A steady performance for your investment amid covid
It has been over a year since Covid disrupted business activities, studies, and our lives in general. As a result, economic growth has slowed down, many businesses struggle and there is elevated unemployment around the world. In developing countries where poorer people are disproportionally hard hit, our mission is critical for an equitable growth out of this crisis. We are more committed than ever to ensure that all bright students have access to higher education and become successful.
Just as we do every academic year, we have invested in another group of bright students for our 2020 cohort. These students were carefully selected using our unique underwriting algorithm focussed on future success, and are pursuing undergraduate and postgraduate degrees in Engineering, Science, IT, and Business. This diversified portfolio reduces risk and improves returns for our investors that get repaid out of our students’ future increased income.
Schools have reopened and classes have resumed for our students, some follow in-person classes and others are having classes online. Either way, all our students have been provided with the resources they need to succeed in their studies.
These are difficult times and it is hard to predict how the labor market will develop in the near future. However, 50 years of historic labor market data shows that the value of quality education will weather any economic storm in the long term. You will find detailed information on the performance of our portfolio in the update below sent to our investors:
Dear Investor,
These last two quarters have been busy for us as we work to ensure that your investment performs well despite the impact of Covid on the labour market and school closures. This document includes an overview of the performance of your investment since the last update in which we pointed out that our students are still a valuable investment despite Covid.
Just as we expected at the time of our last update, schools have reopened and academic work has resumed for our students. Even though classes have resumed, some of our students are returning to school without in-person classes while others are on campus to complete their academic work. We are giving every one of our students the resources they need to study either from home or on campus.
New students have been added to our 2020/2021 cohort. We received more applications for our funding program than in any previous year, this is an indication that demand for financial help for education has increased significantly. To be able to scale our program and provide support to these students, we are raising a debt and equity round of $2.5m this year. The details of this round can be found in the attached pitch deck. Let us know if you’d like more information and feel free to share it with any contacts that may be interested.
Graduate students are taking longer to find jobs due to the economic consequences of Covid and the number of unemployed students is higher than the target. In response to this, we are strengthening ties with employers to see how we can facilitate more direct placement of our graduates into jobs. We are also increasing our engagement time with unemployed students to ensure they have the required skills to sell themselves adequately for job roles.
While we recognize the volatile macro-economic environment we are in now, we have taken the necessary steps to ensure that our students continue to yield value for you. With your help, we have served as a safe haven for brilliant students who also believe that higher education is a way out of poverty for themselves and their families. That is why we are working tirelessly to ensure that we achieve our vision of a future where every brilliant student has access to quality higher education, irrespective of gender, religion, or family background.
Please do not hesitate to contact me if you have any questions about the information provided in the following chapters or other aspects of Brighter Investment.
Thank you for investing with us,
Belinda Kugblenu
Head of Investor Relations
1. Investment value
Academic work has begun for new and continuing students. Unfortunately, graduate unemployment is higher than we projected. The labour market has been affected by the general economic downturn due to Covid. Our students in the 2017/2018 cohort are most affected by an increase in unemployment resulting from this economic downturn. In addition, students in the 2018/2019 cohort have entered the job market after completing their mandatory national internship at the start of the fall instead of July 2020. This delay contributes to a higher unemployment rate than the same time last year as students have had less time to find jobs.
Now that vaccines have been deployed to many countries including Ghana, our first colleagues have been fully vaccinated, we expect the labour market to recover soon. Students in the 2019/2020 and 2020/2021 cohorts are least affected by the current crisis because most of these students are still studying and are not expected to graduate until the crisis is over. Additionally, a conservative longer repayment period for students in these cohorts means our projected ROI for these investor cohorts is higher than the ROI for other investor cohorts and that we can mitigate the risk of the projected ROI being negatively affected by unforeseen events in the future.
The table below provides details on the book value of your investment, which is the minimum amount we need to repay to you without BI defaulting on its obligations. The second higher valuation is the net present value of projected future cash flows discounted by the expected total IRR:
Investment amounts, distributions paid out or reinvested in later cohorts, projected values, and book values for a fictional portfolio of $100k invested in every academic year.
