Borrowers hungry for help to survive

Grameen, the pioneering microlending institution, has seen a sharp rise in problems for millions of poor borrowers across the developing world in repaying loans as food prices soar, according to Muhammad Yunus, its founder and Nobel Peace Prize winner.

Food prices have jumped in the past year, sparking riots in more than 30 countries and rising protectionism as governments seek to ensure food supplies.

The rising food prices are hitting many of the 38 countries in Asia, Africa and the Americas where Grameen operates. Grameen lends directly to almost 8m people to help them start small businesses and supports other microfinance bodies that lend to more than 3m.

"I would say [food prices are] a serious crisis. It's not something temporary, something seasonal," Mr Yunus told the Financial Times. "Whatever money they have, now they're using a lot more of their income for buying food, so the strain on making payments becomes very, very difficult."

The poor, who are the focus of Grameen's microlending model, tend to be hit particularly hard by rising food prices because food takes up a larger proportion of their income. India, the Philippines and Bangladesh – where the organisation was set up and is most extensive – had particularly suffered, he said.

Borrowers from Grameen are lent amounts as small as $50 and pay back in weekly instalments. The bank claims a 98 per cent repayment rate and allows borrowers to reschedule a loan when they have trouble keeping up with payments.

"Now it takes a lot of hardship to pull that money out of the pocket and pay [for a loan], but they're paying it for the time being," he said. "But it may extend in the future. Some of the instalments may be missed."

Mr Yunus believes food prices could endanger the UN Millennium development goals, such as halving extreme poverty between 1990 and 2015.

In a report last month the World Bank, the UN Food and Agriculture Organisation and the International Monetary Fund said rising food costs could undo improvements in global poverty over the past decade.

High oil prices and the rise of biofuels had played a part in pushing up food prices, Mr Yunus said, but it was the very reduction of poverty in some countries that was making the situation for the poorest particularly dire.

"It has created a new situation where consumption level has gone up, people are eating more than they did," he said. "Whatever food grain was available, it's going into the middle class and coming out of the poorer class."

?Grameen America, an offshoot of the microlending bank set up in New York, has made more than $390,000 of loans to 170 borrowers since January.

The project is a pilot that Grameen hopes to expand across the US. The bank has had requests to begin projects in other cities, including New Orleans, which is still struggling to recover from the effects of hurricane Katrina in 2005.