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Crowd-Funded Student Loans: Vittana Brings Microfinance to Campuses Worldwide

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CHICAGO – In the United States, when college students don't have enough money for school tuition, they complete financial aid applications and hope for government loans.

In other parts of the world, the process works somewhat differently.

"In most developing countries, student loans just don't exist," said Kushal Chakrabarti, the son of first-generation immigrants and a graduate of the University of California, Berkeley. "No matter what your grades are, if your family doesn't have the money, you just can't go to college."

This reality is familiar to Nardith Torres Marcelo, a 23-year-old mother in Peru who dreamed of becoming a nurse. After graduating high school, Marcelo enrolled in technical school but had to drop out to work full-time and care for her son. She wanted to study, but without access to loans she didn't have the money -- that is, until Chakrabarti decided to help.

Chakrabarti is the founder of Vittana, a non-profit organization which provides small loans to international students for higher education. Since Vittana began in 2007, its lenders have given more than 150,000 dollars to about 200 international students -- often ten or 25 dollars at a time. The organization is working to build micro-loan programs in Peru, Cambodia, Paraguay, Nicaragua, Mongolia and Vietnam.

It's also connecting lenders from countries across the world. To help the aspiring Peruvian nurse, 17 strangers pooled together their resources in September of 2009, lending a total of 700 dollars. The lenders included a mother in Norway, an MBA student in Boston, a banker in New York, a professional poker player in Los Angeles and an engineer in Seattle.

Shortly thereafter, Marcelo re-enrolled in school as a full-time student.

Microfinance Pioneers: Small Loans for Higher Education

Microfinance has been a development tool for about 40 years, but in the field of higher education, it is a novel concept.

"Microfinance has traditionally been reserved for the economically active, or those people in developing markets who make a living in some kind of business enterprise," said Paul Christensen, a senior lecturer of finance at Northwestern University's Kellogg School of Business. "By having access to these services, they are better able to deal with the ups and downs in their financial lives."

Many micro-entrepreneurs today can get loans because major banks and capital funds feel safe investing in microfinance. During the early 1970s and 1980s, a few pioneers showed that, given a specific microfinance model, borrowers would almost always repay lenders.

Grameen Bank was one such pioneer. Founded in 1976, it turned conventional banking practices on its head when it began giving small, low-interest loans to poor people without collateral in rural Bangladesh.

More recently, online micro-lending platforms like Kiva have helped expand microfinance. Since 2005, Kiva has given more than 130 million dollars in loans to nearly 335,000 entrepreneurs around the world-all while boasting a repayment rate of 98.5 percent. Repayment begins immediately and continues gradually until completion.

For student borrowers, there isn't a comparable track record. While some development programs help impoverished students receive basic education, there has been a lack of micro-loans for students looking to move beyond the secondary level.

"We're stuck in a Catch-22," said Chakrabarti. "Nobody is willing to invest right now, and because nobody is willing to invest right now, nobody ever starts investing."

By building student micro-loan industries in developing countries, Vittana is creating the track record itself.

"The point behind Vittana is that we don't need to wait for big banks to invest 50 million dollars in loans," said Chakrabarti.

More than half of all Vittana loans are 25 dollars or less, and more than 75 percent of them are 50 dollars or less. In general, it takes seven to 11 lenders to fully fund a loan.

In contrast, Kiva requires its lenders to loan a minimum of 25 dollars, though people loan an average of 190 dollars each.

Pooled together, however, Vittana's small loans are enough to make a difference. Vittana's students -- about 60 percent female -- are using their loans to pursue degrees in more than 60 fields, including accounting, business, education, medicine and engineering.

Although Vittana and its lenders do not charge interest, its microfinance partners use a low interest rate, usually around ten or 15 percent. During an educational grace period, students pay a small interest-only repayment each month -- developing healthy repayment habits and allowing Vittana to track their progress.

The Lending Heats Up: March Microfinance Madness

Voted the "#1 game-changer in philanthropy" on the Huffington Post in October 2009, Vittana is expanding quickly-doubling its student loans roughly every two months.

Even so, Chakrabarti says that hopeful students are waiting in line to receive funds.

"People are getting put on wait lists, which on the one hand speaks to the power of these loans," he said. "On the other hand it's terrible, because people are postponing a year of their lives for 700 dollars."

To help more students, Vittana is trying to expand its reach.

"We want to touch not just 200 students in five countries, but thousands of students in ten countries, or 15 countries, or more" said Chakrabarti.

In March it began a Microfinance Madness campaign, challenging people to loan money and promote the cause.

"It was really amazing for us, because earlier in the month we'd broken the $100,000 mark for students in loans," said Chakrabarti. "In March itself we gained another $55,000 for 105 students. The organization is young, but we're growing fast."

Vittana is working hard to get its name out. Well known in the state of Washington, the organization drew a crowd of about 70 people to a recent happy-hour event in Seattle.

