IFC INCLUSIVE BUSINESS COMPANY PROFILE Trustco Finance (Pty) Ltd. Company background Country: Namibia Trustco Finance (Pty) Ltd. provides educational loans to students enrolled at the Institute for Open Learning (IOL)— Sector: Education Finance the largest private distance-learning tertiary education institution in Namibia. Both entities are subsidiaries IFC’s Investment: $21.3 million in long-term of Trustco Education (Pty) Ltd., which was established debt financing and $2.9 million in equity when Trustco Group Holdings (TGH) acquired IOL in 2005. TGH is a public company with three core business lines: microfinance and education, micro-insurance and technology solutions, and properties. It is majority-owned by its founder with other large shareholders including First National Bank Nominees Namibia (Pty) Ltd. and Standard to low-income customers who have limited access to Bank (Namibia) Nominees (Pty) Ltd. TGH targets middle- insurance, education, and finance. Drivers For Trustco Finance’S Inclusive Business Model •• Significant market demand for loans for tertiary education and very limited supply of education finance •• Business opportunity to create a one-stop-shop for distance learning tertiary education and associated tuition finance •• Government regulation enables microlenders to reduce loan repayment risk through payroll deduction With the little public funding available for secondary and This model responds to demand for convenient access to tertiary education, Namibia experiences a disparity between education financing in a country where students have few high demand and very limited supply. As of 2011, only 12% options. The Namibia Students Financial Assistance Fund, of students could proceed to tertiary education due to the the main public provider of financial support, receives about limited number of places available in universities.1 Distance 15,000 applications per year, of which it supports about learning institutions like IOL are filling this gap and thriving 3,000 through scholarships and loans.2 To encourage lenders as they accommodate working professionals and reach to provide student finance, the government is enabling underserved regions. Within the distance learning market, payroll deduction which helps minimize non-payment risk. the government-subsidized Namibian College of Open Learning (NAM COL) has become the largest institution 1 Sasman, Catherine (28 June 2011). “Quality, shortages, and concerns of for secondary education; it also offers vocational and teachers”. The Namibian. professional training. Against this backdrop, TGH recognized 2 Millennium Challenge Account Namibia, http://www.mcanamibia.org/ an opportunity to offer tertiary education through distance proj_activities.php?type=Activity&id=35&activityname=. learning, along with affordable tuition financing. 1 IFC INCLUSIVE BUSINESS COMPANY PROFILE Trustco finance’s Inclusive Business Model Lack of access to education finance is a significant barrier to students and working professionals seeking further education in Namibia. To address this, Trustco Education provides students enrolled in IOL’s distance learning tertiary education courses with direct access to affordable financing through Trustco Finance. IOL offers certificate, diploma, and degree programs loan portfolio, while students between 26 and 45 years in education, business, and information technology, comprised approximately 47%. Loans to students residing with course prices ranging from $66 (N$500) to $2,123 in rural areas made up 77% of the loan portfolio. The (N$16,000). While most programs are two or three years monthly income of student borrowers ranges from $265 in duration, students can be afforded additional time (N$2,000) to $3,317 (N$25,000). to complete courses. IOL’s six regional Student Support Centers provide students with access to computers and other technical resources if they don’t have access at home. Courses are delivered via pre-recorded video sessions Trustco Finance minimizes and are supplemented by in-person tutors at the centers. Almost half of IOL’s students are women while 97% are its risk by maintaining a employed full-time. high level of control over From 2005 to 2011, approximately 98% of IOL students received loans from Trustco Finance. Trustco Finance the loan collection process borrowers range between 18 and 55 years of age, and are all employed. As of 2011, loans to students between 18 through payroll and bank and 24 years of age comprised approximately 49% of the account deductions Typical loan amounts range from $125 (N$1,000) to $2,500 (N$20,000), with repayment terms ranging from 12 to 60 months and averaging 29 months. Loan repayment begins upon commencement of courses. Interest rates are set in accordance with Namibia’s Micro Lending Regulations at twice