Why Microfinance for Education: Because It Works

Over 850 million people worldwide lack access to basic education^[1]. Around 40% of them (344 million) are out-of-school children and youth while the rest are illiterate adults. Many factors can hinder educational access, such as direct costs (school fees, tuition, books, uniforms, transportation, etc.), opportunity costs (child labor displacement), family and cultural circumstances, and gender discrimination. However, there is a lot of compelling evidence to show that even modest financial incentives can dramatically improve enrollment and achievement^[2].

We believe that these results are enhanced because education pays^{[3] [4]}. Poor families, including microfinance borrowers, understand that educational achievement can result in increased lifetime earnings for students and help their families escape poverty, which is why poor families really want to invest in schooling^[5]. As little as $100 to $500 can fund a year of education for a student in a developing country. Our year-long pilot has shown that even poor families are willing to invest this in their child's education if they had access to microcredit on reasonable terms. A recent survey of microfinance borrowers revealed that 91% of parents said that their child would find a better job with an education^[6], 87% said that education is the most important thing for a child, and as many as 17% already use their expensive, short-term business loans for education^[7].

Despite the demand and the booming microcredit industry, microloans for education are virtually nonexistent. Traditional entrepreneurial microfinance, with interest rates ranging between 25%-75% and repayment terms of 3-12 months, is often too expensive and too short for educational financing. So Janta is working with partners around the world to make microloans accessible to students of all ages. By combining your donations and interest-free loans, Janta delivers subsidized interest rates to make microloans affordable for families while making scholarships possible for the highest need & highest potential students. To help students invest over the long term, we work with our field partners to deliver longer loan terms as well as renewable loans (i.e., ability to refinance after completing a year). We hope you will support us in this effort to bridge the education gap and end poverty for the next generation.

References

1. UNESCO, Education For All Global Monitoring Report, 2009

2. Alain de Janvry and Elisabeth Sadoulet, Conditional Cash Transfer Programs: Are They Really Magic Bullets?, 2004

3. Sandy Baum & Jennifer Ma, Education Pays. The Benefits of Higher Education for Individuals and Society, 2007

4. George Psacharopoulos & Harry Anthony Patrinos, Returns to investment in education: a further update, 2004

5. John Hatch, Expanding Microcredit Services to Young Adults: Research Findings, Rationale, Blind Spots, and Recommendations, 2004

6. Margot Quaegebeur & SrivatsaMarthi, Empirical Analysis of the Perception of the Value of Education and Parental Involvement among Microfinance Clients, 2005

7. Lucie Gadenne & Veena Vasudevan, How Do Women in Mature SHGs Save and Invest Their Money? Evidence from Self-Help Groups in India, 2007