1 / 36

Health and Education Department Risk Sharing Facility for Student Loans

Health and Education Department Risk Sharing Facility for Student Loans APICE – XIX Curso Internacional de Crédito Educativo November 2006. Health and Education Department Risk Sharing Facility for Student Loans APICE – XIX Curso Internacional de Crédito Educativo November 2006.

jewel
Download Presentation

Health and Education Department Risk Sharing Facility for Student Loans

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Health and Education Department Risk Sharing Facility for Student Loans APICE – XIX Curso Internacional de Crédito Educativo November 2006 Health and Education Department Risk Sharing Facility for Student Loans APICE – XIX Curso Internacional de Crédito Educativo November 2006

  2. The World Bank Group International Bank for Reconstruction and Development Established 1945. Currently 184 member countries. International Finance Corporation Established 1956. Currently 175 member countries. International Development Association Established 1960. Currently 164 member countries. Multilateral Investment Guarantee Agency Established 1988. Currently 157 member countries.

  3. The World Bank Group • IBRD lends to governments of middle-income countries • IDA provides loans to governments of the poorest developing countries • MIGA provides guarantees to foreign investors against non-commercial risk

  4. The International Finance Corporation IFC promotes private sector investment in developing countries, helping to reduce poverty and improve people’s lives.

  5. The International Finance Corporation IFC is the largest multilateral provider of financing for private enterprise in developing countries.

  6. The International Finance Corporation • finances private sector investments, • mobilizes capital in international markets, • help clients improve social and environmental sustainability, • and provides technical assistance and advice to governments and business.

  7. The International Finance Corporation From its founding in 1956 through 2006, IFC has committed more than US$56 billion of its own funds to private sector investments in the developing world and mobilized an additional US$25 billion in syndications for 3,531 companies in 140 developing countries.

  8. IFC’s Services • Financial products: loans, equity, quasi-equity, credit guarantees • Mobilization of capital from other sources: loan syndications, securities offerings • Advisory services: country, industry, financial, technical

  9. Characteristics of IFC Loans • Typical IFC financing of US$5 million or more (expansion projects of US$10 million; greenfield projects of US$15-20 million) • Long-term tenors (8-10 years) with adequate grace period • US dollar denominated loans and also local currency loans (in some countries) • Interest rates referred to 6-month Libor • Flexible guarantee package

  10. IFC’s views on the Student Loan Market in the Developing World

  11. IFC’s Interest on Viable Student Loan Schemes • Creates a high developmental impact by facilitating access to higher education • Demonstrates that education financing business can be viable / profitable • Creates a new asset class that can be later securitized and traded • Creates a win-win situation to the university and the financial institution

  12. IFC’s Role on Student Loans • Mitigates risk perception • Demonstrates that education financing business can be viable / profitable • Brings financial investors and universities to work together • Brings expertise and brand name • Takes risk

  13. Student Loans in the Emerging Markets • There is a high market demand, but characteristics may vary substantially from country to country • There are very few succesful experiences • Most programs are run and subsidized by Government, with failures • Student loans have a bad reputation in the market – lack of credit reporting and hard to collect • Adequate funding is generally not available.

  14. Key Success Factors • Adequate market size and demand • Clear and protected financial structure • Reputable and reliable sponsors • Efficient network for selling the product • Efficient network for collecting repayments • Accountability of all players • Willingness of the players to take risks • Adequate remuneration of all players

  15. Typical Existing Initiatives Worldwide • Inefficient financial structure • Highly dependent on government subsidies • Inefficient collecting system • Not all players are accountable • Lack of willingness of some of the players to take risks • Non clear remuneration of all players

  16. IFC’s Experience with Student Loan Schemes

  17. Year 2000 The EDU Loan Facility in South Africa

  18. The EDU Loan Facility in South Africa • Started in 2000 in South Africa – the initial IFC investment was US$2.8 million • Payroll-based lender – collections through payroll deductions (crédito consignado) • Access to University and Professional training • Loans up to US$650 repayable within 12 months

  19. The EDU Loan Facility in South Africa (cont’d) • Low delinquency rate (less than 2%) • Currently 72,000 students – expected to reach US$ 40 million and 97,000 students by end of 2006. • IFC currently working on a partial credit guarantee for a bank credit line

  20. The NIIT Facility in India

  21. The NIIT Facility in India • NIIT is an IT school in India founded in 1981 which has trained 1 million students. • Financing for tuition and related expenses for a 3 year program. • Qualified jobs with an income more than double their parents’. • Citibank already a lender, but had exposure and risk limitations.

