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Grameen Bank

It is widely accepted by economists that there are failures in the area of providing credit—especially for microentrepreneurs. Though in theory there would be no unmet credit needs in a perfectly competitive market, in the real world, transactions costs and asymmetric information (when one party to a transaction possesses information not available to another party) result in markets that are not perfectly competitive and therefore in credit rationing.

Muhammad Yunus, an economics professor, identified lack of access to financial resources as the main cause of poverty in the rural areas of Bangladesh. He observed that poor people had skills, were engaged in productive activities, and worked hard. Their inability to get ahead, he reasoned, came from their lack of access to working capital. The poor ...

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