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When Cameron Stevens began his MBA at Insead in 2005, he thought the problems he had faced when getting a loan for the year-long programme were probably unique. But on his arrival in Fontainebleau, France, he realised that was far from the case.
Insead prides itself on selecting students such as Mr Stevens who have an international background. But because Mr Stevens, a South African, had worked in Malaysia for several years before starting his MBA programme, he was not eligible for South African loans as he had no credit record there. Similarly, because he was not Malaysian, he could not apply for local loans.
When Mr Stevens realised the extent of the issue – research shows that 60 per cent of MBA students at top European business schools experience similar problems – he got together with two of his peers, fellow South African Ryan Steele and Miha Zerko, from Slovenia, to look into the issue.
As a project for an entrepreneurship course at Insead, they assessed the commercial viability of starting a new style of loan scheme, then they entered a five-year strategy for the project in the school’s business plan competition.
On graduation, they set up Prodigy, a London-based company offering student loans, initially to those enrolled at Insead, but in the future to students at other top business schools.
Their loans differ in two fundamental ways from the traditional loan products offered by banks.
First, the company assesses risk differently. Most banks calculate risk on the basis of past salary, but Prodigy has developed modelling tools that can incorporate potential future earnings based on profiles of past students.
“We can be a little bit more intelligent about this [assessment],” says Mr Steele, who previously worked at a leading South African bank. He points out that business schools have collected reams of data over the past decades linking career choices and salary.
Second, the scheme is funded by Insead alumni. These include the likes of André Hoffmann, vice-chairman of pharmaceutical company Roche, and Michael Butt, chairman of Axis Capital. Investors get a return on investment that is higher than they would earn by leaving their money in the bank, and the Prodigy directors make their money through a fee to students.
Mr Stevens points out that the scheme enables Insead alumni, who may be too busy to contribute to Insead in other ways, to help programme students.
The pilot scheme was launched in 2007 and this year Prodigy has already set up loans for Insead students from at least 15 countries, ranging from the US and the UK, to Ghana and Chile.