Affordable Education Loans
Affordable Education Loans
Business Model Description
Invest in business models offering short-term financing solutions through short term loans issued to students / households / educational institutions with tenure of less than or equal to one year and interest rates of ~1.5% per month, allowing the borrowers to pay enrollment fee in low-cost EMIs throughout the school year. (19) (20)
The loans can be offered to those who applied for the voucher system but are not covered by the said program.
Maybridge Finance, founded in 2008, as a finance institution lending to SMEs in healthcare, education, renewable energy, low-cost housing, and financial technology sectors, pivoted to becoming an education-centric finance institution since 2017 that focuses on bridging financing gaps in the Philippines education sector. (31) Funding for Maybridge projects includes Luxembourg-based Backbone Emerging Market Fund.
Maybridge Finance also provides financing to small private schools, its suppliers, students, and other stakeholders. It offers a lending program to Philippine private high schools that is complimentary to the Department of Education's (DEPED) Subsidy program. (18) (19)
This financing program allows schools to discount upto half of its subsidy claim – which is approximately USD 90,000. It issues loans at a monthly interest rate of 1.5%, i.e. ~19.56% compounded annually, and charges Loan Administration and Processing Fees of 1.75%. Payment of loans is dependent on DepEd's ability to process a subsidy claim. (19)
Phinma Education Holdings Inc., which started investing in education in 2004, is a private-owned education institution with a network of 10 schools in the country– 9 in the Philippines and 1 in Indonesia. In addition to providing quality education, Phinma Education also offers a financing program to its Philippine students. Tuition fees at Philippine Phinma Schools typically range from USD 800-1,000. (33) Funding source is undisclosed.
Phinma Education's "Bukas" program offers its students a flexible 12-month tuition payment plan, charging monthly interest rates of 1.5%, i.e. ~19.56% compounded annually, with a one-time service fee of 3%. Students may pre-terminate or fully pay these plans before 12 months without incurring additional fees/penalties. (20)
Expected Impact
Provision of financial solutions to support low-income individuals to continue their education and schools dependent on voucher system.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Philippines: Caraga
- Philippines: Ilocos Region
- Philippines: Cagayan Valley
Sector Classification
Education
Development need
The result of decades-long suboptimal investment in education, which stood at only 3.9% of GDP in 2020, (1) is alarming. With a learning poverty rate of 90.9% as of 2021 (2), the country ranks the lowest in international large-scale assessments, e.g. 2018 Programme for International Student Assessment and the 2018 Trends in International Mathematics and Science Study). (1)
Policy priority
The Philippine Development Plan 2023 - 2028 highlighted the need for the overall transformation of the education system. This includes upskilling programs for teachers, improving completion rates through increasing available classrooms and implementing the government's voucher system and improving curriculums to be future-ready and technology-driven. (1)
Gender inequalities and marginalization issues
Rates of incompletion and dropouts are higher for males than those for females, i.e. 7.6% and 4.4% dropout in junior high school, respectively. Regions with lower average incomes such as BARMM, Region IX to Region XII, and Region V have the lowest enrollment rates, averaging 70% for junior high school and 36.6% for senior high school, per PSA.
These regions also have the lowest completion rates. Classroom needs across the regions are even, however, due to the recent devolution of educational funds to local governments, the National Department of Education only remits to last-mile areas. (2)
Investment opportunities introduction
With the Philippine government's commitment to increase spending on the education sector by 6% of GDP, the development plan for the next 6 years is set to focus on educational infrastructure, improving access to the internet, and improving private-public partnership solutions through the voucher system. (1)
Key bottlenecks introduction
A key challenge is insufficient digital and financial literacy in the country, which is currently at 25% rating, per World Bank report, which is much lower than its neighbouring countries like Singapore (59%) and Malaysia (39%). (6)
Formal Education
Poor and lower-income families in the country find school fees and tuition prohibitive to their child’s education, which contributes to the already high rate of school dropouts and low enrollment rate, which is at 40.98% in 2022 (5)
Policy priority
The Philippine Development Plan highlights the need for additional learning spaces to be set up in partnership with education stakeholders in the private and voluntary sectors—including civil society organizations (CSO), individual volunteers, philanthropists, and development practitioners—to address the current shortage of roughly 91,000 classrooms. (1)
Sec 3 of the Republic Act No. 8545 from 1998, referred to as the Government Assistance to Students and Teachers in Private Education Act, mandates the government to offer financial assistance based on sets of criteria such as socioeconomic needs of a region or province, overall performance of the private school, financial needs of the school, students and teachers as well as the size of the school.
