Social Enterprise: Lumni
Social Entrepreneur(s): Felipe Vergara
Sector(s): Education, Youth, Financial Inclusion
Location(s): Peru, Colombia, Mexico, Chile, US
Allow low-income students to invest in their college education using the value of their future income.
The Innovation Explained
Lumni is pioneering a novel financing instrument for low-income students called “human capital contracts” that both reduces risk for the student and offers the promise of expansive access because no collateral or co-signer is required. “Rather than committing students to paying a fixed amount of money every month regardless of how much they earn,” explained Felipe Vergara, “we finance their education and ask them to pay back a fixed fraction of their income for a fixed number of months when they have a job.”
To reduce the potential for attrition – up to 70% of low-income students drop out of university – Lumni researches students’ academic track records and requires them to submit applications. For those with demonstrated ability who are accepted, Lumni provides them not only financing but also orientation and coaching as well as assistance with their job search upon graduation.
“Students have the freedom to choose whatever job they want,” said Vergara. “If, for instance, a student financed by Lumni committed to pay back 10% of her income during 50 months, and ends making US$ 3,000 a month, she will pay the fund US$ 300. And if she then decides to work for a non-profit and make US$ 1,000 a month, she will pay the fund US$ 100 until her number of months is up and her obligation ends. We are a partner for your success, and you pay back proportionally to how well you have succeeded.”
To date, Lumni has raised and obtained fund commitments for more than US$ 50 million from over 150 investors, serving 3,500 students whose projected annual incomes have increased between 50% and 300%.
Why This Matters
A good education is widely accepted to provide a high return on investment – both in higher lifetime earnings for the individual and in greater economic productivity for society. But in developing economies in particular, most high potential students from low-income backgrounds are literally priced out of a university education. Even among those who do attend university, the dropout rate among the poor is very high, with a majority of dropouts citing inability to continue paying as their primary reason.
While student loans are the conventional form of student financing today, they are generally short term, accessible only to fraction of the student population and typically come with collateral and repayment requirements that put them out of reach for most. “Banks don’t give student loans based on the talent of the student,” said Vergara. “They provide money based on the guarantee collateral provided by the parents. What we are providing is a long-term capital investment based on the potential of an individual.”
Keep inspiration alive. “A lot of people think you can build an organization in two or three years,” said Vergara. “I’ve been here for 10 years and I’m at 1% of where I want to be. You have to be persistent not to give up, find a way to inspire others and keep the inspiration alive and learn as the world evolves. Twenty or 30 years down the road, I believe there will no longer be a social enterprise or a traditional enterprise – we are all going to be accountable for creating social, environmental and economic value.”
Build a strong team and a strong board. “It’s very hard to become a world-class organization if you do not develop a world-class team,” said Vergara. “Often, the main threat to a social enterprise is the founder himself. So it’s very important to have self-awareness, know your weaknesses and import structures from dynamic start-ups but also from the traditional corporate sector, like robust governance mechanisms.”