New club supports microloan endeavors

from the Daily Princetonian

By Jack Ackerman

Though charity organizations may inundate the University’s listing of student groups, Ankit Bhatia ’10 and Becky Harper ’10 have taken their desire to help the less fortunate to the next level.

The two have created a group that they said they hope will increase student awareness of microfinance, an economic strategy developed by economist Muhammad Yunus in which groups provide loans to citizens of developing counties hoping to jumpstart failing economies. Yunus was awarded the 2006 Nobel Peace Prize for the application of microfinance in Bangledesh. Bhatia explained that the group hopes to act as a microlender itself in the future. As of now, however, the group’s goal is to raise awareness of microfinance without providing its own loans as of yet.

Worldwide, microfinance has become increasingly important in encouraging development in poor countries.

Microlending involves lending as little as $50 or $100 to citizens of developing nations to start their own businesses. Without many other opportunities available, residents of poor countries often turn to self-employment to support themselves.

Microfinance investments nearly doubled between 2004 and 2006 to $4.4 billion, according to The New Yorker. Banks are eager to partner with grassroots charities to provide loans to developing economies where credit has never before been available. Return rates on microinvesting are typically high, while default rates on microloans are low. Microfinance banks have also reported better returns than large banks have, according to a Nov. 3, 2005 story published in The Economist.

Large financial institutions such as Deutsche Bank, which is currently advising the University’s new microfinance club, see microlending as profitable but also socially responsible, Bhatia said.

Bhatia said he sees microfinance as the perfect combination of investment and charity.

“Handouts, most of the time, do not work because you’re not giving people skills,” he explained, citing cultural traditions that bar many in developing countries from accepting pure charity. Microfinance, he said, is different because it rewards borrowers for their own work and enables them to develop the skills necessary to support themselves.

Bhatia became interested in assisting developing nations because of his background. After coming to the United States from India, Bhatia’s parents both created charities of their own, and he wanted to follow in their footsteps.

“Charity has always been a part of my life,” he explained.

Politics professor Evan Lieberman said that providing small loans to entrepreneurs in developing countries can indeed jumpstart economic development. “There is a great deal of research highlighting the benefits of micro-finance schemes on the lives of poor people in rich and poor countries alike. It is no panacea, but it is a proven strategy,” he noted in an e-mail.

Microlending has drawn the attention of famous figures like Natalie Portman, who came to campus in October to promote the Foundation for International Community Assistance, an organization she represents.

The Student Groups Recognition Committee (SGRC) cited the growing popularity of microfinance as one of the main reasons for approving the creation of the organization.

“Microcredit is sort of the new fad. We thought the club would bring something unique to campus,” SGRC co-chair Sonia Bhaskar ’09 explained.

The new club also fits into the committee’s policy of encouraging charity work.

“If more students become aware of microcredit, maybe they can employ it later in their lives,” Bhaskar said.

Lieberman was encouraged by the increased student interest in microlending. “I certainly commend any group of students on the Princeton campus for exploring this development strategy further,” he said.

Bhatia said he hopes the new club will effectively provide information on campus about microfinance. Over the next few months, the microfinance club will collect and distribute information, hoping to increase student interest in its activities. In the fall, the club plans to sponsor a monthly speaker series on microfinance and host its own microfinance convention.