As the peer-to-peer market grows, and with interest rates low, investors have been willing to take a punt on the future earnings potential of the 3,000 or so students who have received Prodigy loans.
“By lending through Prodigy I have a higher financial leverage than by giving grants — and the bond returns are competitive given the historic low default rates,” says Andreas Fetting, a private investor, who backed students at INSEAD and the London School of Economics.
Founded in 2007 by three INSEAD MBA graduates who struggled to get funding, Prodigy has processed more than $159 million in loans; funding more than 3,400 students from 116 nationalities. Its repayment rate is in excess of 99%.
The company operates through a listed bond program: investors buy a stake in an asset-backed bond, supporting a group of students, rather than offering credit to individual borrowers.
Yet it is the social as well as the financial returns that draw investors to the Prodigy platform — many are alumni of the business schools from which borrowers are attending.
“Having a social impact as well as a market rate return is much more interesting than just having a return,” says Rowena Ironside, a London Business School alum who is executive chair for Women on Boards UK, a social enterprise championing women in leadership.
By backing students at her alma mater, she says she is “helping to build the brand of the school by almost increasing the calibre of people who have access to it”.
Arvind Vinjimoore, a New Zealander who studied at University of Oxford’s Saïd Business School, believes access to top courses shouldn’t be based on socio-economic status. Three quarters of Prodigy’s students come from developing countries such as Brazil, India, China and Russia.
“In every country you’ve got a well-off group,” he says. “Access to funding enables the next two levels to join in.”
By investing through Prodigy, he can see the impact of his funding on students’ lives. “There’s a little bit of a feel-good factor.”
This financial inclusion makes Prodigy “revolutionary”, believes Verena Butt d’Espous, an investor on the platform, who works for leading long-distance ride sharing platform BlaBlaCar, and who studied for an MBA at INSEAD.
“It increases the depth and the access to higher education for international students — students who are not bankable and might have had to shy away from an MBA.”
Institutional investors see the potential. In August 2015 Prodigy raised $12.5 million in equity investment from Balderton Capital, plus more than $130 million in loan capital from Credit Suisse, Deutsche Bank and other qualified private investors.
Sven Kado, who left INSEAD almost 44 years ago and has served as CFO of two publically listed companies, says investors are looking for sustainable investments. Prodigy fits the bill.
“You have low costs on the side of the company. This generates competitive returns, and you are investing in the next generation,” he says.
The fact that many MBAs use Prodigy is also something of a reassurance for the platform’s investors. Prodigy works with more than 60 of the top-100 business schools, such as Harvard, London Business School and INSEAD, to name a few.
“I strongly believe that these students will find interesting job opportunities and I am convinced that they will be in the position to pay back the loan,” says INSEAD graduate Joeri de Groot, from AlpInvest, a Dutch private equity firm.
“There’s always a risk, but I have spread it across roughly 100 students. It’s quite diversified.”
For all the social benefits, it is financial returns that will ultimately judge if Prodigy is a success.
Antoine Tirard, a senior affiliate consultant at Pivot, a strategic leadership boutique, says: “I didn’t want to live with the risk of investing in a stock. But at the same time, I wanted a market rate return. If you look at Prodigy from a financial point of view, it’s essentially a bond. The interest was in line with my own expectations.”
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