As Prodigy Finance closed a $240 million fundraise in August 2017, the no-cosign, no-collateral financial services firm was seeking new ways to expand its business. Over the past ten years, it had focused on providing loans to international students at elite business schools who had no assets or credit history. The company used projections of future earnings based on the students' schools and profiles rather than usual measures of creditworthiness, making cross-border loans that traditional lending institutions would not consider.
By 2017, Prodigy had funded $410 million in educational loans to over 9,400 students at 104 top universities. Borrowers hailed from 118 countries. Seventy-eight percent of them came from emerging markets. As Prodigy predicted, the default rate had been small. Prodigy credited not only its risk model, but also its community-building approach to servicing its loans.
As the company matured, the nature of investors funding loans through Prodigy evolved from a purely crowdfunded model to include more institutional investors. In particular, Prodigy had enjoyed tremendous growth since a partnership with Credit Suisse in 2014 to set up the world's first "higher education note."
But along with diversification, came the risk of losing what made Prodigy special in the eyes of its stakeholders. Expansion brought questions about the company’s identity and the company’s place as an impact investment. How should Prodigy make itself known to customers and investors? How should the company measure its success? How could the company maintain its community model as it rapidly expanded its financial base and regions served?
Having made headway in the world of business schools, Prodigy had dipped its toes into new student pools like engineering, law, and policy. But these forays raised questions about whether Prodigy’s model would work with students in other disciplines or countries. Should Prodigy serve these markets or even consider other groups of international students?
Having pioneered a successful financing model, Prodigy also was considering other financial services that could make use of the company’s risk model. What new products could Prodigy offer to support its student borrowers? What strategy should guide the company’s new product development? Or should the company stick to the educational loans it pioneered and knew best?
Developed in partnership with INSEAD
Published Date: 04/04/2018
Suggested Citation: Vero Bourg-Meyer, Javier Gimeno, Jaan Elias, and Florian Ederer, "Prodigy Finance," Global Network Case 102-17, April 4, 2018
Keywords: South Africa, Risk, Credit, Credit Score, Fintech, Fin-Tech, Impact Investing, Loans, Student Loans, Financial Products, Emerging Markets, Talent Mobility, Financial Inclusion, Development, Community Lending, Crowdfund