Developing the training sector: financing Edu-Loan
Edu-loan, a lending institution for the training of employees excluded from the banking system
Background
South Africa is the richest country of the African continent, with a GDP equivalent to about 40% of the total GDP of Sub-Saharan Africa. But despite its economic success, the country remains plagued by numerous structural weaknesses inherited from the apartheid system. One of its most visible flaws is the low level of education and training of HDPs[1]. Consequently, the South African government prioritized the access to education for all and actually seeks to improve the skill level of HDPs. However, barriers to education are numerous and fees are too high to give the vast majority of the population an access to education and training (40% of the South African population lives below the poverty line in 2009). In this ambient of active policies and considering the very high cost of university fees, the private holding company Edu-Loan was created in 1996.
Edu-Loan offers loans dedicated to fund university fees for HDP employees with modest income, who are not eligible to state grants or loans from traditional banks but wish to resume their academic studies. Today, 90% of Edu-Loan customers are public sector employees (teachers, police officers, nurses, etc.).
Wishing to support government policies, AFD has been working since 2002 in partnership with Edu-Loan, whose mission is to facilitate financial access to higher education and training of historically disadvantaged persons.
Objectives
This project aims to improve access to universities for employees excluded from the banking system and not eligible for government grants and allow them to receive additional training.
The ultimate target is to stimulate job creation, allowing employees from historically disadvantaged communities to obtain a higher position, higher wages, thus reducing poverty.
Project description
The activity of Edu-Loan is based on an innovative model of secured funding. The institution has developed agreements with universities and employers (mostly public companies) permitting to finance low-income workers: Edu-Loan pays tuition directly to the university at the beginning of the year and the employee repays the loan during his studies with a fixed monthly levy on salary. The average loan extends over a 12 to 30 months period for an average amount of 600 euros.
Thanks to financial partnerships set with both universities and employers, Edu-loan fully guarantees the payment of university fees, which have been consequently reduced. Moreover, the agreements signed with employers and the support of the AFD allowed Edu-Loan to offer interest rates among the lowest in the market.
Edu-Loan is an atypical actor who knew how to build a sustainable lending system, dedicated to education and helping a population previously excluded from other funding sources. With 12 years of experience, Edu-Loan continues to expand its business around a model that has proven its worth and relevance.
The AFD project plans to remove the limits of funding for Edu-Loan in the short and medium term to:
- Increase the number of recipients of ‘Edu-Loan’ loans
- Diversify the client portfolio (professions, public / private, level of qualification)
- To lower the cost of the service operated by Edu-Loan
Impacts
Since its inception, Edu-Loan has enabled its customers to take advantage of agreements signed with 23 universities and has funded 500 000 students.
The impact assessment carried out jointly by AFD and the Ecole d'Economie de Paris, already shows that Edu-Loan has already reached a very large number of beneficiaries. Edu-loan has also proved that:
- Their strategy is in accordance with the target sought (HDPs with an income far below the national average).
- The rates charged are significantly lower than alternative offers, thus meeting the goal of reducing access barriers to higher education in South Africa.
Dates and amounts
Start-up: December 2002
Funding: The AFD has extended its guarantee at a preferential interest rate conceded by local banks to Edu-Loan for a total of €7.5 million which consists of two long-term loans of €2.5 million and an overdraw line of €2 million.