There is relatively easy access of loans to Indian students looking to study abroad, as compared to those poor people who are looking to fund their children's schooling. This is one of the reasons dropout rates in the country are still high. Two Chennai-based chartered accountants – V.L. Ramakrishnan (42) and Jacob Abraham (40) – started Shiksha Finance in order to bridge this ever-widening gap.
With a collective 40 years of experience in banking, retail lending, finance, strategy and credit, the duo set up an RBI-licensed, non-banking financial company (NFBC), on the lines of microfinance, to provide crucial financial cover to educational institutions and parents of students in Tamil Nadu. Shiksha Finance is a pioneering NBFC, in that it is offering, for the first time in India, loans to middle and lower-income families, to finance their school-going children from kindergarten to Class XII, with the objective of reducing school dropouts.
Ramakrishnan, CEO & Director of Shiksha, has had a 20-year stint in the banking, financial services and insurance (BFSI) sector, is a retail lending expert, and has held various positions at DCB Bank, GE Capital, and Chola Finance. He also co-founded Suroyday MicroFinance, a Maharashtra-based micro-finance institution which recently received a small bank licence. Jacob, Co-founder, COO & Director at Shiksha, also comes from the BFSI sector, with a robust sense of the industry through roles in finance, strategy, credit,and underwriting at Sundaram, Cholamandalam and PricewaterhouseCoopers.
Ramakrishnan or Ramki, as he is called, says,
The fee is paid directly to the school. We also offer asset creation and working capital loans to schools, education institutions and their vendors, thereby establishing good quality education infrastructure.
Explaining the core offering of Shiksha, he adds,
Lower or middle-income parents struggle, because of meagre incomes and strained cashflows, to see their children through school. At the same time, education receives highest priority in a household's expense plan. We provide such customers with the much-needed cashflows and a simple process. Our aspiration is to provide English medium, convent education for all children the best that money can buy.
Ramki elaborates on the duo's proposition of 'making money available, where it is otherwise not available.'“Our two biggest differentiators are speed and simplicity. We raise money through equity and debt, for which we pay interest. We give loans to parents and to schools, for which we receive interest. We make a profit when our income from loans given exceeds interest on debt, our operating costs and bad debts. In most cases, the interest that we charge is half of what the customer is currently paying,” he adds.
The venture's loans for schools and student education are secured through a unique social collateral, much like microfinance, by partnering with school and corporates. “Our unique business model allows us to create a win-win situation for all three concerned:the school, parents and Shiksha. The product is designed to be a perpetual revenue model, for the biggest pull factor for customer in our loan is that if their EMIs are paid on time, they are assured of a repeat loan the following year for their child’s continued education through school and college,” Ramki explains.
As for school loans, schools need better infrastructure and are required to comply with the Right To Education (RTE) Act. As they are always strained for working capital, they borrow to meet their fixed assets requirements. Traditionally, these borrowings have been mostly from private financiers. Shiksha Finance’s school loan products offer such customers lower interest rates, sometimes savings of 50 per cent in interest utgo, and easier cashflows with repayment periods like 24 to 60 months, as opposed to a private financier’s 10-month terms. Working capital loans ranging from Rs 10 lakh to Rs 1 crore are offered as collateral loans with a payback period of fourtofive years.
Since its inception, Shiksha Finance has successfully dispensed over 120 loans to students, between Rs 10, 000 and Rs 15,000, and 15 loans to government-recognised matriculation schools. It has disbursed Rs five crore in loans.
No banking or finance company, at this stage, offers loans for school student education. Bootstrapping the initial equity, the startup was also supported by investments from reputed angel investors.
Setting up this intricate structure was a challenge, explains Jacob. “While the law requires minimum capital of Rs 2 crore to get an NBFC licence, our nature of business is such that money is raw material and raising it for this venture in the early stages was posing to be a difficult proposition. We have managed to raise capital from angels to the extent of about Rs 1 crore,” he says.
But the grind has proved to be all worth it, as they hit some great milestones and are constantly rewarded with the smiles on the faces of parents. “Despite the devastating rains in Chennai in December, we did not see major delays in our EMI remittances.This speak greatly about the importance that our customers attribute to education,” Jacob adds.
The road ahead has scaling up plans aplenty, with an expansion to Karnataka on the cards in the near future.