2023 ASEE Annual Conference & Exposition

Microfinance in an Engineering Economics Course

Microfinance involves the making of small loans to borrowers who otherwise would not have access to credit, to help them build successful businesses. Many borrowers are women. In Fall 2022, students in Engineering Economics are being introduced to microfinance through several background assignments, selecting and financing a loan through Kiva and writing a reflection paper.

First, students were assigned to watch a short video, Grameen Bank At a Glance, and write a one page paper on microfinance and the Grameen Bank. Next the students read about Kiva and its business model, as one example of a microfinance organization, and write a one page summary (How Does Kiva Work-Business Model and Revenue Streams). Students were also shown the video Microloans Make an Unexpected CEO.

Kiva was selected because of its size and reputation. Also loans made with Kiva are repaid to the lenders account, so the funds can be reused in the next academic year, perhaps with small losses due to inflation and other factors. Internationally, Kiva funds loans made by field partner organizations that make the loans and collect payments with interest. Kiva itself does not earn interest, and is funded by separate contributions. In the US, Kiva makes direct, interest-free loans, however the US loans tend to be larger. Another organization, Zidisha was also considered, and has the advantage of establishing communication between borrower and lender, however working through Zidisha would require new funding every year. Students were assigned to find a loan on Kiva, and report on the amount, borrower’s story, payment schedule, provision for currency loss (inflation), mission of the field partner organization making the loan, and cost to borrower.

Funding ($875) was obtained by approved repurposing of funds previously contributed by the alumni association for another project. Then students were organized by the instructor into groups of four. Each group was assigned to make a loan of up to $125, under the conditions that their amount must complete the loan, the loan must be for business, and must have a repayment period of 10 months or less. For larger loans, up to two groups can collaborate. Then each group submitted a report on their loan including the amount, borrower’s story, what the loan is for, country, frequency and number of payments, field partner organization and its mission and interest rates. After the loans were made, each student wrote a reflection paper on their loan, and how they would operate a microfinance organization.

This fall seven loans were funded by the students. Several loans funded supplies for retail businesses, and one loan completely funded the purchase of a pig. Two other loans funded supplies for pigs and piglets.

At the end of the semester, students were surveyed about their experience with microfinance to determine the impact on student understanding of small business economics in the developing world and interest in future participation in microfinance.