Gender inequalities and marginalization issues
Boys from poor households are pulled out of schools more often due to the expectation that they could easily enter the market for unskilled labor; this occurs particularly in times of income shocks. This sets boys at a distinct disadvantage regarding human capital formation and prospects for a productive future. (7)
Investment opportunities introduction
One opportunity for the private sector is the voucher system's expansion which is a key component for the government's plans of increasing the education budget to 6% of GDP. The voucher system aims to provide solutions for the 91,000 backlogged classrooms in the public education space and improve enrollment rates. (1)
The voucher system has the potential to create markets for education and loan financing, particularly through increasing competition for students and cost savings for the government by spending less on building and maintaining public school infrastructure. These savings can further expand government financing allocated to the system.
Key bottlenecks introduction
Significant groups of families rely on inconsistent income which sometimes creates issues in payment of tuition. Moreover, poorer households have lower resilience to income shocks, which increases the risk of defaults.
Pipeline Opportunity
Affordable Education Loans
Invest in business models offering short-term financing solutions through short term loans issued to students / households / educational institutions with tenure of less than or equal to one year and interest rates of ~1.5% per month, allowing the borrowers to pay enrollment fee in low-cost EMIs throughout the school year. (19) (20)
The loans can be offered to those who applied for the voucher system but are not covered by the said program.
Maybridge Finance, founded in 2008, as a finance institution lending to SMEs in healthcare, education, renewable energy, low-cost housing, and financial technology sectors, pivoted to becoming an education-centric finance institution since 2017 that focuses on bridging financing gaps in the Philippines education sector. (31) Funding for Maybridge projects includes Luxembourg-based Backbone Emerging Market Fund.
Maybridge Finance also provides financing to small private schools, its suppliers, students, and other stakeholders. It offers a lending program to Philippine private high schools that is complimentary to the Department of Education's (DEPED) Subsidy program. (18) (19)
This financing program allows schools to discount upto half of its subsidy claim – which is approximately USD 90,000. It issues loans at a monthly interest rate of 1.5%, i.e. ~19.56% compounded annually, and charges Loan Administration and Processing Fees of 1.75%. Payment of loans is dependent on DepEd's ability to process a subsidy claim. (19)
Phinma Education Holdings Inc., which started investing in education in 2004, is a private-owned education institution with a network of 10 schools in the country– 9 in the Philippines and 1 in Indonesia. In addition to providing quality education, Phinma Education also offers a financing program to its Philippine students. Tuition fees at Philippine Phinma Schools typically range from USD 800-1,000. (33) Funding source is undisclosed.
Phinma Education's "Bukas" program offers its students a flexible 12-month tuition payment plan, charging monthly interest rates of 1.5%, i.e. ~19.56% compounded annually, with a one-time service fee of 3%. Students may pre-terminate or fully pay these plans before 12 months without incurring additional fees/penalties. (20)
Business Case
Market Size and Environment
> USD 1 billion
5% - 10%
60,429 education institutions offering secondary education and below
Education financing revenue is estimated at USD 3.7 billion, which covers both business models. (22) The Government provides public investment in secondary education through subsidies to students to attend private institutions, Education Service Contracting for Junior High School students, and Vouchers for Senior High School students stood at USD 182 Million and USD 405 Million, respectively. (23)
Calculating using Statista forecast, CAGR is roughly 5.22% (24) According to the 2020 Annual Survey of Philippine Business and Industry (ASPBI), the education sector had a total revenue USD 3.7 billion– with tertiary education as the top driver, followed by secondary education. (22)
The Commission on Higher Education reported that there are 2,396 Philippine higher education institutions, incliuding State University and Colleges (SUC) Satellite Campuses, for academic year 2019-2020 (21)
In its 2021 Global Education Monitoring Report, Unesco said at least 36 percent of Filipino families (about 9.5 million households as of 2020 or 19 Million students at 2 students per household) have to obtain loans or incur debts to afford their children's education. (24)
In 2022, the Department of Education stated that there are 60,429 schools in the country under its jurisdiction– 71% of which offer a purely elementary school level curriculum, and more than 40% of these schools cover families requiring educational support or loans. (23)
Indicative Return
> 25%
15% - 20%
15% - 20%
15.5% for investment in high school education, 51.9% for college, and 20% for postgraduates (25) Given interest rates which is at 19%, Maybridge Finance and Phinma Education projects' returns of 15-20% (19) (20) An estimate of revenues and expenses shows 15.3% net income for Philippines' Education sector (26)
When annualized, Maybridge Finance program should offer its investors 15% to 20% investment returns. However, this is dependent on when DepEd is able to finish processing a school's subsidy claim. This is estimated to require 6 months (19).
