Microlending, where a bank lends to a small group of people without credit histories, began with the Grameen Bank in Bangladesh, and is widely seen as the creation of Muhammad Yunus, who received the Nobel Peace Prize in recognition of his largely successful efforts. Since that time the model of...

This paper uses a reduced form credit risk model to determine fair lending rates for micro-finance loans. A fair lending rate is defined to be that rate which makes the loan have a net present value of zero to the lender, after the inclusion of the lender's costs of issuing and monitoring the loan