Source: Financial Times
By Andrew Jack,
A new funding model offers loans to business school students from emerging economies
Cameron Stevens hit a snag when he tried to take out a loan to pay for his MBA at Insead in France in 2005. Mr Stevens is South African, and was working in Malaysia. A high-street bank offered to cover the €50,000 cost — but demanded he put up the full amount in liquid assets as collateral.
“If I had had the money, why would I have asked for a loan?”
He was forced to defer entry for a year, during which time he earned enough money to pay the fees himself. Once at
David Simpson, admissions director at London Business School, says: “Candidates spend as long finding funding as researching programmes. We have a growing pool of scholarships but they only cover a proportion of the class for a proportion of their fees. MBAs are expensive, so you want to be
A fragmented, opaque network of financial aid frequently leaves students with no choice but to seek costly loans from banks in their home countries, often with additional exchange rate risk, or to drop out.
In the US, for example, government-backed concessionary loan programmes are for American nationals. And without a local credit history, few can obtain commercial loans in the country where they intend to study.
This situation risks excluding talented students from lower and middle-income countries, resulting in classes made up of those rich enough to pay or who are being funded by employers.
It collects data on credit records in different countries and has developed mechanisms to conduct compliance checks and enforcement for debt collection. Prodigy is now a fast-growing company, and its focus on business school finance gave it two advantages: it could make risk assessments based on students likely to have high future
“You have talented people who have proved their potential in receiving offers to business school,” says
He says that credit unions and a few alternative lenders in the US are fragmented, have loans typically backed by universities, and struggle to scale up across different institutions to meet rising demand. Rivals do exist in some regions, such as Discover in the
Neha Bansal, from India, has taken out a Prodigy loan to fund her London Business School MBA. She says an Indian bank would have been unlikely to lend her what she needed — and she would have required personal connections to win approval.
The interest rate would have been around 14
For Renato Vieira, a Brazilian studying at Alliance Manchester Business School, Prodigy’s loan was a way to hedge against further depreciation of his local currency savings. “My other options were to burn my finances with an unfavourable exchange rate or take out a local rate loan at 30 per cent,” he says.
Prodigy has recently increased its funding to more than $1bn from institutions including Credit Suisse, Goldman Sachs
Some argue that Prodigy’s programme still leaves gaps. Charlie Maynard, a Briton who applied to Stanford’s Graduate School of Business while working in Indonesia, turned to Prodigy to fund his MBA because it offered greater flexibility over the loan amount.
But he says the interest rate charged was still relatively high, refinancing after graduation proved difficult and the company would not share his repayment data to strengthen his credit record in the UK.