Solutions to MBA Program Financing
One of the hardest tasks for incoming international MBA students worldwide is to finance their business school education. Due to the financial crisis, it can be difficult for MBA students to access bank funding. If they do, it's sometimes not enough because it's based on their pre-MBA earnings or impossible to access unless the MBA student or the business school provides collateral security, covering the full amount of the loan.
France's INSEAD international business school and London's Prodigy finance, the pioneer in community-funded international-student finance, may have found an innovative solution to MBA financing challenges - The Prodigy MBA Bond for INSEAD.
"This investment vehicle enables our students to expand their global business skills while alumni and other investors contribute to the development of tomorrow's leaders and enjoy steady returns," J. Frank Brown, dean of INSEAD, says.
The INSEAD MBA Program Solution to Business School Financing
For the past four years, Brown explains that INSEAD has been working with Prodigy, a company started by INSEAD alumni, to come up with a solution to provide financing to MBA students. First, Prodigy established a peer-to-peer funding model, where individual alumni fund MBA students. Today, INSEAD alumni and investors can invest in The Prodigy MBA Bond to finance INSEAD MBA education.
"In these uncertain markets, we have seen strong demand from individual alumni investors and family offices who appreciate the value of a bond," Ryan Steele, one of the founders of Prodigy, says.
"Our current portfolio includes assets of over €5.5 million and has delivered returns of five percent annually since 2007 despite the economic crisis."
In 2006, South Africans Steele and Cameron Stevens and Slovenian Miha Zerko started Prodigy to address the need to finance international MBA education without bank involvement. In 2007, they launched a program that today provides funding to 198 INSEAD MBA students, representing 57 nationalities, and in December 2010, was set to provide loans to an additional 160 students.
To ensure diversification, Prodigy says each bond is backed by a pool of some 200 student loans. While to guarantee transparency, investors may see online the students the program funds.
Prodigy has already issued the first tranches, totaling €10 million, of a €50 million community education bond, slated to finance MBA students over the next five years, the company reports. It has listed these tranches at the Irish Stock Exchange to enable family offices and other institutions to purchase and trade them.
Its lending model, Prodigy says, considers students' potential future earnings based on profiles from past students as opposed to the traditional historic model used by banks. This type of model, according to Prodigy, minimizes risks while still allowing students from emerging markets with lower incomes to access financing.
How INSEAD MBA Program financing Led to the Creation of Prodigy
When they arrived at INSEAD, the founders of Prodigy say they experienced first-hand the difficulties of financing their MBA programs.
Stevens told the Financial Times that he couldn't get a loan in his native South Africa because he didn't have a credit record there because he had been working in Malaysia. Malaysian banks wouldn't provide him funding either because he wasn't Malaysian.
According to the Financial Times, 60 percent of business school students at top European MBA programs experience similar challenges.
So, Stevens got together with Steele and Zerko to further investigate the matter. They presented the Prodigy project in an INSEAD entrepreneurship class and business plan competition, and founded the company upon graduation "to make a difference for future classes."
Prior to starting Prodigy, Stevens, Steele, and Zerko had polished their business skills in European, Asian and African companies, specialized in venture capital, financial services and information technology.
Prodigy's Chief executive Officer, Stevens co-founded a South East Asian firm to advise early stage technology companies, most recently listing a client firm on the Malaysian stock exchange. Steele, now Prodigy's chief operating officer, built and managed a bank's consumer card risk division, handling credit policy and risk management for a 700,000 consumer base and $450 million asset book.
Chief technology Officer Zerko completed software and customer relationship management (CRM) projects in the European financial sector prior to joining the Prodigy team.
The Future of MBA Program financing
Prodigy plans to expand over time to provide loans to MBA students in other global business schools, including MBA programs in the United Kingdom and the United States, according to The Daily Telegraph. To date, it funds INSEAD's MBA and EMBA students, who are not residents in or citizens of France, and Vlerick Leuven Gent Management School's full-time MBA students, who are not residents in or citizens of Belgium.