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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. Most of the borrowers already had access to credit--from moneylenders or suppliers of such materials as bamboo--but at exorbitant rates. In the early days, Grameen lent mostly to men, but in the late 1980s, the balance shifted strongly in favor of women. Special legislation turned Grameen into a formal bank in 1983. According to the announcement:

Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.

As in 2004, when it gave the Prize to Wangari Maathai, founder of the Green Belt Movement in Kenya, the Nobel Foundation has gone beyond a narrow definition of "peace" to embrace economic and social development, and to favor a charismatic individual who built a remarkable, multi-faceted private organization from scratch.

The Grameen Bank is impressive for both the scale and breadth of what it has achieved and the unconventional ways it got there. No wonder it has inspired replicators around the world. As of the end of 2005, it reported 5.05 million borrowers with an average balance of just $84. That is a 20% increase from the year before and makes Grameen the world's largest provider of the service for which it is most famous, microcredit. But there is much more to Grameen. Grameen Shakti sells solar panels--on credit--to families with no other electricity. GrameenPhone started out as a program to put mobile phones in the hands of village entrepreneurs, who could sell use to neighbors by the minute, and has now morphed into the country's leading mobile phone company, with 8.5 million subscribers, according to its slick annual report. And few people realize that not only does Grameen take savings, but its savings portfolio surpassed its lending portfolio in late 2004. Famous for credit, it now does more savings.
If there is a risk in this award it is that in focussing on one charismatic individual and one organization, it overshadows the contributions to development of other equally remarkable individuals, such as Fazle Hasan Abed, founder of Grameen's rival, the Bangladesh Rural Advancement Committee (BRAC), as well as Accion International and the ProCredit family, which are also central to the history of microfinance. Indeed, Accion says it developed modern microcredit before Yunus.
More broadly, the focus on individuals and non-governmental organizations may confuse the public about what economic development really takes. In the economic histories of Asia written a hundred from years from now, will microfinance play a leading role? I doubt it. In Asia today, hundreds of millions of people are climbing out of poverty. So much of what countries in the region have done right has to do with government policy--investing in education, redistributing land, strengthening property rights, leaving room for the private sector. There is no evidence that microcredit, remarkable as it is, has been similarly transformational. But government policies--or at least the often-obscure people who initiate them--don't get Nobels. This potentially distortionary focus on individuals is inherent in Alfred Nobel's conception of the Prizes. Not that I am without sin: CGD's Commitment to Development Index is an analogous exercise that also simplifies reality in order to broadcast a message about the need to make the world a better place. Yunus's energy and creativity in pursuing that goal are indisputable.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.