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Financial Inclusion

Saving for a brighter future

In keeping with its reputation for reinvention, the city of Medellín is a testbed for a savings scheme that could bring education to the masses.

ESCALA Educación, the company behind a new university savings scheme, aims to help thousands of Colombians from the lower and middle classes enter higher education.

Jonathan Duarte, CEO and Founder of ESCALA, was the first in his family to enter higher education. He founded ESCALA alongside two fellow students to help people like him go to university.

"Everyone in Colombia, irrespective of their level of education or their socio-economic background, understands that education is the best way to move forward in life," he says.

“But there are a lot of roadblocks because people need to look after their parents and children, so don’t have the time or money to fund higher education. We tell customers that we can help you get there. It’s possible, so let’s do it.”

13% The APR of student loans provided by ICETEX, Colombia’s government-owned student loan company

Higher education is expensive in Colombia. If you are not one of the lucky 20% of applicants accepted into a public university, private college is the only option.

Often, the only way for lower- and middle-income families to pay the fees is to take out a loan. But this comes at a hefty price. The APR of student loans provided by ICETEX, the government’s student loans arm, can be as high as 13%. At this rate, the value that needs to be repaid more than doubles over an eight-year period.

“The high APR means loan payments can be a really significant proportion – sometimes up to 40% – of your income after graduation,” explains Duarte. “Private loans are even worse.

“So many are put off applying and, of those that do start a degree, 40%-50% drop out, mainly for financial reasons. So, there is a gap in the market for solutions that provide access to education for the lower and middle classes in Colombia.”

1,100 The number of ESCALA’s current clients

ESCALA was founded in 2012 to help combat this problem. It offers employees of partner companies the ability to save to fund higher education for their children or themselves.

Once an employee opts into the scheme, ESCALA helps work out how much they should save every month. This amount is then deducted from their monthly pay packet and saved in a third-party financial institution. As an employee benefit, some companies top up these monthly savings.

When enough savings have been generated and payment is due, ESCALA pays the university fees directly.

To date, around 1,100 individuals have signed up to the scheme, around 60% of whom live in Medellín, Colombia’s second-largest city. Around 150 have already started university.

Over 80% of ESCALA’s savers do not have a university degree. “We are reaching people that realize the value of education and want to make sure their kids get the opportunities they didn’t have,” says Duarte.

ESCALA offers additional services that help future students plan for their studies. These include alerting customers to university open days and organizing scholarships.  

It also advises which courses will be most beneficial in the long term. “In Colombia, people think that becoming a lawyer or doctor is the only way to make money,” says Duarte. “But this is not true.

“For example, 30,000 more programmers are needed to meet demand from industry in Colombia. Employers are fighting for this human resource, but people don’t know this, so we pass this information on to children and their families.”

50,000 ESCALA’s targeted number of clients

ESCALA is a for-profit business. It makes money in a number of different ways. First, its financial partner, which looks after its clients’ savings, pays it a small fee for enlisting each saver. Second, it charges employers a fee for managing the benefits scheme on behalf of their employees. Third, it retains a small proportion of the discounts it negotiates with universities.

To reach profitability, it will need to enlist many more savers. Its most immediate priority is to scale to 50,000 clients in Colombia. Hitting this number will not be without challenges, however. The collapse of a number of pyramid schemes in the country has naturally made Colombians skeptical about savings institutions. Offering this scheme through employers is, therefore, the only way to make savers comfortable with the program.

Once it attains this goal, ESCALA will explore expansion into Mexico and Brazil.

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