Microfinance Focus, 11 January 2012: Since 2001, college students across the United States have led the development of campus microfinance institutions to spur economic development in their campus communities.

These Campus MFIs connect human capital and resources in America’s neighborhoods with the talent and energy of college students. In the last few years, nearly a dozen campus MFIs have made microloans totalling $350,000 and served hundreds of clients.

After an initial report by the Aspen Institute's FIELD Project assessed the state of the movement, these campus MFIs gathered for the first time at a conference at Rutgers University in the fall of 2009.

At that meeting resulted in the creation of the Campus Microfinance Alliance. The Alliance’s mission is to raise awareness, provide technical assistance, and create networking opportunities for student-powered microfinance organizations.

Economic downturn stirred the growth of this movement, says Vanessa Carter, Director, Campus Microfinance Alliance. “A lot of students read about Muhammad Yunus and his work and got inspired. Instead of looking abroad, they looked in their own streets where businesses were closing down and people were losing jobs and started setting up campus MFIs to spur economic development in their campus communities”, she said.

Rohan Mathew, Executive Director and CEO of Intersect Fund and also a Co-Founder of Campus Microfinance Alliance said, “We saw that as students, we couldn’t reopen the factories that were closing and we can’t convince these big companies that were downsizing the jobs. But, if we want to make real impact we can help people grow the businesses they have. We turned them from part-time to full time and got them from the informal economy to the formal economy with capital and advice”.

It is a pretty unique thing for students to get hands on work running a microfinance institution, Rohan believes. There are quite a few microfinance clubs running in the universities that are brining speakers and having discussions. Some of these students may even have done internships with some MFIs abroad.

“But the Campus microfinance Alliance is about taking that interest a step further. It is about college students who want to lend in their local communities and manage every aspect of it. They are starting something of their own. It is very local and much attuned to the needs of the people who live around the campus. It is really a meaningful way for students to engage in community service. When you develop a relationship with someone, lend them money and provide them guidance over a long period of time, you can actually see a change in someone’s life”, he said.

Running a campus microfinance institution however has its own unique challenges. Overcoming student’s schedule is one of them. Students traditionally have three months off in the summers, four weeks off in winters and a week off in spring. “It makes it difficult for campus MFIs to make a consistent staffing schedule and to make sure that somebody is always around”, Venessa said.

The other one is institutional memory. A student has only four years in undergraduate courses and 1-3 years in graduate courses. “Figuring out how to deal with the turnover in leadership is another big challenge”, she said.

At the macro level, the challenge in the United States is always ‘Big Scale’, feels Rohan. “Most of the support that is available is very local. Supporters in New Jersey are interested in New Jersey entrepreneurs only. We can’t take that money and go into New York and Pennsylvania because our supporters really care about New Jersey. In some other countries there are mega microlenders that have hundreds of millions of dollars in their portfolio and can lend all over the country”, he said.

To overcome this challenge, the Alliance’s long term strategy is to have a microfinance institution in every university of the country that is just serving the needs of their local communities.

“The reason it is possible is because the student model is very low cost. We are using volunteer labour and leveraging the resources that universities have such as office space, legal expertise and alumni networks for fundraising. All this makes it possible to run these programs very efficiently”, he said.

Moreover, with limited donor dollars in today’s economy, a lot of people are looking towards investing in such efforts, feels Vanessa. “The cost of these student led microfinance organizations is one-third of the national average. It is like investing in effective job creation”, she claimed.

Members of Campus Microfinance Alliance also make sure that they don’t indulge in unethical lending practices. Almost every member of the alliance is both pulling out credit reports for each loan that it makes and is reporting a borrower’s payment history on the credit report as well.

Rohan says that when MFIs look at the credit report, they are not only looking at the credit score, they look at the amount of debt that the borrower has. Every loan that is made is only made after MFIs are sure that it is a responsible amount and the person can afford the payment.

In a country where the commercial credit system is very dependent on credit scores, the other important benefit of recording borrowers’ payment history is that it gives people a chance to build that history so eventually they can transition into those mainstream financial systems, he emphasised.

The rate of interest charged by member MFIs falls in the range of 0-18 percent. “18 percent is still lower than most of the credit cards, which is the comparison for unsecured debt. And most of the people that the Alliance members are lending to will not get approved for credit cards because of insufficient credit history or some other reason. It is a challenge to be able to price your product relative to your cost”, Rohan said.

For 2012, the Alliance aims to serve upwards to a thousand clients and probably lend at least half a million dollars. It is applying for a grant from the US Treasury Department - Community Development Financial Institutions Fund. Currently, 100 percent of the fund that is available for lending is out in the streets.

Most of the Alliance efforts are at present focused on the ‘Lend for America Program’. The program offers college students and opportunity to start microfinance organizations in campus communities. Students can spend a summer internship at one of the bigger campus MFIs and can go back to their own campus, receive a grant and technical assistance to start up an MFI in their own campus.

“We have over a thousand universities nationwide but there are only twelve campus MFIs and we think there should be one in every university”, Rohan said.