2. Performance of student cohorts
We have been able to select 48 new students for 2020/2021 which brings the total number of students in our portfolio to 436. 271 out of 436 students are studying this year and are at different levels of their degree programs. 165 students have graduated and 69 of these students are doing their mandatory national service. At the same time, 92 graduates are in the repayment phase of the program and 4 students have finished repaying.
When we combine our 48 new students with the 223 continuing students, 30% are pursuing a science degree (mostly applied sciences), 40% are pursuing an engineering degree, 10% are pursuing IT related degrees, and 20% business-related degrees (accounting, finance, business, etc.) The table below represents the current status of all the students we have supported so far.
Current study progress for all investor cohorts.
1. After graduating, students perform national service (a mandatory internship).
2. Some students have found jobs and are repaying while others are actively seeking employment.
3. Continuing students from one cohort are also part of the next cohort (i.e. 3 rd year students in 2016 are 4th-year students in 2017) that’s why horizontally student numbers don’t add up to the presented total
Various KPI’s are important for the investor return. For the most relevant of these variables we compare the values used for the projections at the time of your investment to the values as observed to date. Based on these results we use conservative estimates to provide you with an updated ROI projection:
Relevant Key Performance Indicators and values used for our financial projections.
Unemployment: 28% of our graduated students are unemployed because it is harder for them to find jobs because of Covid. If students find jobs as expected, this number will go down before going up again when the next cohort finishes their national service in August 2021 and enters the job market. To help bring unemployment down, we are strengthening ties with employers to see how we can facilitate more direct placement of our graduates into jobs. We are also increasing our engagement time with unemployed students to ensure they have the required skills to sell themselves adequately for job roles. With these measures, combined with an improving economy, we expect the number of our unemployed graduates to go down over the next few months.
Dropouts: Our current dropout rate is 0.9% because we have had four of our students dropping out. This dropout rate is 5X less than the average rate recorded by our partner universities. One of the students who dropped out has finished making repayments and the other three are making repayments.
Defaults: All graduate students are reporting their employment status, and all working graduates are making their monthly repayments as required. To be conservative in our projections, we have modelled a rate of 10% to cover the number of students we expect to not repay.
Salary levels: Graduates mostly earn what we expect in the local currency, and are once again earning what we projected in USD despite covid. Our graduates have increased their income 5X on average with their degrees. That said, a subset of graduates that hasn’t been able to find employment yet has taken lower paid jobs. Our student success manager is working with these graduates to find them employment at their education level.
Repayments: Our working graduates are making repayments as expected. Even though the total amount of repayments received is less than what we received in the last two quarters due to a number of students completing their repayment and less new students starting repayment due to unemployment, we expect that as more students find jobs, distributions will be higher again in the coming year. Due to the structure of the sponsorship contract, for every month a student is unemployed, their repayment period goes up by 0.25 months. This means that longer unemployment periods result in slightly longer total repayment periods that ensure that the same eventual ROI is accomplished for investors despite periods of higher unemployment.
3. Cash flow projections
The graph below shows how the investment in the various cohorts is expected to perform. These projections are based on the assumption of continued increased unemployment and more time required to find work for graduate students in the near future as well as lower wages. Especially the 2016 and 2017 cohort returns are affected by these economic effects in our projections, the graph shows graduate earnings (and thus investor distributions) pushed into later years. The 2018 cohort is affected to a lesser extent. As explained in the previous section, lower distributions now are partially compensated for by longer graduate repayment periods and thus higher distributions in later years reducing the effect of Covid on final investor ROI. Our goal is to implement an improved student success mentorship program to reduce the negative impact on your investment and we hope that in a year from now we’ll be able to revise our projections back upwards.
Projected distributions and paid out distributions (if applicable) for your investments under different scenarios
4. Concluding remarks
The economic downturn which came about because of Covid resulted in our graduates taking longer to find jobs. The labour market is one of the areas affected by this downturn, companies are hiring fewer graduates and others are not hiring at all. Original distributed projections for graduates six months after their mandatory national internship are not achieved because some of our graduates have not found good jobs yet. Increased unemployment does affect your investment now, but it also translates into larger distributions in the future due to extended repayment periods. The 2019 and 2020 cohort of investors are least affected by the current circumstances due to their students entering the job market in what we project to be an economic recovery and therefore have a higher ROI than other investor cohorts.
