Nobody thought it would work.

Padma Venkataraman, in New Delhi on business for the United Nations, wanted to do something more than just hand out rupees to the disfigured beggars with leprosy. She wanted to give them microloans to start their own businesses—something no bank or charity had ever attempted.

Critics said the “untouchables” in India’s 700 leprosy colonies would not be able to exchange a lifetime of begging for work, let alone be able to repay loans. They also asked who would be...

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