When annualized, Phinma Education loan program should offer its investors 15% to 20% investment returns. However, students are allowed to fully pay their loans before their expected maturity at no additional cost. Moreover, loan default risk should also be considered. (20)
Investment Timeframe
Short Term (0–5 years)
Maybridge Finance and Phinma Education showcased an investment timeframe on loans of less than 1 year. As the investment provides bridging loans to either students or schools with the voucher system backed by the government, the investment timeframe can be considered short-term. (19) (20)
A comparison of education plans from Manulife, AXA AcademiX, AIA Future Scholar, Sun FlexiLink, and Insular Life Wealth Assure Plus indicates longer term time hoirizons anywhere from 5 to 10 years of length. (27)
Ticket Size
< USD 500,000
Market Risks & Scale Obstacles
Market - Highly Regulated
Market - Volatile
Impact Case
Sustainable Development Need
Due to the lack of access to educational financing or loans, only 75.7% Filipino students are able to complete two years of senior high school (25). Many students are forced to stop schooling because household income is not enough to cover expenses beyond family’s basic needs such as food and shelter.
This inter-generational cycle of lack of education and means to get out of poverty trap persists. Educational financing can provide the means to break the cycle through financing human capital.
Gender & Marginalisation
In most low-income Filipino households, the women are compelled to quit school because culture and societal beliefs remain that women should be left at home doing care work. This is reflected in the decreasing number of women completing senior high school from 84.8% in 2018 to 74.6% in 2020 (12).
As slots in State Universities are limited, admissions to such universities can be quite competetive. Due to the nature of lower income families they are at a disadvantage in accessing schools and will benefit from financing that will allow them to continue their study through private schooling.
Expected Development Outcome
Access to low-cost and low-interest rate loans that do not require collateral shall allow learners to continue their education especially in times of unexpected financial shocks experienced by families.
Students who dropped out during the pandemic due to financial problems may also be encouraged to enroll again given access to alternative affordable finanancing.
Gender & Marginalisation
Students from low-income households especially women can continue their education and enjoy improved access to quality job opportunities as they obtain higher level of education.
Primary SDGs addressed
4.1.2 Completion rate (primary education, lower secondary education, upper secondary education)
4.3.1 Participation rate of youth and adults in formal and non-formal education and training in the previous 12 months, by sex
4.6.1 Proportion of population in a given age group achieving at least a fixed level of proficiency in functional (a) literacy and (b) numeracy skills, by sex
Completion rates for Elementary, Junior and Senior Highschool all declined from 2016 base level data to 2020's latest data, 93.1%, 80.9%, 81% to 82.5%, 82.1%, 69.3% respectively. (12)
Youth not in education, employment, or training (NEET) rate shows signs of easing at 13.1 percent year-to-date from 18.5 percent in 2020 and 16.6 percent in 2021 (1)
The percentage of population in a given age group achieving at least a fixed level of proficiency in functional literacy in the Philippines is at 91.6% as of 2022 (25)
The government targets 100% completion rates across the basic level education
The government aims to increase youth participation in education and training by additional 2% in 2028 (1)
The country aims to achieve 100% fixed level of proficiency by 2030 (25)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Public sector
Outcome Risks
Series of unexpected shocks or further delays in expected inflows may also put families to further debt, especially for financing institutions with large penalties. Prolonged inability of families to recover may also put the lending institution at risk.
