The PIE: Tell me about yourself – you came to the US as an international student in the 1990s?
Manu Smadja: I came to the US at the age of 17 for my studies at the University of Virginia and did computer science and cognitive science. I did well academically but frankly, I struggled financially through school. Like a lot of international students, I was restricted to working on campus and I got as many jobs as I could.
“I wondered why banks weren’t willing to lend to me as an international student”
I was a tutor for maths, physics, computer science. I was an indoor soccer referee – you name it I did it. I eventually graduated with the help of my family, but as a graduate, I wondered why banks weren’t willing to lend to me as an international student. Why were American banks not willing to bet on me as an engineer?
After I graduated I got the chance to work for a consumer credit company – Capital One, before I went back to Europe for an MBA at INSEAD and I had the same problem. I struggled to get financing even though it was a 10 months program and one of the best MBAs on the planet.
The straw that broke the camel’s back was in late 2013, a student reached out to me, and essentially said, “I’m $500 short on my rent this month, I’m going to get evicted and I’m thinking about dropping out of school. Can you help?” And this was a student who was at my alma matter at UVA, who was doing well as a mechanical engineer and essentially was about to drop out of school for $500. And that shocked me.
In a country that has so much infrastructure around data, so many resources financially and has such a huge need for STEM talent, I thought it was crazy that we were going to let someone down for $500. So I found the money, but it kept me up at night and I thought, “I can help one student by making this donation but how do we scale this?”
That was the birth of MPOWER. We realised the students that we serve essentially have two alternatives. Either they don’t come to the US after they’re admitted sometimes because they can’t show they have the funds to get a support letter for the visa. The other set of students borrow from banks in their home countries, typically with outrageous rates, especially in emerging markets like Brazil or India. They’re looking at pretty aggressive rates, and it does them no good in terms of building their credit history in the US. And then they come to the US and they’re ‘credit invisible’.
So it’s very important for us, from the very beginning, to build the students’ credit. So that’s why we have small in-school payments on the loan so that student doesn’t accumulate interest and the student actually builds a credit presence in the US.
The PIE: What about those students that just want to study in the US and then leave?
MS: We are sort of agnostic about where the student lands after graduation. We recognise that some students want to stay in the US or Canada, but some students want to go back. It’s always important for us to make a loan that’s sustainable regardless of where in the world the student is. And that’s why our loans are advertised over 10 years to pay it back.
The PIE: How selective do you have to be regarding who you give a loan to?
MS: What we found is international students are a unique breed– it’s a sign of character to essentially put your education and your career first and take that leap and go an ocean away from home. And so we found that that’s reflected in the credit performance of the portfolio.
We work a lot with graduate students. Some who have the biggest financial need are coming as graduate students because they’re betting on a one or two year program and they’re trying to pull it together, but that’s harder to do with a four-year degree.
“International students are a unique breed– it’s a sign of character to put your education and your career first”
Students coming to top schools, leaving everything behind to focus on their career and their studies, have really strong credit performance. So there’s already sort of self-selection there. It’s not students who are going to have a party for four years – it’s college students who really want to make it in life, are disciplined and hardworking, and they’ve had a proven track record of that. So we do look at their career potential and educational track record when we’re making the credit decision.
The PIE: What sort of breakdown in nationalities are your students?
MS: Our students come from 180 countries around the world. There are a few exceptions that the US government doesn’t allow us to serve like South Sudan or Iraq – there are five countries we can’t lend to.
The biggest nationalities would be India, China, Nigeria, South Korea, Brazil, Mexico, Peru, Columbia. Latin America is a big part of the business. Asia as a whole is about half of our business. And South-East Asia is growing.
The PIE: You’ve got funding from Goldman Sachs. How important is it to get some big names involved in the business?
MS: There’s two things here that matter. One is we’re growing really quickly and helping more and more students. We’re deploying the $100 million from an impact investor on the US West Coast in November quickly and wisely. We’re supplementing that with $100 million from Goldman. And that’s enabling us to help even more international students come to the US and Canada.
As an online fintech lender, it’s important for us to have the support of a big entity. Students do their research. When you’re a 22 year old, based in Hyderabad, you may never have heard of MPOWER.
So even though we have a far superior product [to local in-country banks], we’re not necessarily right there next to these students when they make the decision. It’s important for us to be there at least virtually. I think Goldman Sachs helped us with that credibility.
The PIE: Do universities recommend your services to students?
MS: [Universities] usually want to stay at an arm’s length from lenders. But, a lot of them analyse our product and realise that we’re really filling a huge gap that they have no solution for typically at their school. We finance international students, DACA students, and there is zero solution for either of those populations today in the US and Canada.
They also realise they desperately need these students. The untold secret about higher education in the US is international students really help subsidise a lot of the cost of the university. Some of them won’t be able to run without international students coming in and paying tuition. And so they need international students just as much as international students need their education.
They list us as a preferred lender on their site and make students aware that we exist. Oftentimes they’ll get a really brilliant student coming into their office in despair at the fact that they’re doing well academically, but unfortunately, they need an extra $10,000, $20,000 or $30,000 in order to graduate. And this is when really we’re at our best in order to help them quickly and in an efficient way.
The PIE: You’ve already mentioned the social impact of EMPOWER, but can you talk about the scholarships you offer?
MS: It’s very important for us to enable students of all backgrounds to study. That’s very much the mission of the company. We don’t care at the core about how much wealth mum and dad have or don’t have, what we care is about the students and their future potential.
We focus on populations that are typically left behind – women in STEM, Latin American students, students from Africa. So there are different themes for the scholarships that we offer and we hope that as we go we can offer more and more.
“It’s very important for us to enable students of all backgrounds to study”
Whether at the undergraduate level or the graduate level sometimes they have surprises about the cost of living in North America– they realise that they have an extra financial need for housing meals health insurance and so on. We are actually one of the fastest players on the market in terms of being able to approve the loan and disperse the funds and make sure that students can actually focus on their studies.
The scholarships and the upcoming deadlines are available on MPOWER’s website.