Affordable higher education student financing

financing
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Affordable higher education student financing
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Education
Formal Education
Business Model Description

Provide higher education financing to students through non-predatory credit schemes

Expected Impact

Allow lower/medium income students to access higher education and include them in the financial system

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
Loans offered at 2.5-3% interest rates
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
Required credit amount of at least 6 billion USD (15)
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
> USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Quality Education (SDG 4)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Gender Equality (SDG 5) Decent Work and Economic Growth (SDG 8)
Country
Regions
  • Brazil: Maranhão
  • Brazil: Piauí
  • Brazil: Ceará
  • Brazil: Pernambuco
  • Brazil: Alagoas
  • Brazil: Sergipe
  • Brazil: Bahia
  • Brazil: Acre
  • Brazil: Amapá
  • Brazil: Amazonas
  • Brazil: Pará
  • Brazil: Rondônia
  • Brazil: Roraima
  • Brazil: Tocantins
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Education
ED

Development need: Brazil faces critical challenges in education: 40% of Brazilians between ages 18 and 29 have not completed high school; 67.3% of black youths (18-29) terminate studies prematurely; 25% of students are not in their intended school year by 14 years of age, creating fundamental obstacles for improving inequality, raising living standards, and driving economic growth (3)

Policy priority: Brazil invests a relatively high share of both its gross domestic product (GDP) and its total public expenditure on education, yet expenditure per student still lags behind most OECD and partner countries (4)

Gender inequalities and marginalization issues: Racial and geographic inequalities persist despite aggregate improvements; girls 13-16 years of age in the Southeast and South are more likely to attend school than those in the North, Northeast, or Center-West regions. (5)

Investment opportunities introduction: Access to finance could allow millions of lower/lower-medium-income students to access or complete higher education, as well as include them in the financial systemInvestment opportunities introduction: Access to finance could allow millions of lower/lower-medium-income students to access or complete higher education, as well as include them in the financial system

Key bottlenecks introduction: Insufficient digital and financial literacy, high interest rates impeding loan availability.

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Formal Education
ED.1

Development need: The number of Brazilians attending higher education has also dropped in previous years, from 18.5% in 2016 to 17.8% in 2017 (7) (13) There is a market failure around higher education financing including high interest rates, no grace periods for repayment (loans to be repaid over a 12-month period), and high collateral or guarantees demanded (8)

Investment Opportunity Area

Affordable higher education student financing

Business Model

Provide higher education financing to students through non-predatory credit schemes

Critical IOA UnitDescribes a complementary market sizing measure exemplifying the opportunities with the IOA.
Required credit amount of at least 6 billion USD (15)

FIES program has over US$ 6 billion outstanding debt from lack of repayment of nearly 0.5 million students, representing over 57% of all students with FIES loans. These numbers have been growing since 2014 (15) (16)

While the number of FIES loans approved for 2018 was 310K, it still represents under half of the amount of loans provided by FIES at its peak in 2014 (nearly 700K) (11) (13)

GPMDescribes an expected percentage of revenue (that is actual profit before adjusting for operating cost) from the IOA investment.
Loans offered at 2.5-3% interest rates

While investors have not disclosed direct return information, alternative lenders to FIES, notably regional banks in the North and Northeast of Brazil, are offering loans at 2.5-3% interest rates (vs. mainstream banks like Itau who are looking for 7-8% annual interest [20])

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)

The FIES and similar credit provision programs for higher education offer a grace period until the student has completed education, usually four years. However, there are thousands of students with financing needs at different stages of their higher education given the downsizing of FIES

Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
> USD 10 million
Market - Highly Regulated
Presence of government-provided financing required less of a potential role from (and opportunity for) private innovations
Market - Volatile
High interest rate volatility could make it less attractive for investors and financial institutions to lend to students at competitive rates
Business - Supply Chain Constraints
Low financial literacy may affect loan uptake due to lack of understanding of terms
Sustainable Development Need

Public austerity measures have led to the number of students enrolling in Brazilian universities with government funding to drop from 21.3% in 2014 to 5.7% in 2017, putting over 500,000 students at risk of not being able to afford higher education (6)

