heard from him and other borrowers that I spoke to. Like, the psychological pressure of this looming debt is really tormenting.

**Jessica Mendoza** (3:30)
In your reporting, Gabriele, how unusual did you find Promptor's story?

**Gabriele Steinhauser** (3:36)
Not unusual at all.

**Jessica Mendoza** (3:39)
The original goal of microfinance was to empower the world's most vulnerable people. Think of it as a market-based alternative to charity.

**Gabriele Steinhauser** (3:48)
It's sort of like the capitalist solution to global poverty. We don't need handouts, you know, we don't need to give people something for free. We just have to enable them. And borrower by borrower, we're going to solve poverty writ large. And within, you know, a generation or two, the world would be a much different place.
Well, surprise, surprise, there's still poverty in the world. It certainly hasn't lived up to the grand vision.

**Jessica Mendoza** (4:25)
Welcome to The Journal, our show about money, business and power. I'm Jessica Mendoza. It's Tuesday, July 14th.
Coming up on the show, how a promise to end global poverty failed.

**SPEAKER_4** (4:52)
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**SPEAKER_5** (5:22)
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**Jessica Mendoza** (5:57)
Microfinance was established in the early 1980s. It was a time when Western countries had started scrutinizing the international aid system that had been around since the height of the Cold War.