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Students Flock to Microfinance to Learn Real World Skills

New America Media, News Report, Cristina Cordova Posted: Aug 28, 2008

Editor's Note: Microfinance has been around for decades, but it got a major boost when one of its main practitioners won the 2006 Nobel Peace Prize. Now microfinance is catching on with college students who want to connect with those they are helping and see the real impact of their work. Cristina Cordova is a student at Stanford University.

PALO ALTO, Calif. Idealistic students who wanted to give back to their community used to volunteer with food drives, homeless shelters or community centers. Charity was once very localized. Now, a co-ed can go online and donate to a poor entrepreneur in Nicaragua with the click of a mouse.

The Internet has spiked awareness of world economic problems and encouraged many young people to take on a new form of service microfinance. Throughout the developing world, microfinance gives financial services to low-income entrepreneurs. Even loans of less than $100 have allowed entrepreneurs to create or improve existing businesses. It also provides savings accounts and insurance for the poor to ensure financial stability.

Microfinance has been around for decades, but it has only recently captured the attention of young adults with the spotlight on 2006 Nobel Peace Prize winner and founder of Grameen Bank, Dr. Muhammad Yunus. At many universities, microfinance clubs and groups have expanded in popularity beyond the traditional forms of service of years past.

For students, this new kind of global charity allows them to make sweeping changes with small amounts of money, see the impact of their work, and gain experience in the working world.

The United Students Microfinance Foundation focuses primarily on the private sector in the developing world. Supported by alumni from U8 Development, an online global university network, membership has grown dramatically, at roughly 400 percent each year.

Students at Stanford University created Gumball Capital, a microfinance group that helps fund $27 loans to Third World entrepreneurs.

Bilal Mahmood, Gumballs operations director, says microfinance is becoming popular among students because they are able to forge a personal, long-term relationship with the person on the other end.

microfinanceThe problem [with traditional charity work] is there is no avenue for future engagement: the aid recipient will still be poor the next aid cycle, and the donor hasn't really learned or connected with their donor recipient, Mahmood says.

It isnt possible to see the effects of donating canned goods to a food bank, but when you log in to Kiva.org, a popular microfinance Web site, you can track the effects of a loan to an entrepreneur in a developing country.

Take the example of Jane Nekesa, a 26-year-old widow and mother of two young children in Migori, Kenya. She sells second-hand clothes at a marketplace, and would like a loan to purchase additional clothes to sell in order to support her family. At Kiva.org, a donor can choose to donate directly to her cause, track the repayment terms of the loan, and get information about the microfinance institution that will get the money into her hands.

Sophia Tu, a recent Stanford graduate, saw the impact of microloans when she visited microfinance institutions in Southern India on an academic field trip. She shadowed workers at an organization that gives out microloans to women.

Tu says the women not only benefited financially, but also experienced psychological changes. They gained confidence and felt that they were moving out of their husbands shadows.

Before receiving a loan, one woman had been afraid to step outside her house. Now she speaks up publicly and demands local improvements such as road repairs for the sake of her children.

But microfinance isnt a magic bullet. For some, it is a mixed blessing: As money is placed in new hands, some communities see a disruption of the social fabric.

For example, the husbands of women who opted for the loans were sometimes very hostile to their wives for participating.

Many argue that microfinance is on such a small scale that it does not have a significant effect on the local economy, and only a few jobs are created.

Linda Mayoux of GenFinance, a group that discusses gender dimensions of microfinance, claims that there is no one size fits all way to distribute loans. It will depend on the particular microfinance model and particular client groups being targeted and the context in which they operate, she says.

Despite its flaws, students continue to be drawn to microfinance.

As Gumball's outreach director, Tu contacts foundations, sets up fiscal sponsorships, and reaches out to corporations and potential individual donors. She is gaining hands-on experience in finance, networking, and marketing.

Entrepreneurship begs for a different approach to the same problem, she says, a boon to students interested in creative problems solving.

With microfinance, she says, theres no one right answer.

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