The number of Brazilians attending higher education has also dropped in previous years, from 18.5% in 2016 to 17.8% in 2017 (7) (13)

Market failure around the predatory financing banks provide to higher education students - high interest rates (e.g., Bradesco offers annual interest rates of over 25%), no grace periods for repayment (loans to be repaid over a 12-month period), and high collateral or guarantees demanded (8)

Gender & Marginalisation

Racial and geographic inequalities persist for women's access to education (5) affecting women's employment rate

Expected Development Outcome

Ensure accessibility to higher education for lower- and middle-income students by allowing them to meet their financial demands

Broaden access to finance to university students by offering alternative and tailored credit lines

Kickstart credit provision to millions of students, giving them the opportunity to grow financially

Gender & Marginalisation

Increasing women's access to education through new financing options, creating new employment opportunities

Primary SDGs addressed
4 - Quality Education
Quality Education (SDG 4)

4.5.1 Parity indices (female/male, rural/urban, bottom/top wealth quintile and others such as disability status, indigenous peoples and conflict-affected, as data become available) for all education indicators on this list that can be disaggregated

Current Level

Gender parity index for participation rate in organized learning 0.96089 (2017), rural to urban achievement rate ratios: reading 0.431, math 0.311 (2018), native parity index math 0.2056, reading 0.2058 (2018) (21)

Target Level

N/A

Secondary SDGs addressed
1 - No Poverty
No Poverty (SDG 1)
5 - Gender Equality
Gender Equality (SDG 5)
8 - Decent Work and Economic Growth
Decent Work and Economic Growth (SDG 8)
Directly impacted stakeholders
People
Lower/ lower-middle-income students who have completed secondary education (9)
Indirectly impacted stakeholders
Public sector
Higher education and technical institutions: Increased revenue from fee payments could allow them to invest in additional resources and improve their offering
Outcome Risks

Low financial literacy may put students in a position of indebtedness after their studies

Impact Risks

Alignment risk: model is still unproven and external factors such as low financial literacy and limited economic means of beneficiaries may decrease impact

What

Access to finance could allow millions of lower/lower-medium-income students to access or complete higher education, as well as include them in the financial system

Who

Lower/ lower-middle-income students who have completed secondary education are underserved due to a lack of affordable credit schemes to fund their higher education

Risk

The model is still unproven and external factors such as low financial literacy and limited economic means of beneficiaries may increase risk

Impact Thesis

Allow lower/medium income students to access higher education and include them in the financial system

Policy Environment

(The Ministry of Education): has announced a 30% budget cut for federal universities to be reinvested in basic education (17)

Financial Environment

Financial incentives: FIES offers 310K credits: 100K at 0% interest candidates with up to three minimum wages,150K at 2.5-3% interest for candidates with up to five minimum wages (private banks in North, Northeast and mid-West), 60K credits by BNDES for students with up to five minimum wages (11)

Other incentives: Other funding mechanisms available include PROUNI (Program University for All), and high-interest loans given by banks such as Bradesco (8)

Regulatory Environment

(Legislation for federal university fundings): has reduced federal funding to lower-income students (whose family incomes are 3-5 minimum wages), while prioritizing students and universities in the North, Northeast and mid-West, and working with private banks to manage the loans (19)

Private Sector

Ideal Investe, Kroton, Lemann Foundation, Itaú, IFC, EOS Investimentos, Victoria Capital, Ribbit Capital, PraValer, PROVI (18)

Non-Profit

Abmes (Associação Brasileira Mantenedoras do Ensino Superior)

