Friday, September 19, 2008

The Lao-American College and Microfinance through Kiva

LAC is a good school, and one of the ways it is able to stay good is its refusal to deal with the foreign donations process. That process can tend to leave an organization more vulnerable to extortion which hurts the organization, 'enables' the extorter, and causes other economic imbalances in a process similar to "Dutch Disease".

So, in order to hire native-speaking English teachers and other expensive professionals as teachers, LAC charges high tuition to cover its fees. Tuition is about $600/year for each of five years. That's comparable to the price tag of a $40,000 / yr school in the USA. (Nominal per capita GDP in USA = ~$43,000, Nominal Per Capita GDP in Laos = ~$620)

LAC is currently the most prestigious college in Laos, and has open admission based on minimal competitive testing, so the tuition price seems to be set primarily by the school's costs and the market demand. However, many students do get their tuition paid by foreign "sponsors," and the school does assist the foreign sponsors with those transactions. Unfortunately, I didn't go scouting for smart students stuck in insufficient schools for my friends stateside to fund. That could actually be a pretty good idea for an organization in Laos, though, because there isn't any useful standardized academic merit testing process in Laos these days, so there's no way to fund an endowment for a merit-based scholarship for highschool students wanting to enter college.

Although... I could ask Ginny (the academic co-director of LAC) about merit-based scholarships for students who attain the highest grades after being enrolled. I just thought up that idea, don't know whether it's a good one or not, what she would think about it, or whether they're already doing it somehow.

Interestingly, LAC's tuition rate is not nearly as high as the new Chinese-language Shanghai University campus slated to open in the same city in 2010, which will be about $1,000/yr. It seems that Chinese parents in Laos have deeper pockets and have more need for their kids' higher education.

In other news, my current favorite place to put my donation-type money is in Microfinance is a fancy word for no-collateral small business loans. For instance, the market rate for small loans in Laos is 3% monthly, which means 43% annually, while a 12-month CD will return 13%. So it's basically hard to get loans, and that's especially tough because most of the business is done by small businesses. There are a lot of dependable borrowers without collateral, and there are no credit reports.

However, organizations in low-income areas have found ways to zero-in on the dependable borrowers by knowing the community. They sometimes also help borrowers be dependable through peer pressure by organizing them into small groups with responsibility for each others' loans. By these means, the organizations can offer lower loan interest rates than the usual lenders. That's called "microfinance." Unfortunately, there isn't any microfinance available in Laos, but the similar access-to-credit problem is a serious issue in other countries, that do have growing microfinance institutions.

Kiva makes it easy for us to loan money to small businesses in amounts as small as $25. I think, from my experience, that relatively-low-interest lending often has a more empowering psycho-social effect on the borrower than gifts can have on their recipients. Of course there are other ways that things happen, but that has been the trend in my experience.

Kiva is also very convenient. I can lend money, and get it all back within six months, with zero fees (and zero interest). As the borrower repays the loan, the money goes right back into my Kiva account. I can either roll the money over into another loan, or if I need the money myself, I can choose to withdraw it too. So Kiva lets me donate money, but with a safety net that I can have it back if I ever need it. And 100% of the money is going to the borrower I selected, all the management costs are already paid for by the borrower's interest or by other donations.

Although I as lender carry the risk of the borrower's potential default, Kiva's borrowers have an overall 98% repayment rate, so that doesn't happen much.


peter said...

great idea about micro finance, hope more people in Laos can receive this

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