Microfinance and the Grameen Bank

In 1976 Bangladeshi economist Muhammad Yunus lent a total of about $27 of his own money to a group of women in the village of Jobra who were trapped in debt to moneylenders. The experiment grew into the Grameen Bank, formally established in 1983, which made small loans to poor borrowers, mostly women, without requiring collateral. Instead it relied on groups of borrowers who supported and monitored each other, and repayment rates were reported to be high. Microfinance spread worldwide, and Yunus and Grameen shared the 2006 Nobel Peace Prize.

Early enthusiasm suggested microcredit could lift millions out of poverty. Later randomized studies in several countries found more modest average effects: access to loans helped some businesses expand but did not, on average, transform household incomes. Commercial lenders charging high interest also drew criticism, and a 2010 repayment crisis in India's Andhra Pradesh showed the risks of over-indebtedness. Microfinance is now seen as useful but not a cure-all.