A peer-to-peer lending company that helps overseas postgraduate students pay tuition fees by borrowing from an alumni network has secured $240m of extra debt and equity funding for expansion in the US.
Of the total secured by Prodigy Finance, $200m is in the form of a debt facility from an investment bank, to enable the company to lend more.
The $40m in equity funding will allow the London-based start-up, whose backers include Betfair’s Ed Wray and European tech venture capital group Index Ventures, to expand its operations in the US, which generates half of the $500m in debt financing it will provide to students this year.
International students struggle to get loans to pay their fees because they generally do not have a credit rating in the place where they are studying. Traditional bank lending to students is often not structured to assess foreign risk or enforce international loan repayment.
Prodigy Finance was founded by three graduates of business school Insead, who saw classmates being refused loans despite their higher than average earnings potential.
Ilian Mihov, dean of Insead, where about a quarter of international students now have Prodigy Finance loans, said it contributed to the “diversity” of the school, which has students from more than 90 countries.
Prodigy Finance also enables the alumni of top schools to help fund students from their alma mater or home country, while earning a financial return.
More than 80 per cent of Prodigy Finance borrowers have had no alternative source of financing, the company said and the repayment rate is 99 per cent.
All but four of the 100 business schools ranked by the Financial Times for their MBA courses now offer Prodigy Finance to students.
For many universities, there are limits to the fees they can charge domestic postgraduate students, which makes them reliant on the higher fees they can charge international applicants.
Neil Rimer, a partner at Index Ventures, said: “Prodigy Finance is an example of an entrepreneurial financial services company using an innovative model to offer something of great value that is not available from traditional lenders.”
Prodigy Finance’s $200m debt facility from a bank shows one way a traditional financial services company can hedge its bets against the threat from new lenders with different business models.