  22. The NIIT Facility in India (cont’d) • Loans: 7 year maturity with partial interest payment for 3 years followed by equal payments for the next 4 years. • IFC provided a mezzanine guarantee of 10% above a first loss coverage provided by NIIT and Citibank of 11%. • The risk on the remaining 79% was assessed to be investment grade.

  23. The NIIT Facility in India (cont’d) The facility was not successful for a number of reasons: • Decrease on the demand for IT • Expensive fee structure • Concern that all-in margin for the bank on student lending would not be sufficiently attractive

  24. The Sampoerna Facility in Indonesia

  25. The Sampoerna Facility in Indonesia • Higher education enrollment in Indonesia is only 16% compared to 29% in Malaysia and 30% in the Phillipines. • Only 4% completion rate, partially due to the financial difficulty of many students in paying tuition fees. • Limited access to credit, highly expensive consumer loans.

  26. The Sampoerna Facility in Indonesia (cont’) • Sampoerna, a non-profit organization based in Jakarta, takes the first losses • BII, a local commercial bank joins IFC to provide guarantee for the second losses • The financial structure allows Sampoerna to leverage its contribution by 7 times and also lowers interest rates at an attractive level.

  27. The Sampoerna Facility in Indonesia (cont’d) • Contribution of Sampoerna may reach US$2.75 million, permitting the loan portfolio to reach US$20 million • Individual loans will be up to US$11,000 • IFC’s total risk is up to US$10 million • Up to 20,000 students can be benefited • Signed in September 2006, first loans to be disbursed in January 2007

  28. The Finem Facility in Mexico

  29. The FINEM Facility in Mexico • Population of undergraduates in private universities in Mexico is expected to increase from around 770,000 today to about 1.2 million over 10 years (~4.5% growth p.a.). • High drop out rates are a serious problem (between 30-40% in public institutions).

  30. The FINEM Facility in Mexico • Estimates that about 60% of drop outs at private education institutions are driven by financial constraints reveals. • Lack of financing affects initial access and program completion.

  31. The FINEM Facility in Mexico • Financiera Educativa de Mexico S.A. de C.V. is a specialized non-bank financial institution that focuses on financing the education sector in Mexico. • IFC is proposing a US$15 million equivalent loan aimed at supporting Finem’s new student loan line of business.

  32. One (out of many) Suggested Sustainable Structure

  33. Suggested Sustainable Structure • Independent and experienced financial institution to provide funding and run the facility • Adequate distribution of risks, aiming at reducing cost of funding • Start small and prudent, and increase it gradually • Favor sustainability and low risk, rather than trying to attend all market requests

  34. Possible Loan and Repayment Schedule • Some possible features: • - Loan period = Study Period + Grace + Repayment period. • The student always pays the same amount of $ during the whole operation, or • The student, while in school, pays only interest and starts repaying principal after grace • - The cap for the University’s contribution is defined on a case-by-case basis. Loan Grace Repayment Graduation Professional Life Years 1 2 3 4 5 0.5 1 2 3 4 100% X % X % X % X % X % X % X % X % X % Amount paid by the Student as a percentage of the regular tuition fee

  35. Possible Financial Structure 100% The University takes the first loss. IFC and the Financial Partner share senior losses. Fin’l Partner Senior Tranche IFC x% University University First loss 0%

  36. How to Contact IFC Gracias por la atención y estamos a su disposición. • Patrick Leahy, Manager, Health & Educationpleahy@ifc.org, IFC Headquarters • Luis Antonio Funcia, Country Officerlfuncia@ifc.org, Health and Education Latin America

More Related