Brighter Investment: Student Loan Offering (2020)

In developing countries, higher education can increase a graduate's income 3-5x. Despite this high return, 60 million of the brightest students graduate high school every year, that are unable to pay for a degree or diploma. Today, they waste their talents as subsistence farmers, street vendors and servers in the tourism industry. What if, instead of limiting these young students’ futures because of their family financial reality, we provide investors with the opportunity to back these future leaders in engineering, science, medicine, and business?

Brighter Investment has developed a scalable, tech driven business model that makes these investments possible. In 2015 Brighter Investment supported the first high potential students in Ghana, followed by a new and larger cohort every year since. The deal is: Brighter Investment pays for their higher education, and after graduation students repay their investors a percentage of their income, typically 25% for 6 years. Brighter Investment has developed a unique underwriting algorithm that makes it possible to select the brightest students with the best career prospects. As value creation is paramount here, a mentorship program is also in place to accelerate the employability of graduate students.

Out of 389 supported students, the first 93 have graduated. On average, their degrees increase graduate incomes 5X and they are 6X less likely to be unemployed. Graduates pay more taxes, grow the economy, and are more likely to educate their children. Brighter graduates are outperforming their peers and are still projected to provide investors with an attractive return despite COVID-19 (see attachment).

Once the virus recedes, when schools open up again and economies start to recover, Brighter Investment's work will be more important than ever before. The hardest hit by the economic fallout of this virus will be the people working in the informal economy. Left without an income for months and no social safety net to fall back on, the parents of Africa’s most high potential students will be even less able to afford to pay for their children’s education. Limited access to health care will unfortunately mean that a disproportionate percentage of families will be left without their main source of income forever. It is Brighter Investment's mission to ensure that these circumstances will not result in a generation of bright students unable to reach their full potential. Now more than ever, the future is bright.

*Capital raised figures include amounts raised both on and off platform.

Investment Offering: $1,400,000 (Investment minimum: $20,000 USD) 

Use of Proceeds: Investors invest in the future earnings of a diversified cohort of high potential students in developing countries. Once students secure employment they make monthly income dependent repayments to Brighter Investment. Funding from this investment round will support will be used to pay for Education Costs for Participating Students until the end of an academic year.

Investment Structure: The Brighter Investment offering is structured as a Promissory Note.  

Investment Opportunity: The offering has a term of 12 years with a projected annualized 9% IRR distributed semi-annually (see projected distribution schedule below). 5% of repayment amounts will be extracted as a management fee if an annualized ROI of less than 8% is achieved. Above 8%, 20% of repayment amounts will be extracted as a management fee. 

Please note that this is not a complete investment summary. Investors should read all associated documentation including the investor package and associated securities agreements before considering or making any investment.  Please contact us via email at info@svx.ca or fill in the Ask a Question box for more information. 
 

We use our proprietary selection algorithm to select the students with the most potential who are pursuing the degrees offering the best career prospects. Selected students receive a monthly stipend and tuition, and housing fees are paid for them for the duration of their education. Over the course of the student's degree program, he or she is paired with a career mentor. This career mentor helps to prepare and equip students for the job market by securing internship opportunities and giving them career guidance.

After graduating and securing employment, students repay a percentage of their income, typically 25% for 6 years.  Why this percent-of-income repayment model is beneficial to students as well as investors is described in a blog post by Brighter Investment (see attachment below). Investors receive distributions out of repayments from diversified cohorts of students in year 2-12 of their investment. Brighter Investment charges a performance based management fee over the invested capital.

Historic data for factors that drive investor return, factors like income, unemployment and exchange rates, are easily obtainable. Availability of this data that goes back 20 years doesn't only make investor return predictable, but also shows the expected level of volatility. Student loan terms are set such that based on this historic data for average students, and subject to a conservative 15% default rate, investors can expect a 9% ROI. Because Brighter Investment’s selection picks high potential students that perform above average, students are graduating faster, earning more, unemployed less and repaying more than the historic data projected. Read more about the performance to-date in another blog post by BI (see attachment below). 

One way of investing with Brighter Investment is to invest directly in the next cohort of students for a predictable return, and clear exit in the form of a percentage of graduate earnings. Funding from this investment round will be used to pay for Education Costs for Participating Students until the end of an academic year. Brighter Investment has termed their promissory note as a subordinated variable payment debt obligation (SVPDO) where the variable payment is tied to cohort performance.

Conservative projection for the student investment distribution schedule based on 20 years of historic labor market and economic data for average students combined with conservative figures for dropouts, unemployment, defaults etc. High potential Brighter Investment graduates have outperformed these projections to-date, as expected.

