Lending to India’s education infrastructure is an untapped opportunity

Recession-proof lending

Education is a recession proof business. Lenders to the business can play an important role in enabling capacity growth of affordable private schools. Private schools get access to affordable loans while lenders get to securely diversify their portfolio, to mutual benefit. A good chunk of private schools do not have access to bank loans for upgrading their infrastructure. Banks, by and large, extend loans only to educational institutions at the middle to higher end, and to the larger chains of successful private schools.

Despite the good opportunity, most established NBFCs would hesitate to venture into these relatively untested waters and build an education portfolio if only because they anyways have access to lending opportunities in conventional areas. It therefore requires a new breed of players, with the mindset and daring spirit of pioneers, and who are willing to consider smaller markets, and who would look at education as a viable market and prepare the way for larger players to enter later on. The two goals of the school financing NBFC should be to assist with capacity building through social infrastructure, thereby enabling students to enjoy access to quality education. Secondly, to promote financial inclusion by focusing on schools serving urban low income segments.

NBFCs like Indian School Finance Company, Varthana and Shiksha Finance are among the few specialised lending institutions in this niche market that are today transforming the quality of the affordable private schools in India by extending financial support. If more players enter this sector and make available more credit to schools, then we can even reduce school dropout rates and achieve better quality education for all.

In July 2018, Manappuram Finance Ltd, announced plans to acquire an 85 percent stake in the Hyderabad-based Indian School Finance Company (ISFC). The company is a niche player focused on lending to the education segment with loans to affordable private schools, vocational colleges, coaching centres etc. Once the acquisition is through (after due regulatory approval), Manappuram Finance would have entered yet another largely unbanked sector of the economy, to serve people who have long been ignored by mainstream financiers.

(V.P. Nandakumar is MD & CEO of Manappuram Finance Ltd.)

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