Grameen Bank and Microfinance

How Muhammad Yunus's Grameen Bank pioneered small loans to poor women using group lending, why it won a Nobel Prize, and what later research found about microfinance.

Muhammad Yunus, an economics professor, began lending small amounts to poor villagers in the 1970s.

Grameen Bank

Founded formally in 1983.
Lent to poor women without collateral.
Used group lending: members of small groups were jointly responsible, encouraging repayment through peer pressure.
Reported high repayment rates.

Nobel Prize

Yunus and Grameen Bank won the Nobel Peace Prize in 2006.

Global spread

Microfinance spread worldwide, including to India through self-help groups and microfinance institutions.

What research found

Randomised studies in several countries, including India (Hyderabad, by Banerjee and Duflo), found microfinance had modest effects: it helped some businesses and smoothed spending, but didn’t transform average incomes.
Over-indebtedness caused crises, like Andhra Pradesh in 2010.

Yunus’s later role

Yunus became head of Bangladesh’s interim government in August 2024.

The group loan

Five women in a village each borrow small amounts to buy goats and sewing machines. They meet weekly to repay, knowing the group's credit depends on everyone.

Thinking microfinance ends poverty on its own

Research found modest average effects.

Key takeaways

Yunus founded Grameen Bank formally in 1983.
It lent to poor women using group liability.
Yunus and Grameen won the 2006 Nobel Peace Prize.
Research found modest average effects.