IDB to help finance student loans in six Latin American countries

IDB loan to Higher Education Finance Fund will pave the way for increased student loans in Guatemala, Honduras, Dominican Republic, Peru, Bolivia, and Paraguay

The Inter-American Development Bank (IDB) will help expand the access to higher education in Latin America and the Caribbean by providing a $10 million loan to the Higher Education Finance Fund, L.P. (HEFF), a regional debt fund that seeks to offer student loans through local microfinance organizations.

With total assets of up to $50 million from the IDB and other international institutions, HEFF will provide financing to microfinance institutions under appropriate conditions so they can in turn extend long-term loans to students, allowing them to pay for their studies once they enter the labor market.

During its initial rollout, the program will serve about 3,000 students from Guatemala, Honduras, Dominican Republic, Peru, Bolivia, and Paraguay, where there is a high demand for student credit. There are also excellent prospects for growth in other Latin-American locations as the fund grows and develops.

“Research has shown that lack of adequate financing is preventing low-income students from pursuing higher education,” said Johnny Jirón, the team leader for the project at the IDB’s Opportunities for the Majority (OMJ). “Our project seeks to change that reality and transform this into a sustainable business model since students that manage to graduate from qualified programs often can earn enough to repay a loan.”

Funding will only be provided for students that seek to enroll in reputable academic institutions and in careers that are in high demand or where jobs are expected to grow. Additionally, HEFF will implement a student monitoring and mentoring system, whereby local education experts will oversee the student’s ongoing progress and provide education and social system support as needed. This unique structure seeks to ensure the sustainability of the business while responding to the needs of low income students.

HEFF will also set up a $1 million technical assistance grant to support training for microfinance institutions participating in the program to understand the student loan markets and implement adequate lending practices.

Student loans, when properly structured, take the education cost burden off the family while the family member is studying. These costs include tuition, books, lodging, food, and transportation and can negatively impact the learner’s ability to succeed if they are forced to work while studying.

HEFF will be managed by Omtrix, a Costa Rican fund manager and financial consulting firm with more than 15 years of microfinance loan management experience in the region. The fund will set country specific guidelines on loan conditions to be met by microfinance institutions.