Prolonged delay of payments from the government through the voucher system can create liquidity risk for lending companies Gender inequality and/or marginalization risk: Multiple income shocks for low income families can increase the risk of further indebtedness especially if the loan's structure have high payment penalties.
Impact Risks
Marginalization may also be reinforced by businesses refraining from providing loans for low income households with poor credit history, but actually need further financial bridging. Low-income schools can incur further costs if the loans structured do not have mitigating features for further delays in government payments.
Gender inequality and/or marginalization risk: If financing is not granted the trend of women not finishing senior high school may continue. (12)
Impact Classification
What
Improve access, equity and quality in primary and secondary education especially for households in marginalized areas.
Who
Low-income households, especially those in marginalized areas.
Risk
Delays in loan payments can create liquidity issues for lenders.
Contribution
Around two million Filipinos aged 16 to 18 should be in senior high schools and may consider pursuing studying again with access to better financing. (28)
How Much
Almost 7 million junior high school students and more than three million students enrolled in senior high school, around 6,000 junior high schools and 5,000 senior high schools (29)
Impact Thesis
Provision of financial solutions to support low-income individuals to continue their education and schools dependent on voucher system.
Enabling Environment
Policy Environment
Expanded Government Assistance for Students and Teachers in Private Education Act (RA 8545) of 1998: "Sec5: Financial Assistance for tuition for students in private high schools shall be provided by the government through a voucher system." (11)
Lawmakers are proposing to expand the current voucher system to include elementary students. Currently, vouchers are only provided for secondary level and college. (13)
Lending Company Regulations Act (RA 9474) of 2007. "No lending company shall conduct business unless granted authority to operate by SEC" (14)
Financial Environment
RA 11534: Corporate Recovery and Tax Incentives for Enterprises Act (CREATE): Defines the tax incentives for registered business enterprises investing in the Philippines including a tax of only one percent (1%) on their taxable income for educational businesses. (26)
Fiscal incentives: Education Servicing Program and Senior High Schol Voucher Program privide subsidies to students to study in private schools (10) Funds are also provided to support college education through CHED Scholarship Program and DOST S&T Undergraduate Scholarship Program
Republic Act No. 11595 liberalized restrictions on foreign direct investments: reduced capital requirements on retail enterprises with foreign entity. Minimum paid-up capital to only USD 500,000, and minimum investment per store of USD 200,000. Philippines allow a maximum of 40% foreign investments in this sector.
Regulatory Environment
Truth in Lending Act (RA 3765) of 1963. "State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy." (15)
SEC MC No. 03 s. 2022 SECTION 3. Applicable ceiling/s on interest rates and other fees for specific loans offered by LCs, FCs, and their OLPs. (16)
E.O. No. 150, series of 1994 - Private Education Assistance Committee (PEAC) was granted the express authority to manage and administer contributions, donations, grants, bequests, gifts and/or loans from the government for programs of assistance to private education. (10)
Marketplace Participants
Private Sector
PHINMA, Bukas.ph, InvestEd, Bank of The Philippine Islands SIP, Card Pioneer BDO Unibank Bank of the Philippine Islands (BPI) Metrobank LeapFrog Investments Elevar Equity Sarona Asset Management Ayala Corporation SM Prime Holdings San Miguel Corporation Omidyar Network Acumen Blue Haven Initiative
Government
Department of Education, Commission on Higher Education, Private Education Assistance Committee (PEAC), Security and exchange commission, Commission on Higher Education, Landbank offers 'study-now' pay later. (17)
Multilaterals
Asian Development Bank, United Nations Children Fund
Non-Profit
Edukasyon.ph, Save the Children Ford Foundation Bill & Melinda Gates Foundation Ayala Foundation Ateneo de Manila University University of the Philippines De La Salle University
Public-Private Partnership
UNICEF or UNESCO in hand with local or international financial institutions, charities, philanthropists, etc.