Underwriting: To select the most promising students, BI has developed a proprietary quantified algorithm that includes character based lending and focuses on early predictors for academic success, career success and likelihood of repaying. Examples of relevant factors are:

• Demonstrated financial need
• Positive teacher recommendation
• Guarantor for the loan contract
• Admission to a degree program that offers good career prospects
• Strong academic grades
• Character traits like motivation, proactiveness, resilience and more
• Social ties

Returns for average students can be reliably estimated based on historic graduation, income and employment information. Brighter Investment’s selection method picks high potential students that perform above average.

• For the first six years of employment, when a graduate earns over 3.6x the national minimum wage, they are required to begin repayments to BI of 25% of their income. These terms ensure a decent post-repayment income.
• While BI’s model is income dependent, instead of the traditional model based on an inflexible monthly payment, BI has established a maximum repayment amount such that graduates with exceptionally high earnings will have a shorter repayment period.
• In the case of non-repayment, BI’s collection includes well-evidenced methods based on social ties.
• In the case of continued non-repayment by both a graduate and their guarantor, BI's methods include engaging traditional debt collectors. So far this approach has not been needed/tested.

Context:
Ghana has seen considerable growth in various macroeconomic factors, including a moderate inflation rate and growing GDP across numerous industries. This has led to salary increases for educated and skilled graduates in business, STEM and IT which outpaced the devaluation of the Ghanian cedi (GHS) compared with the US dollar in recent years.

While more students than ever are attending tertiary education institutions, there is a clear disparity in opportunities afforded to the wealthiest and the poorest of Ghanaian students. UNESCO’s Global Education Monitoring report shows less than 1% of the poorest of students enroll in tertiary education while over 20% of the wealthiest students do, due to the cost of education, not due to a lack of ability. There are scant viable financial options for most students.

The situation in Ghana is representative for many developing countries. Brighter Investment estimates that 60 million global high school graduates will require at least $600B in funding for tertiary education.

In Ghana the main options for student loans are as follows:
Support From Friends and Family: Students may have access to some degree of support from their network, but it is likely that this will vary over the course of their degree program. BI targets students who are the most marginalized and have the lowest funding prospects from their existing community. The cost of one year of higher education is often 5X+ the family’s annual income for BI students.

Ghana Student Loan Trust Fund: A recent increase was made to the maximum annual loan amount to 2000 GHS which does not even cover the cost of tuition. Furthermore, the loan guarantor must have contributed to Ghanaian Social Security programs through prior employment in the formal sector. This discriminates against the students who need funding the most. 90% of Ghanaians are employed in the informal sector.

Kiva: Microfinance is a powerful tool, but current lenders through Kiva are not well suited for funding tertiary education. Two of their largest partners have interest rates between 31-58% and loans are short term. This makes them suitable for tuition fee payment or the purchasing of a laptop, IF the family can afford to repay the loan over the course of the next few months. Not to pay for a degree.
BI’s model shows promise with the following competitive advantages:

• Income dependent repayment method to avoid heavy financial burdens of regular interest based student loans, supporting repayment ability and reducing loan aversion;
• Long term, holistic support to students (such as mentorship, support to find internships) throughout the study period to better prepare them for employment;
• Unique student identifier and underwriting process, drawing upon multiple character-based, social and academic factors to find the best candidates.
• Focus on degree programs that have proven to offer graduates good career prospects.
• Utilizing live student data sets to improve the underwriting of cohorts over time.
   

Brighter Investment's Advantage
We’ve taken a data driven approach to this problem and have developed an underwriting algorithm that allows us to select the most promising students pursuing the degrees with the best career prospects. Students receive full funding for their university degree. They are paired with a mentor to ensure a successful transition to employment. After graduation, students repay a fixed percentage of their income for a set period of time. Income dependent repayment ensures that no student ends up with insurmountable debt. A combination of social, practical, and legal incentives coalesce to ensure that graduated students make their monthly repayments. At the moment, if you're a student from a poor family, there is no viable financing available. When a marketplace offering students competitive alternatives does arrive, which it should, Brighter Investment's data on what factors determine a student's success will allow it to stay ahead of the competition.

- Bright Frimpong, Brighter Student

Brighter Investment has demonstrated their ability to build sound partnerships with academic institutions, select students who have above average academic performances, mentor students and collect loan repayments. Over the last 4 years, we have invested in a portfolio of 389 students at 7 partner universities in Ghana. The first 93 graduated students outperform our projections and their peers. The projected 12.5% ROI of our investment in students is conservatively based on average students. Due to our smart selection approach, our repaying students perform above average as expected.

• 0.5% of our students have dropped out of university so far compared to a 6% dropout rate for the average student at the 6 partner universities.
• For graduates with a degree, the unemployment rate is 3%. This is 10X less than the Ghanaian average for the same age group.
• On average working graduates earn 5 times as much as high school graduates without a degree.
• Of the students that have secured employment, 100% are making repayments.
• Distributions have been higher than our initial projections, and remain attractive during COVID-19.

