Never underestimate the power of an economist to change the world.

In 1974 Muhammad Yunus led his students at Chittagong University on a field trip to a poor Bangladeshi village. They met a woman who made bamboo stools, but whose profits were eaten up by the extortionate rates of local lenders. Yunus started lending money himself in the form of "micro-loans" and in 1976 the Grameen Bank Project was born.

The bank now covers nearly 70,000 villages and makes small loans to more than 6 million customers. It is remarkable in many ways: almost all of its borrowers are women, and the loan recovery rate is above 98 per cent, an astonishingly high number.

For its success in lifting the impoverished out of penury across Bangladesh, and for providing the model for a worldwide revolution of micro-credit, Yunus and the Grameen Bank were today awarded the Nobel Peace Prize.

In the past, the Norwegian committee which hands out humanity's greatest accolade have often struck a discordant note. Some people see Henry Kissinger (joint winner, 1973) as a warmonger; others see Yasser Arafat (joint winner, 1994) as a terrorist. There is almost no one who believes that the Nobel Committee got it right both of those times. Other choices are uncreative - the United Nations, the International Labour Organisation - or tediously predictable. This award was neither.

To award a Peace Prize for an anti-poverty inititative is striking enough, but that is only half the story.

In rich Western capitals like London there is today a thriving "international development community": well-meaning, thoughtful people in charities, pressure groups and Whitehall who came together last year at Live 8 and led to the world's wealthiest nations doubling their aid budgets.

But probe beneath the surface and you will find confusion. The charities praise aid in public; yet they quietly admit that simply handing over cash to often-corrupt governments has frequently failed miserably. They call for good governance, the latest buzzword, but any attempt to cut off cash to bad governments ties them in moral knots.

Grandiose schemes are the order of the day: the UN's flagship anti-poverty Millennium Project has, as the economist William Easterly has pointed out, a bewildering 449 proposals to meet 54 different goals in a 3,800-page plan that leaves no one accountable for anything.

The Grameen Bank presents a totally different approach. It was not dreamt up by a faraway Western aid agency. It is tried and tested; it is a business solution which comes from the grassroots.

Grameen shows us the poor and the destitute not as pitiable charity cases condemned to their lot, but as thwarted entrepreneurs who just lack the means to improve their families' lives. It is a profoundly optimistic view of human nature. With this inspired choice the Nobel Committee has lit a path that could lead to the eradication of poverty in our time.

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