Cookie Banks and Microloans

Kakbank was founded by Peter Kelly. It’s meant as a fun way to have a gathering and also do some good. The idea is to eat cookies and cakes while deciding who to help with the group’s pool of donations.

For my group, one of the criteria is that the loans should be made out to people running businesses. We also assess the viability (as much as we can anyway) to determine if the business has a high chance of being sustainable. You could say we’re like VCs, but without all the stock options and exit strategies and board meetings and… ok, maybe we’re not like VCs…


Paying your university education through microfinancing

This is a followup to a previous article on financing your university education (inspired by a conversation with my friend Christopher). We talked about paying the university a fixed percentage of your monthly salary in exchange for a “free” education. The condition is that you continue paying till you die. The middle ground is a bit of upfront payment and a lower percentage of your income. Whether you continue to pay forever is up for debate.

It turns out that there’s another solution. Microfinancing. It’s popular for jump-starting entrepreneurs in poorer countries. The concept is to loan small amounts of money to those entrepreneurs so they can get started with their businesses. Kiva is one of the leading organisations for this. The return rate is fairly high, with a near 99% of all loans being payed back to the loaner.

The parallel to Kiva for student loan microfinancing is Vittana. From the Economist,

Finding new ways to fund poor students in emerging markets has become a hotbed of innovation. Vittana, founded three years ago by Kushal Chakrabarti, a former software developer at Amazon, is raising loans for students in five countries, with more soon to follow, through “peer-to-peer” online lending, mostly by people from rich countries.

There’s also a site Qifang that caters to Chinese students. It works like an all-or-nothing method. A student asks for an amount. Only when enough lenders loan collectively to that amount, does Qifang release that money to the student. I’m not sure how the repayment works though. There’s an annual loan rate, but I don’t know what it’s for.

But entrepreneurs are a different group than students.

Microfinance for students presents two specific problems. Micro-entrepreneurs tend to be from families embedded in communities that can exert strong peer pressure to repay. By contrast “students come from remote villages, no one knows them, they have no reputation to lose,” says Mr Hutagt. Student loans are also much longer-term—up to five years—than the one-year maximum of traditional microfinance business loans.

The organisations that actually did what Christopher suggested are Lumni and Enzi.

From Lumni,

Lumni does not provide loans. Students receive financing, and in exchange, agree to a pay a fixed percentage of their income for a fixed number of months – for example, 5% of income for 120 months after graduation. This means no burdensome payments during unemployment or periods of lower pay. Your obligation is complete after 120 working months, regardless of how much or how little you have paid.

Well, not exactly. There’s a limit to the repayment period: 120 months. And I highlight this:

Your obligation is complete after 120 working months, regardless of how much or how little you have paid.

I trust the younger generation, that they have integrity and honesty. I also believe this is a loophole waiting to be exploited.

From Enzi,

As an Enzi Fellow, you will have the means to fund your education, the most significant investment you can make in yourself. Many studies illustrate how the benefits of education include increased lifetime earnings, greater professional and social mobility, and enhanced quality of life for the educated individual’s family and community. Moreover, you will never have to repay what you cannot afford. Our future-income model ensures that your repayment amounts will be aligned with your financial means, which is peace of mind for you!

I believe education is one of the keys to solving world poverty, and in a sense, world hunger. If you can support students and entrepreneurs in the poor countries, knowledge and a healthy economy (regardless of how small) will reinforce each other to raise the country out of poverty. The country and its people become more valuable and they can do more for themselves. They get better basic necessities. They get to eat. Investors might come in, further enhancing this virtuous cycle.

Imagine you are stripped of all your material possessions, and you have no money. How would you get your life on track? Assuming you have the perseverance, discipline and mental resistance to plough through emotional distress, you can work for food and lodging using your knowledge and skills. It might be tough, but it’s doable.

Then imagine if you don’t know how to read or write. Nor add numbers larger than the sum of your fingers and toes. Nor use a computer. How would your life turn out? Tell me what you think in a comment.