Brighter Investment: Student Loan Offering

Offering Description

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Brighter Investment invests in the education of the brightest students in developing countries. Students earn a degree, investors an attractive return. The future is bright!

While youth unemployment in many developing countries exceeds 30%, employers report that they can't find enough qualified graduates to hire. The problem is so large that despite the number of unemployed locals, many companies resort to hiring expensive expats from abroad. It is clear that a lot of value would be created if the most talented local high school graduates got high quality degrees, so they can fulfill their own country’s labor market demand.

Graduate wage levels reflect this value creation: the increase in income from a quality degree often provides the student with an ROI of 50-80%. Despite these returns, 60 million talented students graduate from high school every year without a viable way to pay for higher education. They can't get a loan and scholarships are rare. This discrepancy provides a huge opportunity for economic growth and investment.

What if, instead of limiting these young students’ futures because of their family financial reality, we provide investors with the opportunity to back the future leaders in engineering, science, medicine, and business for a stake in their future income? Such a partnership benefits both student and investor, socially and financially. In 2015 Brighter Investment supported the first high potential students in Ghana followed by a second cohort in 2016 and a third cohort in 2017. The deal is: Brighter Investment pays for their higher education, and after graduating students repay their investors a percentage of their income, typically 25% for 6 years.

The first cohort of graduates are working and the degrees increased their income 5X. They are outperforming their peers, outperforming BI’s projections, and students’ repayments are providing investors with an attractive return.

“Completion of my degree seemed a hopeless dream. I am very privileged to be a part of the big picture of investing into talented students…”

— Charles Okai Addai, Brighter Student

Capital raised figures include amounts raised both on and off platform. Amounts raised off platform or committed have not been independently verified by SVX.

Student Loan Service Description

Brighter Investment Student Loan Investment Structure:

Investors invest in the future earnings of a diversified cohort of high potential students that pursue the best degrees in their country. Repayments to investors are to be made on a semi-annual basis with the anticipated distribution schedule in y1-12 as depicted by the yellow bars in the graph below.

Repayments from students are not calculated on the basis of interest from the loan, with unflexible monthly payments. Instead they are akin to royalty payments of increased earnings after graduation. Graduates pay a fixed percentage of their income calculated on a monthly basis, typically 25% for approximately 6 years. Why this percent-of-income repayment model is beneficial to students as well as investors is described in this blog post by Brighter Investment.

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 as depicted by the orange bar in the graph below. Black bars indicate the 95% confidence interval based on annual fluctuations in this historic dataset. Because Brighter Investment’s selection picks high potential students that perform above average, the first graduated cohort is graduating faster, earning more, unemployed less and repaying more than the historic data projected.

Funding from this loan offering will support approximately 425 new students from Ghana. Brighter Investment has termed their promissory note as a subordinated variable payment debt obligation (SVPDO).

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Anticipated distribution schedule (yellow bars) in y1-12 and ROI (orange bar) for a $10,000 investment based on 20 years of historic labor market and economic data.

Underwriting Process

Origination: BI’s education specialist based in Ghana has developed a strong network among a diverse set of secondary schools and their teachers, to promote BI’s offering to their top students. To recruit students currently in universities, BI’s partner universities promote their offering to students facing payment difficulty.

 

underwriting process

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.

Repayment Process

BI has several steps to facilitate and encourage loan repayment, including access to official tax records to ensure accurate repayment amounts.

  • 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.

Competitive Advantage

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 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.

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 unsuitable for education financing..

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;
  • 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 identifying 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.
I wish there was a way to extend the mentorship program to the whole university. I can boldly speak in public now and I do more extracurricular activities...”

- Bright Frimpong, Brighter Student

Traction

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. Since 2015, Brighter Investment has received over $350,000 infunding, which has supported 130 students at 6 partner universities, from freshmen to seniors. 21 students have graduated, completed their internships and started repaying.

  • 0% of their 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 4.5% of university so far compared to a 6% dropout rate for the average student at the 6 partner universities.
  • 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.

Since the students are not only outperforming their peers, but also BI’s projections in every category, the first investors are expected to earn a better than projected ROI.The only limiting factor thus far is the availability of loan capital to administer.

Impact Narrative

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

1. No Poverty: BI’s students increase their income 3-5X, 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: Brighter Investment focusses on degrees that are in high demand by employers and offer good career prospects. Through economic growth one graduate also results in 3 jobs for less educated people.

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.

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According to the Brighter Investment model, an initial investment of $100,000 in support of 13 students can yield returns that if redistributed over 25 years, will result in 37 students supported and $617,000 repaid.

Impact Metrics

  • 100%: Amount of senior students to date that have graduated from their programs
  • 93.3%: Amount of graduates who have found employment. Students currently not employed are engaged in career-enhancing projects that will increase opportunities and returns upon completion (unemployed not due to lack of opportunities)
  • 5X: Forecasted increase in revenue generated by Brighter Investment graduates
  • Impact Indicators to be assessed in the future:
    • Jobs created through accelerated growth of local businesses
    • Improved quality of education at supported programs due to market feedback
    • Economic impact from supported graduates

Risks

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 is to make you aware of these risks before making an investment. Some of the risks are identified below. Please consult issuer documents and the SVX for further information about risks:

  • 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.
  • 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.
  • 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. Brighter Investment’s model of income dependent repayments significantly reduces the risk by relying on the increase of wages from economic growth.
  • 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 principle being repaid with interest.  While a transfer of the securities to another accredited investor is possible, there is no secondary market for the security.

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Expected return and risk (risk 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.

Selected Advisors

Jana Svedova: Director, UBC Impact Fund

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

Management Team

Thijs  Mathot

Thijs Mathot

Co-Founder, CEO

Specialized in the intersection of tech, data and finance, Thijs is responsible for the technical components of the business and the investment model. While working in Mexico, Thijs decided to support a Mexican student through university with some colleagues and witnessed the high financial and social returns, thus giving rise to the idea behind Brighter Investment.

Thijs holds a Master’s degrees in Aerospace Engineering and a Master’s in International Business. Thijs also was an engineer in the aerospace industry and responsible for capital raising for real estate developments.

Tyson Titensor

Tyson Titensor

Co-Founder, COO

Tyson is responsible for fundraising and building the investment side of the business. Before joining Brighter Investment, Tyson was the COO of DPS Skies where he led all finance and operational activities, leading the company through multiple rounds of financing, expansion and growth into one of the most prominent brands in snowsports. He also built and sold an ecommerce business, worked at a boutique consulting firm, launched an adventure travel marketplace, and completed an MBA at the University of Colorado.

Richard  Adarkwah

Richard Adarkwah

Program Manager - Ghana

Richard is currently leading operational activities in Ghana for Brighter Investment. Having faced difficulty in financing his own education and being confronted with the daily struggles faced by students, Richard is working to impact lives in Africa by playing an active role in removing financial barriers to higher education.

Richard has a degree in Physics and previously held positions as an UNICEF project manager and a Google Ambassador.

Joy  Lamptey

Joy Lamptey

Mentorship and Marketing

Before getting an MBA from the University of Ghana with a specialization in Human Resource Management, Joy worked as a System analyst at NEM insurance in Nigeria. Having received funding from Brighter Investment to complete her degree, Joy now uses her HR and analytical skills to set up our mentorship system and manage the community of employers, teachers and students in Ghana.

$330,000.00

Raised Of $600,000.00 Goal*

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$330,000.00
 
Promissory Notes Offer. Structure
9% Valuation
12 Years Term
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*Capital raised figures include amounts raised both on and off platform. Amounts raised off platform or committed have not been independently verified by SVX.