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Monday, 4 July 2022

NBFS players are taking on the burden of education financing

How alternative lending solutions could address demand for tuition financing: Parents looking to put their children through private schooling at the K-12 stage continue to face higher costs, as rising inflation rates push schools to raise their tuition fees. But as we noted last week, for the most part, the banking sector has not been an appealing avenue for tuition financing. We looked at how traditional education loans — which typically carry higher interest rates, require more paperwork, and offer less flexibility than personal loans — don’t see much demand from customers, with banks either pivoting to different products or tapping new pockets of potential clients.

NBFS to the rescue? As the banking sector faces rising interest rates — after the Central Bank of Egypt hiked interest rates by 300 bps since March, bringing its deposit rate to 11.25% and the lending rate to 12.25% — non-banking financial services players are looking to plug the demand gap with alternative financing products. Some players are offering regular buy-now-pay-later services for tuition payments, while others provide facilitated loans. There are also some new tools potentially coming to the market soon, such as factoring for education.

The growth in their education financing portfolio is evidence that business is good.

Contact has earmarked EGP 2 bn for education financing in 2H 2022, Contact Financial Holding CEO Said Zater tells Enterprise. Meanwhile, education financing makes up around 3% of EFG Hermes’ buy-now-pay-later platform valU’s monthly bookings, which is around EGP 15-25 mn per month, CEO Walid Hassouna tells us.

And with rates like these, it’s hard not to see why parents would prefer them to bank loans: Contact Financial’s education financing options are offered at the company’s lowest interest rate — currently around 9%. valU’s education plans are offered around 50% of the company’s normal interest rates, Hassouna tells us. The plans can be repaid through 6-12 equal monthly installments with minimal documentation and instant approval, or they can secure facilitated funding to repay the loan over an extended period that can reach up to 60 months.

On the flipside: Alternatively, traditional bank loans for education are typically limited to a range of EGP 2k to 1.5 mn, with an average interest rate of around 18%.

So, how are NFBS players doing it? Direct agreements with schools to facilitate tuition payments: valU, for one, has tapped into the world of education financing through tuition facilitation programs. The platform has set up partnerships with education institutions across all levels (K-12, university, graduate schools, as well as post-grad certificates) to offer payment plans that are more affordable to parents, Hassouna tells Enterprise. valU has partnered with more than 65 schools across the country including El Gouna International School, Alexandria’s El Kawmeya Language school, GEMS Egypt schools, Metropolitan school, and many others across different expense levels. The platform also signed an agreement with the American University in Cairo to offer financing plans for undergraduate and graduate degree programs, with installments to be paid through payment gateway Paymob.

Beltone Financial’s consumer financing arm, BelCash, has also partnered with educational institutions to offer parents the chance to fully or partially finance their kids’ tuition fees. Last year, BelCash signed an agreement with EGX-listed education outfit CIRA to provide parents whose children attend any of CIRA’s schools with tuition fee loans with a 12-month repayment period. BelCash has also partnered with educational institutions such as El Alsson (pdf) and Kent College West Cairo (pdf) to offer the same arrangements.

Contact Financial’s consumer financing arm has its own tuition facilitation agreements with several education institutions, including schools and universities, Zater told Enterprise, without naming the institutions. Alternatively, parents can also sign direct agreements with Contact to receive financing for their kids’ school or university tuition fees, if the school or university is not already covered by Contact’s partnerships, he said. These direct agreements are usually repaid over 12 months.

And there could be yet more NBFS players and tools available to the market: EFG Hermes Corp-Solutions is currently applying for a consumer factoring license, with an eye to factor tuition fees, CEO Talal El Ayat tells Enterprise. The company would factor schools’ tuition fees as their receivables. Offering factoring as a relatively inexpensive financing option for schools would allow them to secure their tuition fee receivables up front, since schools typically collect 3-4 installments per year, El Ayat explains. (Want to brush up on your understanding of factoring? Check out our explainer here.)

Startups are also getting in on the action: Meanwhile, consumer finance startup Adva — which recently closed a USD six-figure seed round funded entirely by Sawari Ventures — has started offering BNPL financing for education. “We can provide a tailor-made product over a period of 12 months at any educational institution with 1% interest monthly and no hidden fees,” CEO Rania Gaafar told Enterprise, adding that demand for their education product is “witnessing an increase on a daily basis.”

Altogether, education financing appears to be an appealing space to capitalize on — mostly because education is low-risk. “Education financing is considered very low-risk,” Zater told Enterprise. “No parent will send their kids to school without paying their tuition fees.”

Your sole major education story for the week: The Higher Education Ministry is finalizing a study of nationwide land plots to be offered to the private sector for higher education projects. (Statement)

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