Global Economics

Qifang: College Loans for the Chinese Masses

Qifang hooks up students who can't afford tuition with benefactors who can, even between far-flung regions

Fifty million: That's how many young Chinese cannot afford to go to college, a huge underclass that risks being locked out of the economic boom transforming China. Qifang—which means "bloom" in Chinese—aims to help.

The Shanghai company is developing microfinance, China-style. Qifang has launched an online, person-to-person lending service that gives students the means to find friends, employers, or philanthropists willing to help fund their educational aspirations. And it offers a practical way to broker the transactions. Qifang is one of 34 companies named on Dec. 4 as a 2009 Technology Pioneer by the World Economic Forum. The winning companies are chosen because they are judged to offer new technologies or business models that could advance the global economy and positively affect people's lives.

Qifang is targeting a huge need. Fewer than 15% of students in China enroll in college today, compared with more than 45% in Japan and the U.S. "The number of college students in China could be two, three times what it is now" if students could arrange financing, says Calvin Chin, Qifang's founder.

A 35-year-old American-born Chinese, Chin graduated from Yale University, spent time teaching high school math in Brooklyn, and worked on Wall Street and for several Silicon Valley technology startups before moving to China in 2004. He and his two partners, Tim Chen and Jake Hsu, teamed up to launch Qifang as a company that "would help people and make a difference," he says. The privately held startup doesn't disclose any information about its revenues or profits.

Huge Potential Market

Chin and his partners are adapting the microfinance ideas of Nobel Prize winner Muhammad Yunus, founder of Bangladesh's Grameen Bank. Qifang is also drawing on the experience of people-to-people online lending services such as the U.S.'s and Britain's Zopa.

The market potential is great. Chin estimates that 25 million Chinese students now pay $400 to $2,200 a year in college tuition. That could add up to $8 billion to $10 billion in loans annually if 40% financed their education. But China's universities are ill-equipped to administer loans.

They are also struggling to finance the addition of new buildings, labs, and dorms, but it's politically unpopular to raise tuition when school is unaffordable for so many already, says Chin. And while banks are under government pressure to extend student loans, they have a difficult time structuring them, tending to focus instead on secured loans with higher principal amounts, such as commercial lending and home mortgages.

For students, therefore, there aren't a lot of alternatives. Only 5% to 10% are able to borrow through rural credit cooperatives that act like credit unions. "There is a tremendous burden on individuals and their families to pay," says Chin. "The schools are stuck in the middle because they are under cost pressure to increase tuition, but they can't outstrip the capacity of locals to afford it."

To solve these issues, Qifang is reaching out. Chin is involving local governments, educational institutions, banks, nongovernmental organizations, educational foundations, and philanthropists in Qifang's lending service. Lenders can log on to the company's Web site and peruse requests from students across China, view students' photos, and learn about their grades and goals.

The service also addresses regional income disparity by facilitating borrowing from other regions. For example, Qifang lets a student in Guizhou borrow from a lender in Shanghai, where incomes are 10 times higher, says Chin. The site also gives some assurance to well-off Chinese who want to help the less fortunate but are wary of being duped. Tuition money is sent directly to schools, not to the students themselves. Qifang helps the universities manage their portfolios of loans. The company makes its money from flat fees or a small percentage—2%—of the transactions and fees for the provision of services to the universities.

Consumer Skepticism

Despite the vast need for its services, Qifang faces competition. Other online lending services in China such as PPDai offer loans across many categories. But Qifang plans to stay focused on student loans, says Chin. There is a lot of consumer skepticism about online transactions in China, but "by working with educational institutions we take out the most significant risk factors around fraud," he says. "Basically you are directly paying someone else's tuition bill."

The company, which launched in August 2007, already has brokered 3,000 loans on its site. It expects to partner with a total of 10 Chinese universities by yearend and 40 more in 2009. "It is a tragedy when anyone, anywhere who is hard working and capable has their dreams limited by the financial means of their family," says Chin, who hopes someday to take Qifang public via a stock offering.

If Qifang can scale up in China, "a young's person's imagination will only be limited by how far it can go," not by lack of money, he says. And Chin and his partners may end up doing well by doing a lot of good.

Schenker is a BusinessWeek correspondent in Paris.

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