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IFC Investing in Student Lending November2009. Agenda  Overview of IFC’s Health & Education Department  Student Lending Programs  DUOC and IFC Student.

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Presentation on theme: "IFC Investing in Student Lending November2009. Agenda  Overview of IFC’s Health & Education Department  Student Lending Programs  DUOC and IFC Student."— Presentation transcript:

1 IFC Investing in Student Lending November2009

2 Agenda  Overview of IFC’s Health & Education Department  Student Lending Programs  DUOC and IFC Student Loan Program  Other Examples of IFC Student Loan Facilities 2

3 IFC Health and Education Department 3  Health and Education Department (CHE) was established in FY02  Health and Education Sectors are Pillars of IFC’s Strategy  Approximately 60% annual commitment growth since FY03  CHE has 2 health and 1 education specialists 3 CHE Portfolio by Product*CHE Portfolio by Country* * Data as of March 2009 Health Sector: 78 private health projects in 18 countries US$ 3,013 mln of total project value US$ 901 mln of CHE total investments Education Sector: 52 private education projects in 18 countries US$ 1,013 mln of total project value US$ 281 mln of CHE total investments

4 Areas of Private Education Investment 4 Technical & Vocational Tertiary/Post- Secondary Primary/Secondary Schools Facilities Direct investments Europe & Central Asia Middle East Latin America East Asia & Pacific Sub Saharan Africa Student Loans South Asia Middle East IDA Countries

5 Types of Education Investment  Student Loan facilities are the fastest growing type of commitment in the education portfolio, representing 8/16 of new investments since FY07 as well as 7/13 of those made at the tertiary level  Declining direct investments also have been offset by the emergence of school facilities, which represent 3/5 primary and secondary level investments originated since FY05 5 As of June 30, 2009 Type of Education Investments (Active Projects Only)

6 6  There is strong market demand but few successful experiences  Most programs are run by governments and have issues  Highly dependent on government subsidies  Inefficient collecting system  Not all players are accountable  Student loans have a negative reputation  Collection difficulties  Lack of credit reporting  Adequate funding is generally not available and financial structures are inefficient Student Loans in Emerging Markets

7 7 IFC Student Loan Facilities  CHE has committed $89 million in loan guarantees to leverage a maximum portfolio of $286 million in student loans across 8 countries  An anticipated +175,000 loans, averaging +US$2,200 will support tertiary and post-secondary students  Countries include: Indonesia, Mexico, Chile, Brazil, Kenya, West Bank/Gaza, Jordan and Egypt  Foundation & institutional partners assume first loss risk. IFC’s senior risk position has never been exercised As of July 31, 2009

8 8 University IFC Fin’l Partner First loss Senior Tranche Structure of an Unfunded Student Loan Program 1 st loss provider 0% 100% x% Role of IFC:  Risk taker (senior losses)  Engages banks and universities  Arranger. Uses prior experience to assist in: – developing loan criteria – designing loan features – creating portfolio scenarios – structuring risk sharing arrangements – providing tested legal documentation Role of First Loss Provider:  Contributes capital to cover the first loss and possible interest subsidy

9 9 DUOC Loan Program with IFC  Risk-sharing facility between IFC, local commercial bank (BCI), and DUOC  DUOC: acts as provider of first loss  IFC: participates as senior risk guarantor  BCI: acts as senior risk guarantor and servicer  Potential portfolio of US$50 million  Product features:  Target Interest Rate: below 10%  Tenor: Study + up to 7 years  First-loss: university will fund a reserve account  Co-signer required (typically parent)  Bank and Institute share in screening and monitoring

10 10 Structure of Unfunded Student Loan Facility BCI (bank) IFC DUOC (1 st Loss) First Loss Reserve Risk Protection Student C Disbursement Made to University Repayment by Families / Students Student B Student A

