After teaching economics at Chittagong University from 1961 to 1965, Yunus won a Fulbright scholarship. He studied and taught at Vanderbilt University from 1965 to 1972, earning a Ph.D. in economics in 1969. He returned to Chittagong University as head of the economics department in 1972 and began studying the economic aspects of poverty in 1974 as famine swept through Bangladesh. Yunus even asked students to assist farmers in the fields, but he concluded that agricultural training alone would not benefit the large population of landless poor who had no assets. What the poor needed, he believed, was access to money that would help them build small businesses; traditional moneylenders charged usurious interest. In 1976 Yunus began a program of “micro” loans, a credit system designed to meet the needs of the poor in Bangladesh. Borrowers, whose loans may be little more than $25, join lending groups. Support from group members (in addition to peer pressure) coaxes borrowers to repay their loans. The Bangladesh government made the Grameen Bank Project an independent bank in 1983. The Grameen model has spurred other forms of microlending around the world.

In February 2007 Yunus entered the Bangladeshi political arena by forming a political party, Nagorik Shakti (Citizen Power), and announcing his intention to contest the upcoming election. His announcement came during a state of emergency and severe conflict between the country's two major parties, the Awami League and the Bangladesh National Party. Yunus promised his movement would seek to restore good governance and eliminate corruption. In May 2007, however, Yunus dropped his efforts to establish the party, citing a lack of support.

Yunus's honours include Bangladesh's prestigious Independence Day Award (1987) and the World Food Prize (United States, 1994). He was the first recipient of the King Hussein Humanitarian Award (Jordan, 2000).