Camila Mendes was 30 years old in 2017 when she moved from her native Brazil to Canada to complete her MBA. After six years with a major Brazilian engineering firm, working on everything from condominium construction to Rio de Janeiro’s 2016 Olympic facilities, she had a modest nest egg and a solid credit history. But that wasn’t nearly enough to secure a loan to cover her $95,000 tuition at Queen’s University’s Smith School of Business.
“The first challenge is the exchange rate,” Ms. Mendes says. “I sold my car and everything I had to support the MBA, but the Brazilian currency just doesn’t have the purchasing power.”
Without property to put up as collateral, there simply weren’t any lenders in her home country willing to front the money needed.
Her saving grace came when advisers at Queen’s told her about Prodigy Finance, a British-based lender focused on international students studying at top business, engineering and law schools. Prodigy’s underwriting model is unique: Rather than assess a student’s past credit history and collateral, it looks at their presumed future earning potential, based on the past performance of alumni from the program in question. It then disperses loans without need for co-signers or collateral.
Ms. Mendes’ Prodigy loan wasn’t perfect: It covered only half her tuition, and it came in two parts, one before she arrived in Canada, and one later. The loan’s interest rate, by Canadian standards, was high, at 9 per cent. Although Ms. Mendes points out that this was far below what a Brazilian lender would have charged – if she could have secured one in the first place.
“It opened the door,” says Ms. Mendes, who graduated in late 2017 and holds a logistics and infrastructure position with Walmart Canada in Mississauga. “If you don’t have a lot of options, this gets you the education, then you get the job.”
Since expanding to Canada in 2015, Prodigy has opened those doors at just a handful of Canadian universities that score highly in the international rankings the company uses to assess future earning potential. In Canada, that includes Smith in Kingston, the Rotman School of Management at the University of Toronto, the Sauder School of Business at the University of British Columbia, and Ivey Business School at the University of Western Ontario in London, Ont., as well as engineering programs at the University of Toronto.
But it has effected a noticeable shift in the demographics of those MBA programs, bringing in more students from all corners of the globe. “It’s absolutely changed the landscape,” says Teresa Pires, assistant director of recruitment and admissions at Smith. “It’s altered the makeup of classes, the possibilities and who is studying.”
Because the model is based on future credit-worthiness, students without any particular credit history – common for many international students, especially those from developing countries – can apply. That’s led to a noticeable surge in students from previously underrepresented countries. Ms. Pires says that, in particular, Prodigy has resulted in an uptick in students from Latin America, which Ms. Mendes has noticed as well, pointing to Prodigy-financed classmates from Brazil and Colombia.
To date, more than 550 international students in Canada have used Prodigy, accessing more than US$20-million in loans. Worldwide, it has lent more than US$750-million to more than 15,000 students, from 150 countries, since its inception in 2007. South African founder and chief executive Cameron Stevens conceived of what he calls a “borderless credit model” after he was refused a bank loan to study for an MBA at the INSEAD business school in France.
Originally planned to screen students applying for loans from larger financial institutions, that model collapsed along with the global economy in the recession of 2008. The company then pivoted to its current model, with its initial capital pool coming from INSEAD alumni and, later, universities themselves.
“We’ve been able to prove a track record as we’ve grown,” says Joel Frisch, head of Americas at Prodigy. “And that’s because we were self-selecting only students in top programs, and we used a data-driven model that allowed us to predict where we thought students would place, and what they would earn after school. The MBA programs captured that data already, so that’s fairly simple.”
That track record means the company itself has been able to secure more financing from traditional lenders, raising more than US$1-billion in 2017-18 from Deutsche Bank and Goldman Sachs, among others. Mr. Frisch says the annualized postrecovery default rate is less than 0.5 per cent.
“The model has really matured over the past 11 years,” Mr. Frisch says. “Every year we get smarter at predicting how students perform.”
According to J.D. Clarke, Ivey’s executive director of master programs (recruitment and admissions), 30 per cent of international students are financing their education in part with a Prodigy loan.
At Rotman in 2018-19, about 25 per cent of full-time MBAs from abroad used Prodigy, up from about 22 per cent a year earlier. Imran Kanga, director of admissions at Rotman, says that featuring Prodigy in student-attraction packages has helped make his job easier.
“My mandate is to increase diversity in our program, and the more countries represented in class, the better for the student experience in terms of building their global network,” he says. “Some countries generate a lot of students, but countries like Mongolia, or Morocco, or Egypt, much less.”
“I would guess most students I know from Latin America have a Prodigy loan,” says Pepe Paniagua, a Mexican student studying at Rotman in Toronto. “If you ask, most of them weren’t able to pay for the full tuition without it.”
Like Ms. Mendes, Mr. Paniagua was unable to find a loan in his home country, despite a successful career in government and later with Grupo Televisa, a major mass media company based in Mexico City.
“Prodigy is easier to apply to, as well,” says Mr. Paniagua, who graduates next year. “The Mexican institutions ask you for a lot of papers, the processes are very long, and at Prodigy it was very simple, and the decision was almost instant.”
Prodigy isn’t the only player in this space in Canada, though. Mpower Financing, based in Washington, D.C., operates on a similar model but serves undergraduates, too. It expanded to Canada last year.
“I’d say 90 per cent of our students had no alternatives,” says Sasha Ramani, the company’s corporate strategy manager.
He points out that many of his company’s clients come from families with no wealth, or only enough to send one child to university, which in many countries means choosing a male child. “Almost half of our students are female,” Mr. Ramani says, “which is above the proportion in many of these programs.”
And while Mpower Financing and Prodigy are ostensibly competitors, Mr. Ramani says, at this point the two co-exist quite comfortably. “International students spend $60-billion in the U.S. and Canada every year,” he says. “There’s plenty of room for multiple players.”