Sunday, March 14, 2010
W&L students invest in microfinancing
Three students and a professor at W&L have started a club using small loans to help communities improve economically.
ERIC BRADY The Roanoke Times
Ben Ersing (left) and Jarrett Brotzman meet with fellow students at Washington and Lee University in Lexington to discuss ways to make the "microfinance" club work at the school and how to recruit more members.
The latest from The Ticker blog
Cailin Slattery, a junior at Washington and Lee University, said she doesn't want to wait until she's rich and successful to help those in need, which helps explain why she has helped found a "microfinance" club at the Lexington school.
Slattery, two other students and an economics professor have created the General Development Initiative to make small investments in Central and South America, convinced that loans as small as $50 can go a long way toward helping communities improve economically.
So far, the students have lent hopeful entrepreneurs $2,000 of their own money, plus another $3,000 they've raised from others, said sophomore Ben Ersing, the driving force behind the club's creation. Associate economics professor Jim Casey, who helped found the club, said it has about $1,000 in loans outstanding -- meaning they have not yet been repaid.
"My goal for the group is to have $10,000 raised by the end of the school year," said Ersing, noting that he, Slattery and junior Jarrett Brotzman are kicking off a recruiting drive to get more students involved in microfinancing businesses.
Microfinancing, a concept more than three decades old, is an increasingly popular, bottom-up method of helping poor people get the money they need to start their own business ventures. Essentially, it aims to pair people who might not have a lot of money to lend with people who might not need to borrow a lot.
For instance, an entrepreneur in Nicaragua might only need $500 to start a small clothing store or restaurant. Or a Honduran might be able to dramatically increase his earning power if only he had $50 to buy a bicycle. But big banks might be unwilling to risk lending even those small sums to someone with no business background or credit history.
Enter microfinance institutions and microfinance investment vehicles. MFIs are organizations on the ground in various developing countries that keep track of who is looking for small amounts of money. The MFIs pass that information on to the MIVs. The MIVs are organizations, usually with user-friendly Web sites, that connect the MFIs to lenders. Groups such as Ersing's can go to an MIV Web site, see various projects MFIs are trying to find money for and help fund them. MIVs include kiva.org, microplace.com, and beta.dvelo.org, which was created by a W&L alumnus. Lenders such as the W&L club can expect between 4 percent and 7 percent interest on their investment.
Critics of microfinancing note that, by the time MFIs and MIVs tack on their interest to the loan, the small borrowers often face total interest rates of more than 30 percent. But Ersing said the microloans have a 98 percent repayment rate, and though they might not be able to solve endemic poverty in developing parts of the world, they do help. And if borrowers didn't have access to the microloans, they could fall victim to local loan sharks who charge even higher rates, he said.
"It's just a piece of the puzzle," Casey said of microfinancing. "There's no magic bullet to alleviate the suffering of poverty, but it helps people who have no access to credit."
Ersing said his initial impulse to create a microfinance club sprang from the work he did last summer on the U.S.-Mexico border, where he saw vast economic disparities. "I started thinking, 'What can I do to help alleviate their situation?' " he recalled. The following semester, he was in Casey's class, where he learned about microfinancing.
Casey, who has been teaching students about microfinancing since 2008, stressed that the money sent to Central and South America is not charity, but a loan.
Ersing, majoring in international politics, said that, for the foreseeable future, all the repaid money and interest will be plowed back into more loans. Establishing a solid financial record, he said, will make it easier for the club to pursue foundation grants and donations from private individuals, allowing it to make even more microloans.
Meanwhile, said Slattery, a math and economics major, the club hopes to get other W&L students involved to help with publicity, Web design, research, grant-writing, and French and Spanish translation. Ultimately, the club could become a corporation and learning tool owned and operated by W&L students.
As Slattery said, "I want to study development economics in graduate school, and this is a good way to get involved out of graduate school."
