February 15, 2007 — IFC recently partnered with financial institutions in Indonesia and Mexico to develop student loan programs that are expected to have a significant demonstration effect for investors and financial institutions in emerging markets, showing that education financing can be a viable and sustainable business.
IFC worked with the Sampoerna Foundation and PT Bank Internasional Indonesia Tbk (BII) to establish Indonesia’s first private financing facility for making student loans. The project shows how IFC, by working with a philanthropic foundation,can dramatically improve development impact and help provide access to higher education for a large number of students.
IFC Director Guy Ellena noted, “A well developed student loan market not only enhances access to higher education and university enrollment, but also distributes the economic benefits of higher education more evenly.”
Compared with 20 percent of students in China and 34 percent across all OECD countries, less than 10 percent of Indonesians are enrolled in higher education and less than 4 percent of those enrolled complete university studies. The risk-sharing facility will help about 15,000 new students cover the cost of tuition and university entrance fees, providing the equivalent of 20,000 loans over three years at an average size of $1,000. The institutions sought IFC’s assistance in structuring risk sharing facilities to provide education financing for students and families from middle class and disadvantaged backgrounds, including those who receive partial scholarships and are unable to borrow the balance because of a lack of collateral. IFC and BII are sharing the senior risk participation at $2.5 million equivalent each (with a possible total participation for each up to $10 million equivalent), while Sampoerna Foundation is providing expertise, knowledge, and networks in the education sector in Indonesia. BII will assume the role of fund provider and administrator of the loan portfolio. The facility will have a maximum term of seven years. The project with Sampoerna Foundation was a pioneering use of a risk sharing facility to support student loan financing. IFC believes that this can be replicated in other emerging markets and is currently developing similar projects in Brazil, Jordan, Pakistan, and other countries.
IFC has also partnered with Financiera Educativa de Mexico (Finem), a specialized nonbank institution, to set up one of the first private financing facilities for student loans in Mexico. The project will increase access to higher education by enabling lower and middle-income students to finance their post-secondary education with long-term loans. IFC’s investment consists of a 10-year senior loan facility of up to the equivalent of $15 million.
Health and Education Department, IFC