Credit Suisse jumps on Peer-to-Peer bandwagon

By AltFi on Wednesday 29 October 2014

Alternative Lending

The trend of big banks getting involved in the peer-to-peer space continues with the announcement that Credit Suisse has launched a $25 million “Education Note” with Prodigy Finance.

Prodigy is a platform that focuses on providing loans for MBA students at prestigious business schools. It will only lend to students from its prescribed list of Universities. These include the business schools at Oxford and Cambridge; Cass; Bocconi and The Wharton School at the University of Pennsylvania among others.

Prodigy is not constrained by national boundaries – offering cross-border loans to the right applicants. A core focus for the platform is to provide finance to students from emerging markets that are attending international business schools.

Credit Suisse is implementing this partnership through its Impact Investing and Microfinance team, led by Patrick Elmer. Prodigy Finance CEO and co-founder Cameron Stevens commented:

“The partnership with Credit Suisse allows us to turbo charge our reach among high net worth and family office investors, complementing our community funding efforts and bringing diversity and scale to our programs. At least 75% of students assisted will be from emerging markets, driving a great combination of social purpose and sound financial returns.”

Prodigy uses a community finance model to help encourage loan repayments. It promotes its loans to business school alumni and encourages them to invest. Prodigy believes that this approach results in students being more likely to repay the loans – especially since investors and university administrators can see each student’s loan repayments online. Distinctive among the platform’s due diligence practices is that it assesses students’ eligibility for a loan by looking at future earnings potential, rather than historic data and previous salaries.  

The Education Note aggregates multiple underlying Prodigy Finance bonds, with a focus on students from emerging markets. The bond is expected to yield 5-6% with an average maturity of 5 and a half years. And the funding commitment from Credit Suisse will enable Prodigy to scale its existing program in order to help fund more students from across the world. 

There has been much talk over the impact that peer-to-peer lending could have in developing markets. 75% of Prodigy’s students come from developing countries and nearly two-thirds return to their home countries after graduating from business school. This partnership has allowed Prodigy to expand its investor reach and grow its offerings to students. Both banks and investors are putting more time and money into SRI investing and it will be interesting to see how Prodigy can capitalize on this going forwards

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