Finance case studies:

1.Prodigy finance:

Prodigy Finance closed a $240 million fundraise in August 2018, the no-cosign, no-collateral financial
services firm was seeking new ways to expand its business. Over the past ten years, it had focused
on providing loans to international students at elite business schools who had no assets or credit
history on slightly higher rate. The company used projections of future earnings based financial
credit model on the students' schools and profiles rather than usual measures of creditworthiness,
making cross-border loans that traditional lending institutions would not consider.

By 2017, Prodigy had funded $410 million in educational loans to over 9,400 students at 104 top
universities. Borrowers hailed from 118 countries. Seventy-eight percent of them came from
emerging markets. As Prodigy predicted, the default rate had been small. Prodigy credited not only
its risk model, but also its community-building approach to servicing its loans.

As the company matured, the nature of investors funding loans through Prodigy evolved from a
purely crowdfunded model to include more institutional investors. But along with diversification,
came the risk of losing what made Prodigy special in the eyes of its stakeholders. Expansion brought
questions about the company’s identity and the company’s place as an impact investment.

Having made headway in the world of business schools, Prodigy want to dip its toes into new
student pools like engineering, law, and policy. Also, Prodigy thinking about new niche sector for
lending business. But these forays raised questions about whether Prodigy’s model would work with
students in other disciplines or countries. What should be the next area that you can suggest with
credit- risk management model to drive the growth in this diversified sector?

2.Loan Approval:
As a commercial loan officer-trainee at Farmwood National Bank, Adam’s future looked very bright.
He had recently completed a series of credit analysis exams, earning the highest score in his training
group and capturing the attention of the bank’s senior commercial loan officers. In the second phase
of his training program, Adam was promoted to a financial analyst’s position and assigned to work
for Mary Ryan, one of the bank’s most productive commercial loan officers. Like Adam, Mary had
earned the highest score on the analysis exams among her training group five years ago, and she and
Adam quickly became a team to be reckoned with inside the bank’s corporate banking division.

In the first few months of his new assignment, Adam quickly grew to admire his new boss. In most
cases, when he evaluated the creditworthiness of a new customer for Mary, she readily agreed with
his analysis and praised his attention to detail. However, one recent loan application left Adam
totally confused. Evaluating a request from Mitchell Foods, Inc., for A$5 million short-term loan to
finance inventory expansion, Adam noted that the firm was dangerously overleveraged. Mitchell
Foods represented a retail grocery chain with 35 stores located in the greater metropolitan area
served by Farmwood National, and the firm was financing its retail outlets with operating leases.
Unlike financial leases, operating leases only appear in the notes accompanying the firm’s financial
statements, and Mitchell Foods’ current balance sheet gave the appearance of far less leverage than
the firm actually carried.

Adam promptly noted this fact in a memorandum of concern that he forwarded to Mary for
inclusion in the Mitchell Foods credit file. Much to his surprise, Mary discounted the problem and
told Adam to destroy the memo. After the bank’s senior credit committee approved the Mitchell
Foods loan request, Mary defended her position by telling Adam that the issue of operating lease
leverage never surfaced during the credit committee meeting.

While pondering this problem over coffee in the employee cafeteria, Adam overheard Mary talking
excitedly among a group of young commercial lenders. It seems she had just received word that her
personal mortgage loan application at Bay Street Savings and Loan had been approved, and the
terms of this loan were most attractive. The savings and loan willingly waived its normal down
payment requirement and gave Mary 100 percent, fixed-rate financing of 25 years at 2 percent
below the going rate of interest on fixed-rate mortgage loans.

Given his recent credit analysis, Adam recalled that the president of Mitchell Foods was also
Chairman of the Board at Bay Street Savings. He began to wonder whether Mary’s actions as a
commercial loan officer had been compromised by her personal financial affairs whether he was
simply thinking too much. After all, Mary was an outstanding commercial loan officer, and she was
his mentor. What should Adam do next?

3. Micro Loans:

In 2018, Paybank (an of Jack Ma’s Alibaba company) was looking to extend its financial lending
services to rural areas in India by providing small loans to farmers. Microloans have always been
costly for financial institutions to offer to the unbanked (though important in development) but
Paybank believed that fintech innovations such as using the internet to communicate with loan
applicants and judge their credit worthiness would make the program sustainable.

What suggestion you can provide to operate micro loans lending in rural unbanked are at the
sustainable scale?

Would its big data and technical analysis provide an accurate measure of credit risk for loans to small
customers? How should Paybank leverage new fint3ech solution to make lending profitable for
longer terms?

Could you suggest new low cost credit-scoring system to reduce operating costs to make the
program sustainable?
4. ETF Product:

In 2016 Deutsche Bank (DB) brought a new product to market – an exchange traded fund (ETF)
based on the carry trade, a strategy of buying and selling currency futures.

The Deutsche Bank ETF allowed individual investors to participate in a strategy that previously had
been available only through hedge funds or direct purchase of currencies and futures.

The product was launched in September 15, 2016, under the ticker DVB. It traded initially on the
NSE.

The ETF brought several novel features to the market: it was a dynamic trading strategy packaged as
an ETF, so it was available to small investors who would not have access to trading futures and could
not invest in hedge funds. It was futures based, and – aside from commodity indices – there were
few ETFs based on futures. In addition, it provided investor diversification, since there was a low
correlation of returns of this ETF to stock and bond returns. Finally, the fund's holdings and
investment strategy were completely transparent to the market.

What was it that made this financial innovation successful? What was the main problem that this
financial instrument solves?

5. Vodafone-Idea merger
Reeling under intense competition and the changing dynamics within India’s telecom sector, Idea
Cellular Ltd. (Idea), a subsidiary of the Aditya Birla Group, and Vodafone Group Plc.’s (Vodafone)
Indian arm announced on March 21, 2017, that they had decided to merge in a US$23 billion deal.
The merger would create India’s largest telecom company by subscriber base and revenue market
share and the world’s second largest mobile telecom operator. Reportedly, the combined entity
would boast of about 400 million customers, a 35% customer market share, and a 41% revenue
market share, overtaking market leader Bharati Airtel Limited (Airtel) and posing a strong threat to
new entrant Reliance Jio (Jio). The merger was expected to be completed by 2018. Kumar Mangalam
Birla (Birla), chairman of the Aditya Birla Group, would head the merged entity. Though the merger
would create a strong player in the Indian telecom sector with an unmatched spectrum footprint,
some analysts felt that longer timelines on deal conclusion and synergies in a hyper-competitive
market as well as cultural and regulatory hurdles would pose some challenges. They wondered
whether post-merger, Vodafone and Idea would continue to remain separate brands or unite into a
single brand. Could the combined entity take on the competition and move toward its goal of
becoming the top telecom provider in India?

Discuss:

1. The important challenges in pre and post-merger integration and synergies creations.
2. Identify the issues and challenges emerging out of the merger and explore ways to
overcome these challenges.