the prime interest rate or, as of 2010, 22% per annum. At times, Trustco Finance is able to offer interest rate discounts as a result of government subsidies. For example, in 2009, the Development Bank of Namibia provided a $1.78 million (N$15 million) facility that enabled Trustco Finance to offer an interest rate discount of 7% to teachers who were upgrading their qualifications. © Trustco 2 IFC INCLUSIVE BUSINESS COMPANY PROFILE Trustco Finance determines borrower eligibility based on a set of standard documents and criteria. These include, but are not limited to, valid identification documents, a valid salary advice (pay slip), a bank account, a minimum of one year of employment for private sector applicants, existing credit limit to not have exceeded $4,518 (N$ 35,000), and a clear credit check. Government employees are eligible for 100% financing on all IOL courses. In order for private sector employees to be eligible for 100% financing, their company must have an agreement with Trustco Finance to enable loan repayment via automatic salary deduction. © World Bank Trustco Finance minimizes its risk by maintaining a high level of control over the loan collection process through payroll and bank account deductions. As of 2012, 98% of loan repayments are made via payroll and bank account Finance’s close relationship with IOL provides students with automatic deductions; only 2% are made in cash. Trustco an added incentive to repay their loans, as students want to maintain their standing with IOL. In instances of default, academic qualifications may be withheld until repayment arrangements are made. IOL’s extensive customer outreach supports Trustco Finance in reaching new borrowers. IOL’s marketing team regularly Trustco Finance’s close visits government agencies, secondary schools, and relationship with IOL corporations to provide potential students with academic and financial information, and assist them with completing provides students with an course and loan application forms. To reach students in added incentive to repay small, remote towns, IOL uses a mobile office which serves as a traveling resource. Mobile office staff provide students their loans, as students with course-related information, respond to financial queries, and assist students in applying for a loan. They also want to maintain their assist existing students with making payments, applying standing with IOL for refunds, and printing statements. In addition, IOL leverages TGH’s customer base by marketing its programs to the group’s 300,000 insurance customers. 3 IFC INCLUSIVE BUSINESS COMPANY PROFILE results of Trustco finance’S Inclusive Business Model •• 98% of IOL students financed between 2005 and 2011 •• As of 2011, $33 million in gross educational loans •• Over $5 million in revenue and $1.7 million in EBITDA in 2011 IOL has grown to become the largest private distance From 2005 to 2010, the parent company TGH achieved an education provider in Namibia, enrolling 29,000 students average annual growth rate of 35%. In 2010, TGH realized as of December 2011. IOL has also greatly expanded its an EBITDA margin of over 30%. TGH was the top Namibian course offerings so that its students will graduate with skills traded stock on the Namibian Stock Exchange (NSX) in that meet the needs of the Namibian economy. Growing terms of value of shares traded in 2007 and, in 2009, was alongside IOL, Trustco Finance has expanded its reach to the first African company to list on the Johannesburg Stock finance the tuition needs of approximately 98% of all IOL Exchange (JSE) Africa Board. students, and remains the only one-stop-solution in the country for education and tuition finance. Gross educational loans increased from over $25 million (N$193 million) in 2010 to over $33 million (N$252 million) in 2011. Trustco Finance’s revenue grew by 14% to $5.2 million (N$39 million) and EBITDA reached $1.7 million (N$13 million). IFC’s role and value-add IFC’s Investment: $21.3 million in long-term debt financing and $2.9 million in equity Investment Year: 2011 to 2014 •• Provide long-term debt to enable Trustco Finance to expand its lending program to $55 million by 2015. Prior to working with IFC, the company struggled with a lack of availability of long-term finance for consumer lenders and micro lenders in Namibia. As a result, Trustco had to finance many of its student loans through intercompany loans from TGH, which negatively impacted its operating profits and limited its ability to expand •• Enhance the management of Trustco Finance’s student loan portfolio through advisory support •• Strengthen Trustco’s corporate governance structure to facilitate its potential expansion into new markets (Published August 2012) For more information, visit ifc.org/inclusivebusiness and trustcofin.na 4