The IIT entrance-exam is extremely competitive (GRE on steroids) . About 250,000 kids apply for about 4,000 openings. Basically, if you're not in the 98 percentile of applicants, you won't get in. Also, it's safe to assume that applicants have above-median school-grades compared to those who don't apply.
An IIT kid can go on to a well-paying career. With this charity, a successful kid who could not afford $5,000 up front, will probably end up going abroad and earning $100,000 a year.
But, there's a twist to this giving ...
Prabai asks the kids to promise that, if they are admitted to an IIT, they will donate 10% of all their future income back to his charity! It's not an enforceable contract... more of a gentleman's agreement. Nevertheless, assume the kid is honest and sticks to the deal. I calculate that -- effectively -- the kid is getting a loan with a rate of interest over 20%. That's high if one has friends and family who can help instead. Otherwise, that's not too bad a rate for a personal loan to a poor family with no collateral, in India. Also, a few of these kids will probably end up as rich entrepreneurs, paying back a huge return on Prabai's initial outlay.
If one digs deep, the real problem is not the kid's poverty. The real problem is the poor enforcement of property rights. In India's legal system, a bank would find it difficult to have a similar loan repaid. Further, the law might consider such an interest rate "usurious". (Aside: Things are changing for the better though.)
Given that background, I think Prabai has chosen a smart approach to charity.
(Ref. : http://www.gurufocus.com/news.php?id=10005 )