Microfinance institutions are beginning to experiment with education loans, potentially allowing students to achieve higher levels of education and income. XacBank, a microfinance institution and community development bank founded in 1998 in Mongolia, reports having made loans ranging from USD 700 to USD 900 to 160,000 students enrolled in institutions of higher education. Similarly, Vittana, a student loan organization founded in 2007 and headquartered in Seattle, Washington, USA, has been raising money via its website to loan to students in developing countries [1].
Among the risks that arise with education loans is the absence of the peer pressure that comes from a group of microborrowers hoping to win subsequent loans since student loans are made to individuals. Also, students that come from remote villages to study in cities may feel less obligated to repay their loans because they have less incentive to maintain their reputations in a relatively anonymous environment. Student loans also carry much longer repayment terms, with periods lasting up to five years. To reduce “attendance risk,” XacBank mostly lends to students who have completed at least one year of post-secondary education, that is, to those who have a more established attendance record [2].
About XacBank: XacBank is a community development bank and microfinance institution (MFI) founded in 1998 and based in Mongolia. XacBank aims to become a leading financial institution “by providing inclusive and value-adding financial services to the citizens and expatriates, institutions and enterprises of Mongolia.” XacBank reports to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, that it holds USD 223 million in assets, a gross loan portfolio of 137 million, return on assets of 0.91 percent and a return on equity of 9.29 percent as of December 2009.
About Vittana: Vittana is a nonprofit microfinance institution (MFI) founded in 2007 and based in Seattle, Washington, USA. Vittana allows people to lend money online to students wanting to complete a higher education. Lenders from 30 different countries have reportedly funded approximately USD 270,000 in loans to students between 2007 and July 2010. Vittana does not report financial information to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse.
By Diana Baide, Research Assistant
Sources and Additional Sources
[1] The Economist. “Making the Grade: Funding poor students could be the next big thing in microfinance.” September 9, 2010
http://www.economist.com/node/16996791?story_id=16996791
[2] Ibid
MicroCapital’s Microfinance Universe profile: XacBank
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=XacBank
MicroCapital’s Microfinance Universe profile: Vittana
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Vittana
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/tiki-index.php
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