Climb Credit shakes up American student loans – a role model for Africa?
Access to education by students is a global challenge with a large number of students failing to settle their massive student loan debts after graduating. This has been a consistent problem of the US system. Climb Credit, a US based fintech startup provides small student loans to the American students for short programmes normally less than a year. It originates loans at an average size of USD 10 000. The programmes range from coding to web design, from underwater welding to programming robots for carmakers. Some students have scant formal education; others advanced degrees. The number of loan applications is now 10 000 since its founding in 2014. Climb Credit’s algorithms are based on measurable uplift in earnings following a specific course of study. To date, default rates have been in the low single digits.
With some students failing to sustain their studies due to lack of funding, the provision of student loans by financial institutions has benefited them to a large extent. In an African context, a number of microfinance institutions have set up innovative solutions to enable access to education and professional training for young people and adults and, as a result, stimulate the creation of economic activities.
A good example is Trustco Finance, Trustco Group’s subsidiary and a microfinance institution providing student loans to the Namibian students at the Group’s education institution, Institute for Open Learning (“IOL”). IOL has over 2 500 students offering accredited qualifications in the fields of academics, business, ICT and other general courses. Trustco Finance was selected as semi-finalist for the 7th European Microfinance Award 2016 on “Microfinance and Access to Education” in mid-2016. Trustco and IOL are now branching out into “blue collar” courses such as plumbing and brick laying.
Trustco Finance has a total assets of NAD 1.1 Bn and loan book of NAD 725 M as of November 2016. Verdant Capital successfully completed a funding round of approx USD 14 M for Trustco Finance in 2016. The transaction was awarded the accolade of capital raise of the year, 2016, Africa by Acquisition International. Verdant Capital is currently in the process of raising an additional amount in 2017 for Trustco Finance to meet its loan book growth target of NAD 1 Bn by March 2018.