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the industry is starting to revive, with regulators in a far more central role. Microlenders are attracting capital again. Grameen Capital India, a social-investment bank, says $144m of equity has been injected into microfinance groups in the past 12 months, more than double the amount in the preceding year. The International Finance Corporation, a multilateral lender, invested $18m in Equitas, a mid-sized group in the southern state of Tamil Nadu. SKS, whose loan book is now worth just $325m, raised $47.5m by issuing shares last year.

Microlenders’ annual interest rates are now capped at 10-12 percentage points above their own borrowing costs, leaving most charging 23-27%.

microfinance firms are looking beyond small, unsecured loans, which the central bank caps at 50,000 rupees ($910) a pop. Equitas last year set up a subsidiary that sells mortgages to poorer customers. Bandhan has similar plans. P.N. Vasudevan, the managing director of Equitas, says his housing loans, starting at 100,000 rupees, involve lower operating costs, in part because mortgage payments often get transferred via banks and do not require collection.

aims to improve our understanding of the social mechanisms that link financial legitimacy and institutional change. As Max Weber and Karl Polanyi have argued, economic activity is rooted in social relations and collective understandings.

a.j.broome@bham.ac.uk

The idea of such poverty traps has a long and distinguished intellectual heritage, but Ms Duflo's provocative argument was that her research and that of others showed that a profound lack of hope—and not just capital, credit, skills, or food—could create and sustain a poverty trap.

Bandhan, an Indian microfinance institution, worked with people who lived in extreme penury. They were reckoned to be unable to handle the demands of repaying a loan. Instead, Bandhan gave each of them a small productive asset—a cow, a couple of goats or some chickens. It also provided a small stipend to reduce the temptation to eat or sell the asset immediately, as well as weekly training sessions to teach them how to tend to animals and manage their households. Bandhan hoped that there would be a small increase in income from selling the products of the farm animals provided, and that people would become more adept at managing their own finances.The results were far more dramatic. Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the Bandhan programme were eating 15% more, earning 20% more each month and skipping fewer meals than people in a comparison group. They were also saving a lot. The effects were so large and persistent that they could not be attributed to the direct effects of the grants: people could not have sold enough milk, eggs or meat to explain the income gains. Nor were they simply selling the assets (although some did).