Education Loans Study

Principal Researcher: Sendhil Mullainathan (Harvard)
Partner Organizations: Mahasemam Trust, Tamil Nadu; Sharada, Andhra Pradesh; Ujjivan, Karnataka; Grameen Koota, Karnataka
CMF Intern: Catalina Robledo

Microcredit has traditionally focused on the provision of income-generating loans towards working capital for micro-enterprises. However, there has recently been a shift towards the provision of credit for other purposes such as education. While there is a need for financing the educational needs of children, particularly to overcome the inter-generational transmission of poverty and to build human capital, providing finance for education can also be quite problematic. MFIs perceive it as risky, as investment in education does not generate income for the family in the short run for purposes of repayment. However, a number of organizations are keen to design products to provide credit for educational needs.

CMF undertook an exercise to study and assess the types of educational loans offered by different MFIs/NGOs in the country and the demand for these products. Short qualitative surveys and focus group discussions were undertaken to understand the costs of sending children to school and mini-case studies of organizations offering educational loans were conducted.

The objective of this report is to highlight the challenges faced by MFIs while designing educational loans, and to help understand how different product designs can overcome them. This study provides valuable guidelines for organizations willing to design similar products and documents the costs of implementation of such programs for the organization.

Downloads: Demand-side financing on education