Was the pandemic a boon for Edu-Loans in India?
The pandemic has brought online education to the limelight, so much so that it is the new normal. Every institution has started using online modes of teaching. Indian edtech start-ups are creating a niche for themselves. Companies like Byju’s and Vedantu have facilitated top-notch education in conjunction with the traditional schooling system for students in the K-12 segment at a competitive rate. Others like Unacademy have been facilitating preparations for competitive exams across different domains.
Start-ups such as Eduvanz, Leap finance, Zest Money have recently forayed into the edtech financing segment by trying to provide credit access for the purchase of online subscriptions. Leap finance finances those students who have been granted admission by American Universities. Eduvanz, a Mumbai based startup, has had an early mover advantage K-12 education loan market. “There has been a massive boom in the K-12 segment. With kids having time at home and parents worried about supplementing school education, courses like Robotics, Coding, Critical thinking have found many takers (via credit purchases),” Lizzie Chapman, co-founder, and CEO of Zest Money said in a press statement.
Gyandhan has tied up with 300+ institutes and is now expanding their portfolio to include skill building loans. Another startup named GrayQuest has disbursed loans to 7 lakh students and has partnered with 250 institutions to constitute their fees collection platform. “Today, we will be touching close to INR 40 to 50 Cr a month in disbursals. In the K-12 segment, we have signed up over 130 to 140 schools, and we have already processed $3.5 to $4 Mn worth of loans in the K-12 segment alone,” co-founder and CEO Varun Chopra, Eduvanz told Inc42.
Education lending in India can be broadly classified into 3 major categories — both public and private sector banks, NBFCs, and digital lenders.
Public sector banks lend at lower interest rates compared to private banks. Discounted interest rates are offered to students who opt for complementary services like insurance coverage. Bank of Baroda is the only bank in the public sector providing K-12 education loans with a cap of Rs. 4 lakhs. Notably, HDFC has its own subsidiary to cater specifically to education loans. All Indian banks follow IBA framed guidelines for educational lending, adapting the policy apropos their business model, however, some issues have slowed down educational lending in banks.
1. Increasing NPAs
Education loan institutions are categorized under priority sector lending in India, but due to increasing NPAs, banks shy away from capitalizing on this opportunity. According to a report by The Indian Wire, as of December 2020, the NPAs on loans to medical students stood at 6.23%, engineering at 12.13%, MBA at 7.18%, and other courses at 8.42%. The NPAs in the medical field has seen a rise as compared to FY18. Hence, private sector banks shy out from lending due to rising NPAs and, as a result, 90% of these loans are disbursed by public sector banks.
2. Less Employability
Most Indian students prefer to pursue their post-graduation from international universities. Hence, a large part of education loans in India are disbursed for graduate courses. Given the demand-supply gap, many graduates fail to find jobs commensurate to their qualifications, thereby faltering on their repayments.
In the face of the reluctance of these private players, NBFCs are taking up the mantle in this business. NBFCs are emerging as the forerunners in overseas education loans and in loans for higher studies. According to RBI statistics, In FY19, NBFCs contributed about 19% towards financing overseas education. Some of the specialized NBFCs, financing in the education space, have been growing at a healthy CAGR of 31% over the last five years.
As compared to banks, NBFCs have been able to maintain a better asset quality on account of their focus on screening students with high employability opportunities in overseas markets. According to a report by credit rating agency CARE, “NBFCs have established sources for origination which include student referrals, career counselors, coaching institutions, online marketing, direct sourcing agents (DSAs), etc. They have been able to attract customers on account of their turnaround time due to feet on street approach and provision of other support services including direct interaction for support/queries and through various tie-ups including foreign exchange arrangement, travel arrangement, etc.”
NBFCs are launching new products serving a specific niche, helping them earn a greater market share. HDFC Credila’s five-year CAGR, at the end of 2017, was over 40%. Credila’s gross NPA has remained low at 0.1%, according to Ajay Bohora, the CO-Founder & MD of HDFC Credila. In 2018, Avanse Financial Services, an associate firm of Dewan Housing Finance Corporation Limited (DHFL), closed a Rs. 1.08 billion securitizations of education loans. Notably, Avanse has been growing at a CAGR of over 200% over the last five years, with gross NPAs at 0.10%.
Apart from this, there are emerging institutions that provide financing to schools and colleges. Finwego, is one such startup that has disbursed more than 3500 institutional loans and has launched an app for connecting students and institutions. Indian School Finance Company is one of the oldest education loan NBFC in India which gives loans to schools, vocational schools and colleges, coaching centers, and individual tutors. It looks to disburse loans worth $100 million in the K-12 segment in the next two years with its network of 5000 schools.
Strategically formed partnerships in addition to convenient use of easy-to-use dashboards have made disbursal of loans faster & easier, propelling the growth of new-age startups. With Edu-fintech startups on the anvil, a paradigm shift in the segment seems to be just around the corner.
