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The development world was electrified today by the news that Muhammad Yunus and the institution he founded, the Grameen Bank, will share the 2006 Nobel Peace Prize "for their efforts to create economic and social development from below." As an economics professor at Chittagong University in Bangladesh in 1976, Yunus led his students in an innovative experiment: making tiny, short-term loans to people in the nearby village of Jobra.
Several approaches to microfinance have been refined over the years, some lending to groups (as at the Grameen Bank), some to individuals (increasingly prevalent in Latin America). All seek to solve a business problem: how do you deliver small-scale financial services to the poor, in countries with weak infrastructure and human capital, while minimizing administrative costs? The various approaches to microcredit are what economists would call technologies: clever ways of producing a service that was once thought impossible, or at least impossibly expensive.