country static map
Brazil: Maranhão
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Piauí
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Ceará
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Pernambuco
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Alagoas
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Sergipe
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Bahia
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Acre
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Amapá
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Amazonas
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Pará
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Rondônia
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Roraima
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Brazil: Tocantins
Of the 6.2 million Brazilians enrolled in university, 28% are in the North and Northeast, vs. nearly 50% in the Southeast, even though the population of the Southeast is 38% and that of the North and Northeast is 33% of the country's (5) (9)
Sector Sources
  • 1) Bertelsmann Stiftung, 2019, https://dashboards.sdgindex.org/#/BRA 2) Globo, 2019, https://g1.globo.com/economia/noticia/2019/04/30/desemprego-sobe-para-127percent-em-marco-diz-ibge.ghtml 3) The Brazilian Report, 2019, https://brazilian.report/society/2017/11/06/education-brazil-staggering-inequality/ 4) OECD, 2018, http://gpseducation.oecd.org/Content/EAGCountryNotes/BRA.pdf 5) The World Bank. 2016, "A Snapshot of Gender in Brazil Today: Institutions, Outcomes, and a Closer Look at Racial and Geographic Differences. "https://openknowledge.worldbank.org/bitstream/handle/10986/25976/112319-WP-GenderDiagnosticfinal-PUBLIC-ABSTRACT-SENT.pdf?sequence=1&isAllowed=y"
IOA Sources
  • 6) Gauchazh, 2019, https://gauchazh.clicrbs.com.br/educacao-e-emprego/noticia/2019/06/com-fies-em-baixa-universidades-particulares-consolidam-credito-estudantil-proprio-cjwqty1ad000d01pq69yvqyu5.html 7) Correio do Povo, 2019, https://www.correiodopovo.com.br/not%C3%ADcias/ensino/brasil-tem-baixa-taxa-de-escolariza%C3%A7%C3%A3o-superior-diz-sindicato-1.345119 8) Bradesco, 2019, https://banco.bradesco/html/classic/produtos-servicos/emprestimo-e-financiamento/encontre-seu-credito/simuladores-educacao-viagens.shtm#box-uni-bradesco 9) Folha de São Paulo, 2018, https://www1.folha.uol.com.br/educacao/2018/09/ensino-superior-volta-a-crescer-no-pais-mas-so-na-modalidade-a-distancia.shtml 10) Sindicato das Mantenedoras de Ensino Superior, 2015, http://convergenciacom.net/pdf/mapa-ensino-superior-brasil-2015.pdf 11) Globo, 2017, https://g1.globo.com/educacao/noticia/apos-aprovacao-do-novo-fies-no-senado-mec-confirma-oferta-de-310-mil-contratos-de-financiamento-em-2018.ghtml 12) Ministério da Educação, 2018, http://portal.mec.gov.br/docman/setembro-2018-pdf/97041-apresentac-a-o-censo-superior-u-ltimo/file 13) Globo, 2018, https://g1.globo.com/educacao/noticia/numero-de-novos-contratos-do-fies-em-2017-e-o-menor-em-seis-anos.ghtml 14) Mundo Vestibular, 2018, https://www.mundovestibular.com.br/articles/17489/1/40-dos-estudantes-de-ensino-superior-sao-da-regiao-sudeste/Paacutegina1.html 15) Globo, 2018, https://g1.globo.com/educacao/noticia/inadimplencia-gerou-uma-divida-de-r-10-bilhoes-no-fies-diz-mec.ghtml 16) Money Times, 2018, https://moneytimes.com.br/fies-divida-de-contratos-atrasados-chega-a-r-20-bilhoes/ 17) Empresa Brasil de Comunicação, 2019, http://agenciabrasil.ebc.com.br/politica/noticia/2019-05/bolsonaro-dinheiro-retirado-de-universidades-sera-investido-na-base 18) Pravaler, 2019, https://instituicao.pravaler.com.br/ 19) Globo, 2017, https://g1.globo.com/educacao/noticia/fies-entenda-o-que-mudou-no-financiamento-universitario-do-governo-federal-desde-a-criacao-em-2001.ghtml 20) Veja, 2015, https://veja.abril.com.br/educacao/grupos-educacionais-oferecem-credito-universitario-privado-aos-alunos/ 21) United Nations Global SDG Database. “SDG Indicators.” https://unstats.un.org/sdgs/indicators/database/. 22) Alves, Aluisio. 2019. “Brazil’s Itau More than Quadruples Stake in Education Lender Pravaler to 37.9%.” Reuters, December 27, 2019. https://www.reuters.com/article/itau-unibco-hldg-investment-pravaler-idUSL1N2910JS.