ECONOMIC ISSUES
By Nic Tkachuk
Non-profit Organizations have become big business in the United States. The number of U.S. NPOs has doubled in the past five years to well over one million charitable organizations collecting $307 billion in 2008, roughly two percent of the country’s GDP.
But for the first time in over a decade, donation numbers are dwindling. An extended economic recession can be partially to blame. Tough times have attracted scam artists who prey on well-intentioned donors to make a profit, which has resulted in increased skepticism towards charitable organizations. People are simply having a hard time trusting that their donation is actually reaching the people who need it.
The new buzzword for philanthropists is microfinance, a form of peer-to-peer lending aimed at ending global poverty by issuing affordable loans to entrepreneurs in developing countries, but little attention has been paid to the potential benefits of adapting this system to finance education in the developing worlds.
Vittana is a fledgling microfinancing institution cutting out the middleman to promote the most effective weapon for fighting poverty: higher education.
College loans might cost a pretty penny stateside, but in most developing countries they are nonexistent. No matter their intelligence or performance in school, people are forever prevented from achieving their potential and improving the standard of living in their countries; until now.
Vittana connects lenders with student borrowers from five different countries in Latin America and Asia. Student profiles are uploaded to Vittana’s website, where lenders can choose specific students to support.
Higher education costs are significantly lower in these countries, and as little as $1,000 can completely fund a student’s educational needs. Repayment of the loan begins upon graduation and is repaid directly to the original lender. With a 97 percent success rate, lenders are typically repaid in full within 24 months.
Although microfinancing for entrepreneurs has been widely successful in stimulating economic growth (reaching more than 100 million people through more than 3,500 organizations like KIVA), it is merely a band-aid for countries without affordable education.
Vittana’s business model is much more suitable for stimulating sustainable growth and improving standards of living, earning them the top spot on the Huffington Post’s, “Top 10 game-changers in philanthropy.”
According to the National Philanthropic Trust, 80 percent of wealthy donors surveyed said they are most likely to make contributions to educational organizations, and for good reason. The World Bank estimates that a one-year increase in average tertiary education levels raises annual GDP growth by 0.39 percent, and at the individual level, yield 10 to 15 percent higher wages. According to the company’s website, Vittana graduates earn 200-300 percent more over their lifetime than they would have otherwise.
“If you’re trying to raise standards of living, 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,” says Timothy Ogden, publisher of Philanthropy Action, an online magazine for donors.
Next time you’re feeling charitable, instead of covering fundraising and administrative costs for NPOs with your donations, become a lender. With as little as $25, you can directly finance the development of infrastructure in developing countries by giving the gift of education.
As the proverb says: “Teach a man to fish, and he’ll eat for a lifetime.”
Edited by Anne Walters-Cooke
