In many countries poverty is widespread, and so is also corruption. Foreign aid is given to countries in need to combat poverty, but unfortunately corruption has a restraining effect on the effectiveness of aid. The aim of this thesis is to examine how Sida, the Swedish International Development Cooperation Agency, handles the issue of aid and corruption in the Babati District, Tanzania, where a field study were made, and what methods there are to handle this issue. The method used for this study is qualitative interviews in Tanzania and Sweden, and a literature study of previous research. The results indicate that corruption is a problem in the Babati District and that Sida is well aware of the existence of corruption in recipient countries, and the problems connected to it. Sida has prepared anti-corruption documents and regulations to use during cooperation with developing countries, and the agency is partly giving aid that reduces corruption and builds democracy. Previous research shows that there are additional methods to utilize that increases the effectiveness of aid, than Sida is currently using. One method that is well-founded is to withdraw all financial aid to countries with widespread corruption, and only focus on non-financial aid to decrease money flows and to build functioning public institutions. When corruption is eliminated, financial aid will be more effective and private investors will be attracted, and thus poverty reduction will increase.