The inspirational economist Muhammad Yunus was awarded the Nobel Peace Prize today for helping lift millions of his fellow Bangladeshis from poverty through a pioneering scheme that lends tiny amounts of money to the very poorest of borrowers.

Professor Yunus shares the prize, and the cheque for 10 million Swedish Kronor (£730,000) that accompanies it, with the Grameen Bank, which he founded after the Bangladeshi famine of 1974 and whose micro-credit model has since been copied in dozens of countries around the world.

The bank, which is owned almost entirely by its own borrowers, has lent out some £2.9 billion to more than 6 million Bangladeshis, 96 per cent of them women. Even though its borrowers are not asked for collateral, more than 98 per cent of the money is repaid.

The Norwegian Nobel Committee, which awards the Peace Prize, cited the economist and his bank for their efforts in helping to "create economic and social development from below".

It added: "Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.

"Muhammad Yunus has shown himself to be a leader who has managed to translate visions into practical action for the benefit of millions of people, not only in Bangladesh, but also in many other countries.

"Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.

"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."

Muhammad Yunus was borning in Chittagong in 1940 and studied economics at Dhaka University before taking his PHD at Vanderbilt University in Tennessee, where he went as a Fulbright scholar.

He returned to Bangladesh to become an economics professor at Chittagong University, where he first experimented with micro-credit after the 1974 famine.

The first loan he made came from his own pocket when he $27 to a group of women who made bamboo furniture in a village near Chittagong. That allowed the women - who borrowed money at usurious rates to buy the bamboo - to break out of a cycle of debt and create a profitable business that could support their families.

The Nobel Committtee particularly praised them for having focused on female borrowers, which was also a pioneering concept.

"Micro-credit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions," it said.

"Economic growth and political democracy can not achieve their full potential unless the female half of humanity participates on an equal footing with the male."

The citation concluded: "Yunus's long-term vision is to eliminate poverty in the world. That vision can not be realised by means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing efforts to achieve it, micro-credit must play a major part."

The Nobel Peace Prize was first awarded in 1901. It was won last year by the International Atomic Energy Agency and its Egyptian head, Mohammed ElBaradei.

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