EDUFINANCE PRODUCT DEVELOPMENT Previous EduFinance Product Examples
PREVIOUS EDUFINANCE PRODUCTS PREVIOUS SCHOOL FEE LOAN PRODUCT – SOUTHERN AFRICA Feature Strategic goal Target segment
Loan purpose Loan size Loan term Interest rate Maximum exposure in loan portfolio Funding source Access and delivery channel Repayment frequency Monitoring
Characteristics The financial institution wants to build recognition as a provider of school fee loans, contributing to the access of children to quality education and attracting new client segments. Parents with children who have finished primary school and who need access to financial resources to send these children to secondary school. Yearly approx. 200,000 children drop out after finishing primary school and don’t enter secondary. Enable parents to pay the initial costs of the school year: tuition, uniforms, materials Minimum USD 300 (one child), maximum USD 2,000. Maximum 9 months. Loans to be canceled by the end of each school year. 3-4% per month. To be further specified based on a calculation of loan processing, delivery and monitoring costs, cost of funding and risk In the first year up to USD 1 million, representing approx. 3% of the financial institution’s portfolio. Gradual increase as the financial institution acquires experience, market knowledge and manages the credit risk. First year: The financial institution short term liabilities Second year onwards: dedicated credit line from interested (social) investor. Additional to market based loan conditions, The financial institution’s technology based approach enables clients to access and service the loans through digital channels Monthly payment for salary earners: Client can choose between 3 and 9 payments. For non-salary earners: variable payment options available. Normal procedures. Regular checking with schools on pupil performance and (menace of) drop-out.
Collateral
In line with the financial institution policy.
Risk management
Careful client selection, analyzing credit history and payment capacity Exposure limitation
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PREVIOUS SCHOOL FEE LOAN PRODUCT – EAST AFRICA Feature Strategic goal Target segment Loan purpose Loan size Loan term Interest rate Maximum exposure in loan portfolio Funding source Access and delivery channel Repayment frequency Monitoring Collateral Risk management
Characteristics The financial institution wants to build a sustainable EduFinance portfolio which creates a positive social impact as parents are able to provide their children with education. Any client with school-aged children presenting a legitimate school fees bill. Can be group loan (530 members) or individual loan. Reduces burden of paying large sums of school fees at once Minimum USD 350, maximum USD 1,000. 4, 8, 12 months. 20%p.a. (1.67%p.m.) 15% of current portfolio in the first 1-2 years.
First year: The financial institution short term liabilities The financial institution is a cashless, paperless and data driven MFI. It enables clients to access and service the loans through digital channels using using mobile payment services. . Monthly. Normal procedures. If client has School Fee Loan and business loan, monitor repayments simultaneously. In line with the financial institution policy. Recommended repayment ratio is 30-40% for new clients, and less than or equal to 70% for repeat clients. Clients, particularly with individual businesses should receive two loan facilities which run simultaneously with easy payment plan. School fees loan and an additional business loan to generate income which can cater for instalments of both loans.
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PREVIOUS SCHOOL IMPROVEMENT LOAN PRODUCT – LATIN AMERICA Feature
Characteristics
Strategic goal
The financial institution will help improve the coverage and quality of education in Nicaragua, supporting the financing needs and development of kindergartens and schools in areas of influence. Target segment Private schools and kindergartens with less than 1000 students located in the areas of influence of the institution with an interest in improving the coverage and quality of their educational services. Loan purpose Credit for improvement or expansion of infrastructure, equipment, capacity development and shortterm liquidity needs of kindergartens and schools. Loan size It is planned that the average amount used for credit lines is in the range of USD 5,000 The range of credits may range from USD 300 to USD 50,000. Up to 100% of the value of the asset and its installation can be financed. Loan term The following maximum terms are defined: • Credits for improvement, construction and acquisition of real estate and / or vehicles: 48 months • Loans for the acquisition of furniture, equipment, other types of assets: 36 months • Loans to finance short-term liquidity needs: 12 months Interest rate • 48% for Credits up to USD 1,000 • 36% for Credits between USD 1,000 and USD 10,000 Maximum In the pilot phase, USD 500,000 with 100 credits granted with an average credit of USD 5000. Rate exposure in loan of subsequent portfolio growth will be determined based on the results of the pilot. portfolio Funding source In accordance with the policies and procedures of the institution. Access and In accordance with the policies and procedures of the institution. delivery channel Repayment Capital: Monthly, bi-monthly, quarterly, half-yearly or at expiration frequency Interests: Monthly , monthly or quarterly. Monitoring Train education loan officers to become specialized in credit analysis to educational institutions. Collateral In accordance with the policies and procedures of the institution. Risk management Control over indebtedness: ratio Available Rate / Income Maximum < 75%. Evaluate the history of indebtedness in the financial system, to show that there is no growing trend in the level of debts with risk of over-indebtedness