11 11 Benefits of a Student Loan Program  Students: Improves access and affordability of higher education  Universities:  Enables enrollment of all academically qualified students  Increases enrollments  Improves financial position of Universities and shifts financial managemnt to Banks  Banks: Increases banks’ access to new customers  First Loss Provider: enables education spending to be leveraged seven to ten times

12 Other IFC Student Lending Programs

13 13 Funded Student Loan Programs: IFC’s Experience ProjectKey Features FINEM (Mexico)  Specialized non-banking institution focusing on education financing  IFC participating with US$15 mm debt financing  In-depth analysis on student’s study-area and related employment/salary probabilities, family size and income, etc.  Product features:  Product Interest Rate: 9.75%  Tenor: up to 10 years  Grace on principal during studies  First-loss: University takes 100% of the loss by repurchasing all loans past 90 days due  Co-signer required (parent)  Finances up to 80% of tuition costs Eduloan (South Africa)  Institution financing student tuition since 1996 – IFC debt-financed since 2001  Targets low-wage government employees (automatic deduction from payroll)  Short-term maturity: months  Receives substantial discounts (~15%) from universities to supplement the return (student still repays the full face-value of tuition)

14 14 ProjectKey Features Real Student Fin (Brazil)  Risk-sharing facility involving IFC, ABN AMRO’s subsidiary in Brazil, Banco Real, and multiple universities  IFC participating as senior risk guarantor and will share second loss 50/50 with Banco Real  Potential portfolio of US$50 mm  Product features  Interest Rate: 20%  Tenor: up to 5 years, immediate amortization  Only final three years of tuition are financed (high drop-out rates in first year)  Co-signer required (parent)  First-loss: Universities (10%)  Universities help in marketing/screening/collection Unfunded Student Loan Programs: IFC’s Experience Palestine Education Fund (West Bank & Gaza)  Risk-sharing facility involving IFC, Palestine Education Fund (“PEF”) and the Bank of Palestine  IFC participating as senior risk guarantor and will share second loss with Bank of Palestine  Potential portfolio of US$40 mm  Product features:  Tenor: three years after one year grace period  PEF will contribute funds to cover the interest expense during studies  Co-signer required (parent)  First-loss: PEF (20%)  Universities help in marketing/screening/collection

15 15 ProjectKey Features Student Loans (Kenya)  Risk-sharing facility involving IFC, Commercial Bank of Africa (local commercial bank) and Strathmore University, a private university specializing in commerce and information technology  Similar facilities are expected between IFC, Commercial Bank of Africa and other tertiary educational institutions, who will provide a first loss  IFC participating as a senior risk guarantor  Potential portfolio of US$4.5 mm  Product features:  Interest Rate: 12% (vs. rates in excess of 25% on credit cards)  Tenor: 1 year  First-loss: Strathmore (5%)  Parent is the primary borrower  Finances up to 100% of tuition  Strathmore helps in marketing/collection Student Loans (Jordan)  Risk-sharing facility between IFC, Cairo Amman Bank (local commercial bank) and Omnix International, a provider of software, networking and security solutions in the Middle East  IFC participating as senior risk guarantor  Potential portfolio of US$25mm  Product features:  Variable Interest Rate: ~11%  Tenor: 8 years  Only interest payments during study  First-loss: Omnix International will fund a reserve account (20%)  Co-signer required (typically parent) Unfunded Student Loan Programs: IFC’s Experience

16 16 Unfunded Student Loan Programs: IFC’s Experience ProjectKey Features Sampoerna (Indonesia)  Risk-sharing facility involving IFC, Bank International Indonesia (local commercial bank), and an Indonesian charitable foundation (Sampoerna) focusing on student scholarships  IFC participating as a senior risk guarantor and structuring agent  Potential portfolio of US$20 mm  Product features:  Product Interest Rate: 19% (vs. ~ 40% rates on credit cards)  Tenor: 1-3 years, repayment before graduation  First-loss: Sampoerna Foundation (12%)  Co-signer required (parent)  Finances up to 100% of tuition  Universities help in marketing/screening/collection


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