Rand Merchant buys into global fintech firm
AlphaCode unit will acquire nearly 5% of Prodigy Finance, lender for international MBAs
Rand Merchant Investment Holdings (RMI) has made its maiden investment into a global fintech, alongside two of the world’s most renowned venture capital companies.
Prodigy Finance, a marketplace lender for international MBA degrees, will on Monday announce a R3.19bn fundraise, in which RMI’s fintech investment arm, AlphaCode, will acquire less than 5% of the company. It had appetite to increase this, said senior investment executive, Dominique Collett.
AlphaCode was participating in a R532m equity raise, led by San Francisco-based venture capital company, Index Ventures. Global technology investor, Balderton Capital, with $2.3bn under management, was also participating.
The bulk of the funding — R2.66bn — was a debt facility led by one of Europe’s largest global investment banks, the identity of which had not been disclosed at the time of writing. Credit Suisse and Deutsche Bank have participated in earlier debt raises.
This would go towards funding international postgraduate studies, said Prodigy Finance founder and CEO Cameron Stevens. He hails from Cape Town, where more than half of the London-headquartered fintech’s staff are based.
Fintechs are rapidly dealing with challenges, in areas such as payments and lending, which banks have struggled to holistically solve. For instance, two years’ tuition at a top global business school can easily exceed R1m, excluding living costs, placing it beyond the reach of most graduates from developing countries who do not meet traditional credit criteria.
Prodigy Finance credit vets potential borrowers based on their future earnings potential.
Retail investors, banks and university alumni can invest in Prodigy Finance bonds on the Irish Stock Exchange, which are backed by loans that fund postgraduate students studying outside their home countries towards degrees in business, engineering, law and public policy at the world’s top 120 universities. Since 2007, Prodigy Finance has provided more than $325m in funding to about 7,100 students. It expected to lend to 20,000 borrowers by the end of 2018.
“The global postgraduate financing market is estimated to grow to $24.8bn in 2018. It’s a huge opportunity,” said Collett.
AlphaCode is effectively RMI’s strategy to disrupt its portfolio companies, which include Discovery, MMI and Outsurance. A club for fintech entrepreneurs, it has 70 businesses as members. AlphaCode has stakes in transaction authentication company Entersekt and small business financier Merchant Capital.
Its third investment, Prodigy Finance, had an impressive “moat” defending the business from competitive threat, said Collett. This included a unique and tested credit-scoring model, relationships with global business schools and the legal arrangements to enforce loans against borrowers in their countries of origin.
Prodigy Finance had never had to write off a loan, said Stevens. About 35% of its borrowers were of Asian and Indian origin, with South Africans making up about 8%. The average amount borrowed through the platform was 60% of the total cost of attendance.
Borrowers started repaying the loan six months after graduating, with no co-signers or collateral required. The average interest rate on a loan was 5.5%-8.5% above the London interbank offered rate (Libor). Prodigy Finance earned an origination and loan management fee. Source: BD Live