Students in developing nations learn a lot thanks to small loans

Look deep enough into an impoverished shantytown in the developing world and you can find students and teachers hard at work in a humble school that doubles as a business for a local entrepreneur.

The market for such schools is potentially huge. Save the Children estimates that about 100 million children in developing nations are out of school – 60 percent of them girls. Despite some progress toward meeting the United Nations' Millennium Development Goal of universal primary education by 2015, many countries simply don't have enough public school spaces to educate all their children – particularly in the most remote or economically distraught areas.

Even when public schools are available, parents sometimes see these neighborhood private ventures as offering better quality – for perhaps just a little more than the fees associated with public school. These private schools typically cost between 4 and 10 percent of a local family's income, although for some, the portion is much higher.

The founders of such schools are increasingly attracting small loans from groups looking for sustainable solutions to poverty. On a slightly larger scale than the traditional microloan that supports a vegetable grower or basket weaver, these financial boosts can help a school build toilets, replace a leaky roof, or even double its size.

"My gut feeling is that this will be the future for microfinance institutions," says Makonen Getu of Opportunity International (OI), a global microfinance bank with a US office in San Diego. "For years we have been supporting the demand side by providing loans that are used for school fees. Now we can support the supply side, too, through loans to private schools."

Mr. Getu is operating an OI pilot program that includes 50 "microschools" in Ghana. The initial goal is to expand it to several countries in Africa and Asia and serve 1 million poor students over the next three years. School loans of $10,000 to $25,000 will need to be repaid over three to five years, compared with the weeks or months that people typically have to pay back most current microfinance loans, which range from several hundred to several thousand dollars.

One beneficiary of the larger loans will be the Providence Educational Complex, a hub of activity in the sprawling migrant workers' settlement of Ashaiman, just outside Ghana's capital, Accra. Vivian Adamah started it as a nursery school in 1991, after her husband died and she needed a source of income. With the help of small loans, she expanded it into a school that now involves 300 students, 52 infants, and 22 teachers.

For Ms. Adamah – dubbed an "edupreneur" by OI – a larger loan will help her make the school even bigger and better. She's nearly finished adding a second floor, and dreams of a third.

The success of microschools will be judged in both academic and business terms. "We need to look at the growth of the number of students, at the performance of the schools, as well as at their profitability and ability to repay high-volume, long-term loans," Getu says.

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