The Norwegian Nobel Committee praised Yunus and his bank for their “efforts to create economic and social development from below”.

Though it is not the first time the committee has chosen to honour economic development as a contribution to world peace, rather than the more usual diplomacy or rights advocacy, it is the first time the prize has been awarded to a profit-making business.

The selection seemed to embody two connected ideas that are gaining ground among development experts: that attacking poverty is essential to peace, and that private enterprise is essential to attacking poverty.

Yunus founded the bank to lend small amounts of cash — often as little as $20 (Bangladeshi taka 1,370) — to local people, almost always women, who could use it to found or sustain a small business by, say, buying a cow to sell milk or a simple sewing machine to make clothing.

Since its creation in 1983, Grameen Bank has made a total of $5.72 billion in such small loans, and has turned a profit in all but three years, including $15 million in 2005.

“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,” the Nobel citation said.

Yunus reacted joyously to the news, AP reported. “I am so, so happy,” he said in a telephone interview from Dhaka, shortly after the prize was announced. “It’s really great news for the whole nation.”

The son of a prosperous goldsmith, Yunus has said that his mother’s generosity to the poor instilled in him from a young age a sense of duty to the poor.

M. Morshed Khan, Bangladesh’s Foreign Minister, said that he and Yunus grew up in villages less than a mile apart in southern Bangladesh and attended the same government high school in nearby Chittagong. “I could feel from that time, he was a great achiever, and that one day he would do something important,” Khan said in a telephone interview from his home. The success of the Grameen Bank has inspired many imitators, and encouraged commercial banks in many developing countries to take up microcredit lending as well.

The Peace Prize “looks like a fitting acknowledgment that the ways of the market are not necessarily evil, that markets can be harnessed as forces of good if done properly,” said Nachiket Mor, executive director of ICICI Bank, which now has about $550 million in outstanding micro loans. James Wolfensohn, the former president of the World Bank, said by telephone Friday that the award testified to “the power of entrepreneurialism”.

“What it has to do with peace,” he added, “is that it gives dignity to families and hope to families. And it’s the lack of hope that is the greatest cause of bloodshed and intolerance.”

ANAND GIRIDHARADAS & KEITH BRADSHER