Because the USD value of graduate wages is more stable than the local currency during periods of inflation, and we receive a percentage of these wages, our investment is hedged against inflation and FX risk. Our model allows investors to safely invest in this value creating and world changing opportunity.

In Ghana, there is no shortage of qualified students applying for financing. To expand beyond the borders of Ghana there is a partnership with World University Services Canada, which has offices and relationships with higher education institutions all over the developing world. The only limiting factor thus far is the availability of loan capital to administer.

“I believe that if Brighter Investment would have been available to Ghanaians in earlier years, Ghana would have been classified a developed country by now and not a developing nation...”
- Evans Omane-Boateng, High School Teacher
 

Brighter Investment’s work directly supports the attainment of Sustainable Development Goals 1, 4, 5, 8 and 10:

1. No Poverty: The social impact metrics our model measures the number of students we can prepare for future high paying jobs to free themselves from poverty. BI’s students will increase their income 5x, are 6X less likely to be unemployed, live longer, pay more taxes, and their children are more likely to be educated and their families benefit from better health and housing. A degree is a proven pathway out of poverty. 

4. Quality education: Not only does Brighter Investment provide students with access to quality education, the market driven approach also incentivises education providers to improve the job relevance of their programs. 

5. Gender equality: Women are disproportionately affected by lack of access to higher education, Brighter Investment is actively working to remove these barriers, financial and non-financial.

8. Decent work and economic growth: Unemployment rate in most developing countries is 30% and it expected that 120,000 high school graduates will be looking for funding for higher education each year. Brighter Investment focusses on degrees that are in high demand by employers and offer good career prospects.If properly educated, students in the developing world will create 3 jobs on average for people with less education.

10. Reduced inequalities: In emerging markets, access to higher education is mainly determined by a student’s family background. Brighter Investment provides students with an equal opportunity to a degree.

The social return of our investment easily outperforms any scholarship charity: an equivalent investment in Brighter Investment, with distributions reinvested for 12 years, results in 3 times as many graduates as scholarship charity and provides the investor with an attractive ROI. $100,000 invested in our students, with distributions reinvested in additional students for 6 years, results in 30 graduates ready to become our future leaders in science, engineering, medicine and other fields. 

The metrics Brighter Investment tracks are as follows:

1. Number of students supported that wouldn’t have been able to pursue a degree otherwise
2. Number and percentage of BI students who graduate
3. Number and percentage of graduates with employment
4. Increase in income generated by BI graduates - year 1; year 3; year 5
5. Percentage of BI graduates who repay their school costs
6. Avg percentage return on investment to investors; percentage of BI investors who reinvest
7. Amount of student repayments reinvested in additional students
8. Jobs created through accelerated growth of local businesses
9. Improved quality of education at supported programs due to market feedback
10. Economic impact from supported graduates*

*Research to be conducted by our partner NGO to quantify impact at a macro level.

All private securities listed through online investment platforms and Exempt Market Dealers (EMDs) like SVX are likely to carry more risk than those available on the public markets. Our goal it to make you aware of those risks before making an investment.  The following risks have been identified for investors:

• Foreign market risk: Nationalization, expropriation, confiscatory taxation or political changes within the foreign market upon which Brighter Investment operates in could adversely affect this investment. Brighter Investment seeks to establish operations within stable countries with high long term potential and low political risk, such as Ghana. Principal investment amounts will be insured with EDC.
• Default risk: To acquire a higher rate of investment returns, Brighter Investment operates in developing countries where degrees result in a larger income increase but higher default risks are also possible. Brighter Investment’s model of employing income based loan repayment ensures that graduates will not default for a lack of income. A combination of social and legal measures coerce students to make their monthly repayments.
• Inflation and exchange rate risk: Due to operations within developing markets, the investment may be prone to volatile inflation and exchange rates of the foreign currencies. Over the last 20 years graduate wage levels that determine investor returns have been significantly less volatile (5.4%) than local currencies (20%) or the S&P 500 (18%). See graph below.
• Liquidity risk: This debt loan offerings is an illiquid exempt market investment. The investment is designated as an illiquid investment due to the holding period of 12 years during which semi-annual distributions from student repayments result in the principal being repaid with interest. While a transfer of the securities to another accredited investor is possible, there is no secondary market for the security.

Expected return and risk. Risk is calculated as the return standard deviation based on 20 years of historic data projected for a cohort of 100 average university students repaying a percentage of their income for 6 years. Historic data and projections also include historic fluctuations in exchange rates between developing countries and investors' currency. As described, Brighter Investment students perform above average.

This type of investment has substantial risk. Investors should make an investment only if you are prepared not to receive any return on your investment and to lose your investment in its entirety.

Jana Svedova: Director, UBC Impact Fund

Maurin Efua Odai: Registrar, Kwame Nkrumah University of Science and Technology

Katherine Im-Jenkins: Chief Programs Officer World University Services of Canada