Student Funds Get Responsible

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"For us, it is an opportunity to put our stake in the ground and prove that social investing can be a big part of a business-school curriculum," says Michael Pearce, a second-year Haas student who worked as an analyst for UBS (UBS) before attending business school. "It's one thing to read about it in class or learn about it in a club, but it's another thing to see if it actually works out in practice."

Columbia Takes a Micro View

At Columbia, students are hoping to make a dent in global poverty by creating a nonprofit investment fund dubbed the Microlumbia Fund. The students will make two to three low-interest "micro" loans a year to small, entry-level microfinance programs or banks in developing areas. These groups will then assist would-be small business owners in their communities.

The idea developed last year, when a group of first-year students took a class in social entrepreneurship. Since then, about 20 students have gotten involved with the group and have raised $10,000 for the venture. They hope to raise $100,000 and make two to three investments of approximately $25,000 each by the end of the year, says Katharine Leonberger, a second-year student and co-founder of the group. "It's not huge money," Leonberger says, "but even giving a loan of $25,000 to such a small institution can make a big difference."

The group will closely track its investments, sending a team of four to five students to third-world countries each year to work with microfinance institutions and entrepreneurs.

Raymond Fisman, the Lambert Family Professor of Social Enterprise and a faculty adviser to the group, applauds the approach. He hopes the lessons students learn from running Microlumbia will extend beyond their years as business-school students. "It's not like the primary function of a university should be to fund small-scale enterprise," Fisman says. "The primary goal should be to help our students understand how, when they go out into the world, they can do these things themselves."

A New Twist on Student Funds

Student-run investment funds have been around since at least 1952, when Gannon University in Erie, Pa., created what is believed to be the first one, says Edward Lawrence, a professor of finance at the University of Missouri-St. Louis College of Business, who is compiling a directory of student-run investment funds. There are now about 200 in the world, approximately 190 of which are in North America.

Socially responsible investment funds at universities are a relatively new phenomenon, Lawrence says. Although the first one was launched at Bluffton University in Ohio in 1956, most have been launched in the past three to four years, he says. For example, NYU's Stern School of Business launched a social-entrepreneurship venture fund in 2004, and the Villanova School of Business launched a socially responsible investment fund the same year.

Other schools are following suit, though, given the resources required, only the largest schools are likely to create such funds. "Business students have become more socially oriented, and they realize that it is not just about making money," Lawrence says. "It's about having an impact in a positive way in the rest of the world."

Damast is a reporter for BusinessWeek.com.