"It was a great way to get people to talk and to get people excited," said Lindsey Maxfield, Vittana's community and operations manager.

The organization is also using the Internet to promote its cause, posting promotional videos on You Tube and updating other followers via Twitter.

A Student-to-Student Connection

In particular, Vittana is tapping into the generosity of college students at American universities.

"We love to see college students getting involved, because ultimately it's somebody just like them on the other end," said Chakrabarti.

To spread the word on college campuses, Vittana has established a marketing internship program at Brigham Young University (BYU) and worked closely with a student group at Duke University. It is also strengthening relationships with groups at several other colleges, including the University of Florida; the University of Wisconsin-Madison; the University of Washington, the George Washington University and the University of California, Berkeley.

"Every student has to find a way to pay for college and afford to college," said Maxfield. "So getting access to loans is something that really resonates deeply with college students."

For Matthew Godfrey, Vittana's cause was worth promoting. A 24-year-old senior at BYU, he worked as an intern to market Vittana among his classmates and BYU alumni.

"We set up a lending group and a blog and a Facebook group, and we started tweeting a bit as well," he said. "We had a booth at a big campus event, and we did a benefit concert and a comedy show. We got people lending."

BYU was Vittana's top-lending group during the March Microfinance Madness campaign, with 44 members and more than 3,000 dollars in loans.

"We found that students for the most part want to help, and they want to be involved in making the world a better place, but they feel like they don't have enough money to make a difference," he said. "With Vittana, you can just loan a dollar and you still get your money back."

Many American students can relate to the borrowers.

"I think a lot of college students are at a point in their lives where they are idealistic and they want to make changes in the world," said Allison O'Connor, a senior at the University of Washington who has made a few loans on Vittana's Web site. "They can identify with other college students -- that sense of hope in the future, that desire to do something with their lives"

Vittana's online model aims to create a personal connection between lender and borrower. When potential lenders visit the Web site, they can learn more about the applicants and choose which student to help.

"For my first loan I chose a female student in an education program, because I feel like I can identify a lot with that," said O'Connor, who is currently studying history and education.

Despite hard economic times and rising tuition costs, many American students still see the benefit of helping other students overseas.

"If you can first get people to understand how lucky they are, even though they're struggling, I think they feel some weight of responsibility to help others," said Godfrey.

And if American students lack the funds to lend, they have found other ways to get involved. Some students with Spanish and Vietnamese language skills have volunteered as translators for Vittana.

"The great thing about college students is they may not have a lot of capital to throw around, but they have passion and they have time," said Maxfield.

They may even continue to give after graduation.

"I think students will be a good way to spread the word," said Godfrey. "They don't have a lot of money, so they won't ever be able to provide a huge percentage of Vittana's loans. But spreading the word and getting involved will make them more likely to donate when they're professionals one day."

Aiming for Sustainability

As business experts compare Vittana to traditional microfinance models, some wonder if it will be sustainable. In particular, they question the reliability of repayment.

"In traditional microfinance, borrowers can start repaying right away because they have cash flow coming in through their businesses," said Christensen. "What if students can't find a formal sector job when they graduate? How do they repay the loan?"

Vittana has taken steps to ease these concerns. Before giving loans to students, its microfinance partners verify that the student has been accepted at an accredited institution, has maintained a strong academic record and has shown a desire to learn new skills. Afterward, they maintain contact to ensure that school is going well.

Lenders also receive updates about their students' progress.

"I feel like I understand where my money is going and why it might make a difference," said O'Connor. "For me, it seems like a better option than handing over my credit card to a canvasser on the street."

Most of Vittana's microfinance partners also require a relative to co-sign on the loan. In the rare case that a student cannot repay the loan after graduation, this relative would help repay the money on schedule.

Ninety-seven percent of the organization's loans had been repaid as of March.

As Vittana grows, it aims for sustainability, and not just as an organization. Vittana is the Indian word for "seed," speaking to its mission of empowering self-sustaining individuals through education.

With each passing graduation, the organization comes closer to realizing these goals.

In Nicaragua, Vittana's loans allowed 31-year-old Betsy Ivania Peña Olivares (pictured above) to finish her marketing degree at Universidad de Ciencias Comer. At the same university, 22-year-old Haward René Alvarez Morales graduated cum laude in January and entered the field of law.

Back in Peru, Marcelo will be graduating from school this July with a laboratory science degree. In a country where only six percent of women finish college, her degree is a noteworthy accomplishment.

"My biggest dream is to join the health department at the National Police," she wrote in her online Vittana profile. "I want to serve my country."

As a nurse, Marcelo will earn an estimated 300 dollars each month -- about two or three times more than she earned before.

"With education, her son is going to grow up in a house with his mom who won't be on a factory assembly line," said Chakrabarti. "Microfinance has done a lot of things, but when you take a step back, it's really education that breaks the cycle of poverty."
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