IFC Innovation Helps Lower-income Students

Washington, D.C., May 21, 2008 A key challenge in developing countries is that many people, especially the poor, cannot afford to pay for higher education. IFC is helping meet the challenge by creating innovative products that benefit many families, including lower-income households.

A Unique and Innovative Product


IFC's student loan investments are unlike anything done by other multilateral organizations or development finance institutions. We partner with local universities, foundations, and financial institutions to develop sustainable, market-driven facilities for lending to students. IFC plays a major role by getting financial investors and higher educational institutions to work together in mitigating risk and combining their expertise to leverage their contributions many times over.

The programs are designed so that risk is shared. The educational institution or private foundation assumes the initial financial risk of the portfolio of loans should students default in payment. Then IFC and the commercial bank involved will each cover an agreed amount of risk should there be a greater rate of default. IFC takes the lead in structuring the programs, which are often breaking new ground in the market. Interest rates are designed to be financially sustainable for all parties over the long term.



 


"IFC's student loan programs give students a better chance
to complete their education, compete in the job market,
and improve their lives."
—Guy Ellena, IFC Director for Health & Education

 



Helping Low-income Students

In Chile, where only 20 percent of the people can afford to pay for higher education, IFC recently introduced a new product to the country's financial markets—the first private student loan program designed to help poor families pay for post-secondary technical and vocational studies. IFC is partnering with DuocUC, a higher education institution, and Banco de Crédito e Inversiones. The program will enable over 15,000 students to finance their post-secondary education with long-term competitive loans.


The program is expected to originate loans totaling about $51 million over several years. DuocUC students will be able to cover the full cost of tuition and will be offered an attractive interest rate, with repayment terms of up to seven years after graduation. By targeting students in professional and technical careers, the program will also help boost the number of qualified professionals entering the labor market—a priority for the Chilean government.

IFC has helped develop a similar program in Mexico. In 2006, we partnered with Financiera Educativa de Mexico to establish one of the first private financing facilities for student loans in the country. This is helping increase access to higher education for middle-income students, while expanding the company's reach to lower-income borrowers. So far, about 1,400 students have received loans from the program.


A Key Part of IFC's Education Strategy

Looking ahead, IFC is pursuing similar student loan projects in other developing countries. This is a key component of our education strategy globally.

In Indonesia, a shortage of affordable student loans has been a barrier for students from middle-class and disadvantaged households who seek a university education. To help, IFC partnered with the Sampoerna Foundation, a local nonprofit, and with Bank Internasional Indonesia Tbk in the country's first private financing facility for student loans. This is also the first facility worldwide designed to leverage soft funds from a foundation. It is expected to help some 15,000 new students cover the cost of tuition and university entrance fees.



Most recently, IFC partnered with Banco Real in Brazil to establish a loan program for students and working adults. The new product will be rolled out in universities across the country over the next two years.

IFC will continue working to introduce student loan programs to local financial markets, demonstrating that they can be a commercially viable business.


Contact:

Ludi Joseph
Communications Officer

Health and Education Department, IFC
E-mail:
ljoseph@ifc.org
Phone: 202-473-7700
Website: www.ifc.org/che