SPECIAL REPORT: Student Lending for Tertiary Education: Omtrix Offers Lessons Learned from 10 Years of HEFF

The The Higher Education Finance Fund (HEFF) was implemented in seven Latin American countries with the objective of improving access to tertiary education for motivated yet socially disadvantaged young people. It was promoted by Omtrix, Inc., a consulting and fund management company based in Costa Rica. HEFF’s equity investors were the German development bank KfW, the Norwegian Investment Fund for Developing Countries (Norfund), the Swiss Investment Fund for Emerging Markets, the Luxembourg Finance and Development Fund, Corporación Andina de Fomento, Omtrix and the Calvert Social Investment Foundation.

HEFF was premised on the idea that student loans are an intrinsically viable product for financial institutions (FIs) with social objectives. The experience of HEFF confirmed the validity of this notion, provided that an adequate credit methodology is in place to facilitate implementation in a self-sustaining manner while at the same time generating a high level of social impact.

HEFF was launched in December 2011 as a closed-end vehicle with a life of 10 years. In addition to the funding provided by its equity investors, the program also attracted senior and subordinated debt from organizations including DFC/OPIC. As of June 2020, the program had benefited 12,000 low-income students, four times the initial objective. Of those students, 53 percent were female, and 49 percent had family incomes below USD 730 per month.

Beyond providing lines of credit to the participating FIs, the program had an associated technical assistance facility, which also was managed by Omtrix. This facility was funded with a total of USD 1.6 million from KfW, the Mastercard Foundation and the US Agency for International Development. Omtrix used this funding to work with each FI to implement the student-lending methodology at every level of the organization: training the staff, supporting the rollout of the new product, and promoting its marketing and commercialization.

Omtrix commissioned an evaluation of HEFF as it entered its final phase. Following is a summary of the conclusions of the independent consultant who was hired for this purpose.

– Overall, the fund was managed as per the guidelines stipulated in its organizing document. Omtrix kept administrative expenses below budget, and, in turn, income from treasury operations was higher than projected. Likewise, all participating FIs complied with the payment terms and conditions of the loans granted. Nevertheless, mostly because of FX losses, the fund came close to reaching breakeven and thus did not achieve its projected financial return to investors.

– One of the main objectives of HEFF was to expand the FIs’ product portfolios by establishing education lending as a sustainable product. Of the 10 participating institutions, this objective was fully achieved in four and partially in two, while one institution already had educational loans as an integral part of its portfolio. In three institutions, the objective was not achieved. Taking into account the nature of HEFF as a pilot program, this result is considered satisfactory.

– While student loans tend to be less profitable than microcredit due to their nominally lower rates, it appears they can generate attractive levels of profit if they achieve critical mass. In addition, student loans have value as an alternative product for cross-selling and contributing to customer loyalty.

– Data on the social and economic impact of student loans funded by HEFF reveal marked differences among the participating FIs and their respective enabling environments as well as how these differences can have a material impact on the placement of student loans. For example, FIs with strong social mandates were more successful in implementing the product than those that were more commercially oriented. Moreover, the culture of each country should be recognized as a key factor when designing the product. For instance in some countries, parents don’t want students to borrow to pay for their own education. Instead, the parents feel that paying for their children’s education obligates the children to care for them during their retirement.

This feature is sponsored by Omtrix. Founded in 1995, the firm since has grown to manage several funds. Omtrix, which also provides consulting services in the impact investment space, is active in Africa and the Americas.

Additional Resources

Omtrix homepage
https://www.omtrixinc.com/

MicroCapital news on HEFF
https://www.microcapital.org/?s=HEFF

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