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SOLUTIONS Bloomberg Businessweek March 11, 2019THE BOTTOM LINE Fintech companies such as Prodigy and Mpower offer
students outside their home countries more accessible loans that don't
require co-signers or collateral.average of $40,000 and pay 5 percent to 8 percent fixed
interest, plus Libor, which is variable. Nearly 80 percent of
Prodigy’s borrowers are from emerging markets, the com-
pany says; engineering is a key growth sector, especially
among students from Brazil, China, India, and Russia.
Models like Prodigy’s make sense, says Stevens, espe-
cially considering the $1.5 trillion student debt crisis in the
U.S. “If you are borrowing against your own earnings poten-
tial over your life for certain degrees at certain universities,
there’s no issue,” he says. “Lending someone $150,000 to
do a cooking course in Idaho makes no sense whatsoever.”
Stevens, a South African entrepreneur who couldn’t
get a bank loan after he was accepted into INSEAD’s MBA
program in 2004 in Fontainebleau, France, was convinced
that a more accessible option—no co-signers or collat-
eral required—would appeal to applicants. If you happen
to have been born in San Francisco and are accepted into
Stanford University, there are many sources of financing,
he says. “But if you happen to come from Ghana or South
Africa or Indonesia, your access to funds is completely
different. This is purely because of structural issues; it
has nothing do with you as a person. That’s fundamen-
tally unfair and a really big problem.”
Businesses such as Prodigy are helping foreign stu-
dents “who can’t really fathom the kind of debt we’re
talking about in the U.S.,” says Tim Mescon, chief officer
of Europe, Middle East, and Africa at AACSB International,
an accrediting body and alliance of business schools.
“They’re returning lending to where it began, which is
really based on the integrity and quality of the individual.
The traditional banking sector can't do that and doesn't
do that. Circumventing banks is a massive opportunity.”
Entrepreneur Mike Davis is co-founder and chief invest-
ment officer of Mpower Financing, a public benefit corpo-
ration in Washington, D.C., that was started in 2014 with a
mission similar to Prodigy’s. Davis also had trouble paying
for his education. His parents had sold their home in Iowa
and most of their possessions to put him and his sister
through college after immigrating from Iran.
Davis’s 41-employee venture earlier this year surpassed
$1 billion in loan applications and has lent to thousands of
students from about 100 countries. In November it final-
ized a $100 million credit line from Community Investment
Management, an impact investor in San Francisco. Unlike
Prodigy, it lends to both undergraduate and graduate stu-
dents, offering fixed-rate loans of up to $50,000 at about
8.9 percent to 15 percent APR. Foreign students he lends
to default far less frequently than their domestic counter-
parts, he says. “It’s ridiculous—internationals getting loans
get treated like second-class citizens.” —Nick LeiberStudent debt refinancing is the newest product from
Prodigy Finance, a business with offices in Cape Town,
London, and New York that’s betting on foreign students
with high earnings potential. As more students consider
enrolling in postgraduate professional programs outside
their home countries, the company is growing quickly, plan-
ning to raise staff headcount to 250 from 166 by yearend,
says co-founder and Chief Executive Officer Cameron
Stevens. Since its founding in London in 2007, Prodigy
has helped about 14,000 grad students borrow close to
$700 million and has expanded from business programs
to engineering, law, and other dis-
ciplines. Of the slightly more than
1 million international students who
studied in the U.S. in the 2017-18
academic year, nearly 429,000
studied business, management,
or engineering, according to the
Institute of International Education’s
most recent Open Doors report.
From fall 2017 through fall 2018,
Prodigy raised $1 billion, primarily
in institutional debt facilities from
banks including Deutsche Bank,
Goldman Sachs, and Sumitomo
Mitsui Banking. In November it
unveiled refinancing plans for foreign borrowers such as
Mazzafera living in the U.S. and the U.K. who'd taken stu-
dent loans from other lenders. “There are international
grads making an amazing salary, but they have $200,000
in student loans with co-signers or their family’s home in
India is being used as collateral,” says Ricardo Fernandez,
Prodigy’s head of new businesses and strategic partner-
ships. He sees refinancing as a way to reach more of the
260 million people living outside their native countries.
Prodigy’s thesis: Individuals of modest means who get
into top graduate programs outside their home coun-
tries are good credit risks. But in many cases, partic-
ularly if they’re from a developing country, they can’t
secure bank financing. Alternatives such as government
loans and school scholarships exist, but access varies
widely. “There’s a spectrum,” says Imran Kanga, director
for recruitment and admissions at the Rotman School of
Management at the University of Toronto. Countries such
as India and China, which have hundreds of thousands of
students abroad, have multiple options, while a nation such
as Mongolia has nothing. “All of the other countries fall in
between,” he says. Kanga believes more banks should fund
foreign students: “It’s a profitable investment,” he says. “It’s
a win for the bank, their economy, and for business schools
like Rotman to attract talent from all over the world.”
Prodigy’s underwriting model pays more attention to
earnings potential, while conventional lenders emphasize
borrowers’ current income and assets. Clients borrow anStevens conceived
Prodigy when he
couldn’t get a loan to
pursue an MBA