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MARK AUSTIN THOMAS: We all know the drill. If you want to take out a loan, you need some collateral. But in very poor countries many people have little to borrow against. Sometimes household assets are little more than a few cooking pots or a small herd of goats. But in Kenya one bank has found that personal integrity can be form of collateral. Gretchen Wilson brings us this story from Nairobi, Kenya.

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GRETCHEN WILSON: I'm in the back of a minibus taxi, lurching over potholes. Every Friday, loan officer Alice Kuria takes this route past banana trees and tin-sided slaughterhouses to the neighborhood of Dagoretti.

Kuria works for K-Rep, a commercial microfinance bank. Her destination is a shed without electricity. The community's borrowing group meets here at a long table, counting coins and crumpled bills.

Everybody pools together their savings, and they each bring about $10 to pay off their own small-business loans, as well. Their reputation depends on it.

ALICE KURIA: So in the group, if you don't come to the meetings, if you don't send your contributions, then now your character is questionable. Or even if you have a bad reputation in the community, then we can't allow you to go ahead and access a loan.

That's because your own neighbors put their savings on the line. Only 2 percent of these loans go unpaid, far better than the 15 percent of commercial loans.

Milka Wangari Mundati is a dressmaker and the group's chair. Since 1995, she's received loans totaling $3,500.

MILKA WANGARI MUNDATI: Being a group, it really helps, because we are together, we join together, and we are able to get those loans.

This empowerment is the idea behind microfinance banks, and it's working, says K-Rep's head of microfinance, Titus Chweya.

TITUS CHWEYA: Collateral never repays a loan. It's you, the borrower, who repays the loan. And we tell the clients very well: "From your next loan we are going to evaluate you on how you have performed in this loan that you have taken."

K-Rep isn't a charity. It charges interest. Still, it's been the spark behind 40,000 small businesses in Kenya, such as Mundati's dressmaking business.

MUNDATI: I'm so grateful because I've been able now my children are in secondary school and I'm able to pay for them and I feel great. I feel proud!

Mundati's now helping other women start their own businesses. And that does a lot for her reputation.

In Dagoretti, Kenya, I'm Gretchen Wilson for Marketplace.