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PREVIOUS SCHOOL IMPROVEMENT LOAN PRODUCT – SOUTH ASIA Feature
Characteristics
Strategic goal
The financial institution believes in the triple bottom line approach towards its business. Apart from financial bottom line, which is imperative for the progress of the business, the financial institution also focuses on social and environmental bottom lines. The proposed product will give thrust to the education sector, cater to growing customer demand, and increase the financial institutions business. Target segment The credit may be availed by individual promoters/partnership/companies/Trusts/Societies/Associations managing Schools/Educational Institutions/Training centers/Tuition centers, etc. Loan purpose Finance option for school renovation or constructing new class rooms, purchasing new vehicles/fixed assets and developing the existing facility through the addition of amenities. Loan size Minimum USD 4,500. Maximum USD 37,000. Loan term Maximum 10. Interest rate 17% per year. 1.5% processing fee. Maximum In the first year up to USD 7.8 million. Gradual increase as the financial institution acquires exposure in loan experience, market knowledge and manages the credit risk. portfolio Funding source The financial institution has 2 social investors that focus on financial inclusion in low-income communities in sustainable, scalable and innovative ways. Access and Loan disbursed through financial institution’s cashless disbursement mode. Mode of repayment: delivery channel Direct credit to loan account SI/ECS/NACH of instalments/collection team/Agent Banking Repayment Monthly. frequency Monitoring Special Credit officers will be recruited to carry out appraisal of School Loans. Demand direct access to the client schools’ monthly financial statements. Collateral Primary Security: Hypothecation of assets created out of finance. Hypothecation of vehicle if the credit is used for purchase of vehicles. Collateral: Equitable Mortgage of land (minimum 100% of the limit sanctioned). The collateral offered can be land on which school and its facilities are situated Risk management Operational Risk: Special Credit officers will be recruited to carry out appraisal of School Loans. Credit Risk: Careful client selection, analysing credit history and payment capacity. Personal guarantee of the promoter in addition to primary security and collateral.
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PREVIOUS SCHOOL IMPROVEMENT LOAN PRODUCT – SOUTHERN AFRICA Feature
Characteristics
Strategic goal
To further increase its footprint in the market for educational finance, The financial institution wants to build recognition as a provider of school improvement loans. In doing that it can contribute to the supply of quality education and attract a new client segments. Target segment Private Schools, in particular the smaller schools. A segment with limited focus of the banks. Loan purpose Enable schools to invest in school improvements, aiming at offering increased quality of the education. Loan size Minimum USD 3,000. Maximum USD 20,000. Loan term Maximum 3 years for a first loan. Gradually extend the term for performing client schools. Interest rate 2% per month. To be further specified based on a calculation of loan processing, delivery and monitoring costs, cost of funding and risk. 5% origination fee to “compensate” for the relatively low interest rate on these multiyear loans. Maximum In the first year up to USD 1 million, representing less than 3% of the financial institution’s portfolio. exposure in loan Gradual increase as the financial institution acquires experience, market knowledge and manages portfolio the credit risk. Growth dependent on obtaining medium term liabilities. Funding source In view of the low interest rate, the financial institution needs access to cheap funding. Search for a dedicated credit line from interested (social) investor. Access and The financial institution’s technology-based approach enables clients to access and service the delivery channel loans through digital channels. Repayment Careful timing of the payment moments, to coincide with the months of high income for the schools frequency (the beginning of the school terms). Monitoring Normal procedures. Demand direct access to the client schools’ monthly financial statements. Collateral In line with financial institution policy. Risk management Careful client selection, analysing credit history and payment capacity. Beware of taking a double risk: funding a school which depends heavily on payments by financial institution provided school fee loan clients.
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EDUFINANCE PRODUCT DESIGN Product Specification and Client Analysis