Interest Rates | project

Interest Rates:

According to the Investopedia, interest rates are “the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).” where assets can vary from something important as a car or a house, to something small as a loan. The Investopedia also explains that “when the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.” By low risk it means someone or an entity wich can be trusted to pay in time and has a good credit history; the opposite for high risk.

On the chart below we can observe the interest rate for the last five years in Colombia, noting the steady 4.50 percent since approximately mid 2014.

According to Trading Economics, “The benchmark interest rate in Colombia was last recorded at 4.50 percent. Interest Rate in Colombia averaged 8.78 percent from 1998 until 2015, reaching an all time high of 32 percent in May of 1998 and a record low of 3 percent in May of 2010. Interest Rate in Colombia is reported by the Banco de la República de Colombia.” As you can see on the chart below, in bold, it’s the interest rate, the interbank rate, wich is the interest charged on short-term loans between Banks, and the loans to private sector, wich according to trading economics “Loans To Private Sector in Colombia increased to 329800.30 COP Billion in December from 325711 COP Billion in November of 2014. Loans To Private Sector in Colombia averaged 104248.60 COP Billion from 1993 until 2014, reaching an all time high of 329800.30 COP Billion in December of 2014 and a record low of 10195.40 COP Billion in January of 1993. Loans to Private Sector in Colombia is reported by the Banco de la Republica, Colombia.”

Critical Analysis:

In the education industry, and having in mind what Rodriguez, who is cited by the World Bank (2014), said “educational credit serves as an efficient mechanism to expand higher education coverage, strengthen the quality and relevance of academic programs, and help reduce dropout rates” wich is clearly beneficial for the industry because it improves odds of people studying, therefore getting a better job and increasing the chance of being able to pay for their children education.

Likewise, the World Bank expresses that “ACCES loans are designed to address the needs of low income students by:

Offering zero real interest rates to students from strata 1, 2 and 3;
Offering an allowance for the duration of studies to students from disadvantaged backgrounds;
Offering a debt cancellation rate of 25 to 50 percent to students from disadvantaged backgrounds;
Establishing a long (and flexible) maturity period equal to two times the duration of studies plus a one-year grace period;
Allowing repayment in advance without penalties;
Incorporating flexibility features that can be applied in case of temporary unemployment. These include: the option to delay any payment by one semester, with the possibility of extending it by up to one year.”

Wich show again the possibility of more low income people to have a proper education and a better future. Finally, according to the Icetex, “the credit impact on country education:

Education credit offered by the ICETEX is the only financing system for Colombian students; this credit finances enrollment costs and/or support of those who so require for entering or continuing with higher or university education.
Long-term credit ACCES is an effective mechanism for raising the number of students entering higher education, whilst preventing abandonment due to lack of economic resources. This credit line has had an important impact in terms of access and efficiency regarding the Colombian higher education system.
96% of the credits have been granted to the poorest people of the country.
Most vulnerable students are given a subsidy of 25% of the university program enrollment cost. On the other hand, the enrollment cost for students taking professional technical and technological courses is fully paid, while being granted a subsidy of 1.15 monthly minimum salaries (U$S288).
Today, 23% of Colombian higher education students have access to education credit, threefold than in 2002 when merely 6% accessed.
In some cases, students may benefit from additional financing under scholarship or credit schemes provided by the entities with which the ICETEX has entered into strategic agreements.
Special and medium-term credit lines complement ACCES line; and they are intended for any student who needs to finance his/her higher education, provided that the student shows good academic performance. These lines finance undergraduate studies in Colombia.”

This is proof that loans in the industry of education are worth it, because it has the biggest social return, you get better students, better workers, better industry, better quality of life.

Icetex. Programs in Colombia. Retrieved August 25, 2015, from http://www.icetex.gov.co/dnnpro5/es-co/archivopaginas/inenglish/programsincolombia.aspx

Investopedia. Definition of Interest Rate. Retrieved August 24, 2015, from http://www.investopedia.com/terms/i/interestrate.asp

The World Bank. (2014) WB/Colombia: Increased Access to Higher Education for More than 200,000 Low Income Students. Retrieved August 25, 2015, from http://www.worldbank.org/en/news/press-release/2014/04/02/wbcolombia-increased-access-to-higher-education-for-more-than-200000-low-income-students

Trading Economics. Colombia Interest rate. Retrieved August 24, 2015, from http://www.tradingeconomics.com/colombia/interest-rate

Trading Economics. Colombia Loans To Private Sector. Retrieved August 25, 2015, from http://www.tradingeconomics.com/colombia/loans-to-private-sector

On the chart below we can observe the interest rate for the last five years in Colombia, noting the steady 4.50 percent since approximately mid 2014.

Offering zero real interest rates to students from strata 1, 2 and 3;

Offering an allowance for the duration of studies to students from disadvantaged backgrounds;

Offering a debt cancellation rate of 25 to 50 percent to students from disadvantaged backgrounds;

Establishing a long (and flexible) maturity period equal to two times the duration of studies plus a one-year grace period;

Allowing repayment in advance without penalties;

Education credit offered by the ICETEX is the only financing system for Colombian students; this credit finances enrollment costs and/or support of those who so require for entering or continuing with higher or university education.

96% of the credits have been granted to the poorest people of the country.

Most vulnerable students are given a subsidy of 25% of the university program enrollment cost. On the other hand, the enrollment cost for students taking professional technical and technological courses is fully paid, while being granted a subsidy of 1.15 monthly minimum salaries (U$S288).

Today, 23% of Colombian higher education students have access to education credit, threefold than in 2002 when merely 6% accessed.

In some cases, students may benefit from additional financing under scholarship or credit schemes provided by the entities with which the ICETEX has entered into strategic agreements.

Special and medium-term credit lines complement ACCES line; and they are intended for any student who needs to finance his/her higher education, provided that the student shows good academic performance. These lines finance undergraduate studies in Colombia.”