Target Locations
Philippines: Caraga
Philippines: Ilocos Region
Philippines: Cagayan Valley
References
- (1) NEDA. Philippine Development Plan 2023 to 2028 https://pdp.neda.gov.ph/philippine-development-plan-2023-2028/
- (2) Philippines: Learning in Brief (2022). Accessible at https://documents1.worldbank.org/curated/en/099000207152223103/pdf/IDU002b5536c0db4104ec3087d809906ec2eae56.pdf
- (3) INFF. Development Finance Assessment 2022 https://medium.com/@jp.inff.ph/2022-development-finance-assessment-shows-ph-financing-landscape-in-the-time-of-covid-19-and-the-68dcc39bcc19
- (4) World Bank (2016) Assessing Basic Education Service Delivery in the Philippines. https://documents1.worldbank.org/curated/en/507531468325807323/pdf/AUS6799-REVISED-PH-PETS-QSDS-Final-Report.pdf
- (5) Parreno, J. (2023) "School dropouts in the Philippines: causes, changes and statistics". Sapienza International Journal of Interdisciplinary Studies. https://www.researchgate.net/journal/Sapienza-International-Journal-of-Interdisciplinary-Studies-2675-9780
- (6) Banko Sentral ng Pilipinas, (2022) "Strengthening Financial Health through Financial Literacy" https://www.bsp.gov.ph/SitePages/MediaAndResearch/SpeechesDisp.aspx?ItemId=993#:~:text=The%20World%20Bank%20found%20that,countries%20surveyed%20on%20financial%20literacy.
- (7) Alegado et al. Closing the Gender Gap in Schooling Outcomes and Cognitive Ability among Filipino Children . UNFPA-OPS Policy Note Series No. 5. https://opsusc.org/pdf/UNFPA-OPS%20Policy%20Note%20Series%205%20Gender.pdf
- (8) Department of education (2019) https://www.deped.gov.ph/wp-content/uploads/2019/12/PISA-2018-Philippine-National-Report.pdf
- (9) Private Education Assistance Committe. https://peac.org.ph/educational-service-contracting-esc/
- (10) Private Education Assistance Committe. https://peac.org.ph/senior-high-school-voucher-program/
- (11) Republic Act 8545. https://www.officialgazette.gov.ph/1998/02/24/republic-act-no-8545/
- (12) PSA Open Statistics. https://openstat.psa.gov.ph/PXWeb/pxweb/en/DB/DB__3I__G04/0023I3D41S1.px/?rxid=6c0be179-9234-4be0-87e7-f1a25f859b2e
- (13) Rappler (2022). https://www.rappler.com/nation/house-push-expand-aid-private-school-students-teachers-basic-education-revived/
- (14) Lending Company Regulations Act. https://www.sec.gov.ph/wp-content/uploads/2019/11/2007Law_RA9474.pdf
- (15) SEC. https://www.sec.gov.ph/wp-content/uploads/2019/11/1963Law_RA3765.pdf
- (16) SEC (2023). https://www.sec.gov.ph/mc-financing-lending-companies/mc-no-03-s-2022/#gsc.tab=0
- (17) Landbank (2020). https://www.landbank.com/news/landbank-offers-direct-study-now-pay-later-loan-program-for-students
- (18) Maybridge Finance. https://maybridgefinance.com/about/
- (19) Maybridge Finance. "Opportunity for Private Schools: Discounting of DepEd Subsidy Claims".
- (20) Phinma Education. https://bukas.ph/help-center/phinma-guide-and-faqs/
- (21) Commission on Higher Education (2020) https://ched.gov.ph/wp-content/uploads/A1.1-Distribution-of-Higher-Education-Institutions-by-Institution-Type-AY-2019-2020.pdf
- (22) Philippine Statistics Authority (2022). https://psa.gov.ph/press-releases/id/168397
- (23) Overview of Education Budget and Financing in the Philippines; https://www.teacherph.com/education-budget-financing-philippines/
- (24) Philippine Daily Inquirer, 2021 https://newsinfo.inquirer.net/1528071/unesco-36-percent-of-ph-families-incur-debts-to-send-kids-to-school
- (25) Philippine Statitics Authority (2022) SDG Watch https://psa.gov.ph/sdg/Philippines/baselinedata/quality_education
- (26) Bureau of Internal Revenue - CREATE https://www.bir.gov.ph/index.php/create.html