September 20, 2010; Source: San Francisco Business Times | The online microlending site, Kiva.org wants to use the power of individual donations combined with technology to help underwrite the cost of secondary education for students in developing countries. The company’s new microloan service is now available to students in Bolivia, Lebanon and Paraguay. It hopes to add Peru soon.
According to the San Francisco Business Times, the student loan program will operate much like the microloans currently offered to entrepreneurs in 52 countries. To take part in the new program, a donor anywhere in the world can log onto Kiva’s website and make a contribution, starting at $25, to support a student’s education. Kiva’s founder and president, Premal Shah, says the new venture is designed to end a “chicken and egg problem” that discourages banks from loaning money to students in developing countries. As he notes, “There’s no track record of student loans, and therefore local banks won’t come and lend to students. If they don’t do that, then there’s no track record, so there’s this log jam, essentially.”
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Shah notes that the default rate for student loans in the U.S. is about 25 percent–much higher than Kiva’s overall 1.1 percent default rate–and thus there is some risk from this new undertaking. He says that it will be at least 18 months before Kiva can determine the repayment rate for loans made to students in the three participating countries.
In addition, the repayment period for student loan –over two to three years–will be longer than for typical microloans, which tend to get paid back within 10 months on average. The real payoff from the program, though, isn’t the repayment rate, but whether students who earn degrees in accounting or information technology or other subject become productive adults.—Bruce Trachtenberg