Sampoerna Student Financing Facility

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24598
Company name	Structured Student Financing Risk Sharing Facility
Country	Indonesia
Sector	Education Services
Environmental category	C
Department	Health and Education
Status	Pending Disbursement

Date SPI disclosed	June 28, 2006
Projected board date	July 28, 2006
Date revised SPI disclosed	June 29, 2006
Previous Events	Signed: September 15, 2006 Approved: September 14, 2006

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project is a risk-sharing facility in Indonesia between Sampoerna Foundation, Bank Internasional Indonesia (BII), and IFC that will extend loans to parents and students who have difficulty affording tuition and/or University entrance fees. The project will be the first private student loan financing facility in Indonesia and the first facility in the world using a risk sharing mechanism to leverage contributions from an education foundation into a portfolio of student loans. The total amount of student loans disbursed could reach approximately $20 million, with IFC’s total risk up to $10 million. Sampoerna, to the extent permitted by the prevailing law, will be providing funds to cover set up costs and the first losses on the portfolio of loans. The remaining losses will be shared equally between IFC and BII. BII will also administer and fund the portfolio. Loans will be available for all educational purposes, but initially will target undergraduate and graduate university students.

The project will make a contribution towards expanding access to tertiary education for low-income students. According to World Bank data, the higher education enrollment rate in Indonesia is only 16.4%, compared with 29.3% in Malaysia and 30% in the Philippines. The country’s comparatively low enrollment is due in part to the financial difficulty that many students have in paying tuition for tertiary education. Entrance fees and up-front costs are significant in Indonesia (sometimes more than 1.5 times annual tuition for undergraduates). In addition, access to credit is constrained in Indonesia, and consumer loans are prohibitively expensive for most families. In contrast, the Facility will price loans to students and parents at an attractive rate. By leveraging Sampoerna’s funds, the Facility will help economically disadvantaged students to attend university.

Project sponsor and major shareholders of project company

Sampoerna:

A non-profit and philanthropic organization dedicated to improving the education sector in Indonesia, Sampoerna provides scholarships to young people with a proven record of academic excellence. Sampoerna has so far provided over 15,500 scholarships to young students. It was established in 2000 by Mr. Putera Sampoerna and the former shareholders of PT HM Sampoerna Tbk, Sampoerna receives significant annual donations ($5.8 million received during 2005), mostly from institutional and corporate sponsors engaged in Indonesia. To date Sampoerna has provided scholarships to students and has managed quality education programs such as School Quality Improvement Program, Teacher Institute, and Institutional Development Program, while this is their first experience with student loans.

BII:

The 6th largest bank in Indonesia based on total assets, BII deals in 3 main lines of business:

- corporate/commercial banking
- consumer banking (including housing, auto, motorcycle financing); and
- credit card issuing and acquiring.

BII also currently offers an Education Savings Account product, for parents looking to save and finance their children’s educations. These customers will also be a target for the Facility.

Total project cost and amount and nature of IFC's investment

The Facility will be structured as a risk sharing mechanism between Sampoerna, BII, and IFC. IFC and BII will jointly guarantee the losses of the portfolio that are in excess of a specified first loss threshold. For the first tranche, this will be defined as the principal losses above $850,000. Sampoerna’s first-loss position would have to be fully exhausted before IFC and BII would pay any guarantee claims under the Facility. Sampoerna will make two additional contributions of US$950,000, permitting the loan portfolio to reach a maximum size of $20 million equivalent over the next four years. The Facility will have a maximum term of 7 years. Individual loans will be up to 100 million rupiahs ($11,000 equivalent) and have a tenor between 1 and 3 years.

Location of project and description of site

Loans will be made to students attending schools across Indonesia. Although there will be no geographic limits, the facility initially disburse loans for study at selected state and private universities. Both Sampoerna Foundation and BII are headquartered in Jakarta.

IFC PROJECTS