Muhammad Yunus lent $27 to 42 villagers and built a bank that served nine million.
In 1976, Muhammad Yunus, an economics professor at Chittagong University in Bangladesh, lent the equivalent of $27 to forty-two villagers in the town of Jobra. The borrowers were mostly women who made bamboo furniture and could not access conventional bank loans because they had no collateral. Yunus lent from his own pocket at no interest.1
Every borrower repaid. Yunus repeated the experiment, expanding the model through a series of pilots with government-owned banks. In 1983, the project was formalized as Grameen Bank, with Yunus as managing director. Grameen means "village" in Bengali.2
The bank’s lending model inverted conventional banking assumptions. It lent to borrowers with no collateral, organized them into small groups of five who guaranteed each other’s loans, and prioritized women, who made up roughly 97 percent of borrowers. Repayment occurred in small weekly installments.3
By 2006, Grameen Bank had lent over $6 billion to more than nine million borrowers, nearly all of them women, across more than eighty thousand villages in Bangladesh. Its loan recovery rate consistently exceeded 98 percent.4
That year, Yunus and Grameen Bank were jointly awarded the Nobel Peace Prize for their efforts to create economic and social development from below.5
The model inspired microfinance institutions in more than one hundred countries. It also attracted criticism. Some researchers found that microloans did not consistently lift borrowers out of poverty, and commercialized microfinance in other countries sometimes charged interest rates far exceeding Grameen’s. A 2015 review of six randomized controlled trials found modest positive effects on business activity but no transformative impact on income or consumption.6