College Loans as Development Aid

Three months ago, Kushal Chakrabarti likes to say, the organization he co-founded,, amounted to little more than "three guys and a dog."

Then readers of The Huffington Post chose Mr. Chakrabarti as the "Ultimate Game Changer in Philanthropy," and suddenly Vittana, which is pioneering student loans in the developing world, was the next new thing in charity.

"I don’t even know how we got onto the list," Mr. Chakrabarti said in an interview a few days before the results of the contest were announced.

Vittana, which beat out such well-known charities as DonorsChoose and people like Mayor Michael R. Bloomberg of New York, is building a student loan business for microfinance institutions that cater to poor people in the developing world.

It uses a model similar to that of, a nonprofit organization that funnels loans to individual borrowers through microfinance institutions. The method is to solicit individual lenders for money that will back loans to young adults seeking college educations.

"The student loan as you know it in the United States does not exist in the developing world, so this is a big development for us," said Martin Burt, executive director of Fundación Paraguaya, a Vittana partner in Paraguay.

Some mainstream banks in developing countries do offer loans to students, but such loans are typically expensive and thus out of reach for most students and families.

With Vittana’s help in raising money, Fundación Paraguaya has so far made loans totaling $2,000 to five students and has arranged five more potential loans, Mr. Burt said. “Vittana is just the beginning,” he said. “Once this becomes established, the opportunities are immense.”

Many microfinance organizations have wanted to make student loans for several years but had trouble getting the institutions that back them to support a program. Mainstream banks and others lend to microfinance institutions who in turn lend to small entrepreneurs because those loans support an activity that generates income. But a loan to a college student bears no immediate promise of repayment.

“Our external partners’ interests in reducing poverty were focused on what they perceived to be economic activity,” said Francisco Montoyo Galeano, executive director of Afodenic, a Nicaraguan microfinance organization and Vittana partner, “and they did not give their attention to students, which are really the key to reducing poverty in the population over the long term.”

Afodenic has submitted 40 student borrowers to Vittana, some of whom are still soliciting loans, with an average loan request of about $1,000. Vittana also has partners in Peru and Vietnam and is working to start a program in Mongolia.

Vittana hopes to demonstrate that students are as good a risk as any other microfinance borrower.

“It’s not like giving someone a loan to buy more oranges to sell at their fruit stand, which will enable them to produce more income because they’ll be selling more,” said Geoff Davis, an entrepreneur who was one of the founders of Unitus, a nonprofit group that works to develop the microfinance industry worldwide. “The returns on a student loan take longer to materialize and require larger amounts than the typical microfinance loan.”

Timothy Ogden, publisher of Philanthropy Action, an online magazine for donors, said Vittana’s efforts were important because of the focus on college education as a means of improving standards of living.

“If you’re trying to raise standards of living,” Mr. Ogden said, “making an education loan is probably a better way of doing that than lending another $100 to an illiterate and unskilled woman to open another roadside stand.”

Mr. Chakrabarti, 26, said he came up with the concept for Vittana in 2008 after leaving, where he led a team that developed the system that compiles a list of books a buyer might like based on the selection the buyer just made. “I had decided that I didn’t want to sell books for the rest of my life, and so I left Amazon and spent a fair amount of time in India,” he said.

While there, he developed an interest in microfinance, and he realized that the reason most people were taking out the loans was to finance their children’s education. That led to research about loans for education, and then to Vittana.

The organization has provided financing for roughly 33 loans totaling $37,000 and now has six paid employees. The dog, Dusky, whom Mr. Chakrabarti was training as a guide dog, has moved on.


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