Microfinance was pioneered by Dr. Mohammed Yunus, founder of the Grameen Bank in Bangladesh.  Dr. Yunus established the Grameen Bank in 1976 in order to help poor families overcome the vicious circle of poverty through access to small-scale loans. Because poor people do not have collateral  and are socially marginalized, they are often denied loans through commercial banks and lack access to capital needed to expand their  . These loans are given based on trust, without the need for collateral and are targeted at financing income generating activities.

By the end of 2005 Grameen Bank was reaching over 5.5 million poor entrepreneurs through credit and other financial services. Grameen Bank has reversed conventional banking practice by removing the need for collateral and the creation of a banking system based on mutual trust, accountability, participation, and creativity. Grameen Bank provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At Grameen Bank, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the over all development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Dr. Yunus reasoned that if financial resources can be made available to poor people on terms and conditions that are appropriate and reasonable, "these millions of small people with their millions of small pursuits can add up to create the biggest development wonder."