EduFi Founder and CEO Aleena Nadeem
Pakistan has a problem: it struggles to keep its young people in education, largely because so many families can’t afford the initial cost of college tuition. Enter the fintech startup EduFi, which today announces the successful completion of a $6.1 million fundraising round. It hopes its innovative approach to student loans could increase higher and further education participation rates in the country.
“This is a product that does not currently exist,” says Aleena Nadeem, CEO and founder of the business, which launched in 2021. “The only alternative until now for families needing to borrow to pay for education costs was expensive commercial loans.”
EduFi’s solution is different. It works with education providers so they can offer students access to funding as they enroll in courses and as fees are due. So far, the business has signed up 14 colleges from across Pakistan, offering education to 200,000 students, but Nadeem hopes to expand the concept to the entire Pakistani college system through an agreement with the government.
The idea essentially came from the colleges themselves. Nadeem explains. “Many colleges have told us that their students have asked if they can pay fees month by month, rather than in one go at the start of the year or term, but these are education providers, not banks,” he says. “By partnering with us, that’s exactly what they can offer now.”
From a business perspective, the concept works very well, with EduFi essentially gaining exclusive access to a captive audience of potential borrowers. which significantly reduces the company’s customer acquisition costs.
Some of these savings can then be returned to students. EduFi charges an annual equivalent interest rate of 29% on its loans, undercutting the cost of bank loans by a significant margin. Students and their families receive the loans when their tuition is due, repaying the money through monthly repayments. essentially, it’s a way to spread the cost of college tuition that might otherwise be out of reach.
It is not a guaranteed loan to every student. EduFi has developed a new credit assessment model that it uses to screen applications. This model takes into account applicants’ bank statements, but also looks at their educational history – for example, students with low grades and attendance are less likely to be offered funding, as EduFi believes they are more likely to drop out of college and to default on loan repayments.
Adding these additional criteria to the credit scoring model required EduFi to create a technology platform capable of connecting to participating colleges’ systems so that student data could be extracted. But Nadeem believes that this project was important in reducing EduFi’s NPLs. “This helped us keep costs down and offer financing without asking for collateral,” he says.
The technology also allows the business to process loan applications much faster than many conventional lenders. Students apply for funding through EduFi’s mobile app, with the lender able to provide a decision and release the funds within 48 hours.
For Nadeem, the business obviously has exciting commercial potential, but she also believes it can be an important driver of social mobility. “I’ve spent the last nine years working for a charity that supports the poorest students through college, but there’s a whole class of students who are above the poverty level but who still can’t afford further education,” he says. “We believe that EduFi can be a catalyst for change in people’s lives as we lift one of the biggest burdens on prospective families.”
Certainly, there is no shortage of demand. Figures from Unesco reveal that families in Pakistan spend an average of 57% of their income on children’s education – equivalent to $14 billion annually.
Investors also join the mission. Today’s pre-seed funding round is led by Zayn Venture Capital, with participation from Palm Drive Capital, Deem Ventures Ltd, Q Business, Abhi, AdalFi, Technologix and several angel investors.
At Zayn, General Partner and Founder Faisal Aftab shares Nadeem’s vision of creating a profitable business that also drives social good. “This is an important step towards achieving financial inclusion for middle- and low-income families,” says Aftab. “In Pakistan, families spend more than half of their income on their children’s education, which is becoming increasingly difficult due to inflationary pressures. EduFi’s innovative approach will help ease this burden and empower families to invest in their children’s future.”
