Shiksha: the meeting point of education and lending

NBFC firm offers loans to schools and students
It was the urge to do something in the education sector that led VL Ramakrishnan and Jacob Abraham to start Shiksha Financial Services India (P) Ltd. Coming from an NBFC (non-banking finance company) background, it was but natural for their venture to be at the meeting point of education and lending. When they were figuring out what they could do, they realised that schools catering to students from the low-income segment had to borrow money from private financiers paying high interest rates.

This is the problem that Ramakrishnan and Jacob set out to solve when they founded their venture in January 2014. It took about a year for them to get an NBFC licence and the company has been in operation for two years now. Prior to starting Shiksha, Ramakrishnan, now 48, and Jacob, 40, both chartered accountants, visited schools in Coimbatore, Erode, Chennai, Puducherry, Hyderabad and Bengaluru. They found the demand huge and the business opportunity large, says Ramakrishnan, Director and Chief Executive Officer.

Says Jacob, Director and Chief Operating Officer, “when we started talking about it, we realised our strength was in lending, where we had the experience.” They launched Shiksha with an initial investment of about ₹2.5 crore.

Since most of the schools are run by trusts, explains Jacob, most of the banking system does not lend to this sector. There are 20,000-25,000 private schools in Tamil Nadu alone, all of which have created assets – land and buildings. As they expand, these schools need money to put up additional class rooms or a laboratory or some other facility. Most of them borrow from private money lenders, paying up to 24 per cent interest a year.

Shiksha, says Ramakrishnan, provides unsecured loans from ₹1-10 lakh for a three-year period. Anything above ₹10 lakh and up to ₹2.5 crore is based on collateral security. According to Jacob, the company charges an interest of 12-15 per cent a year for the unsecured loan. For the secured loan, adds Ramakrishnan, the interest rate will be a tad lower.

The parents of the children studying in the schools Shiksha lends to will be in the ₹10,000-20,000 income bracket. Shiksha is now in 15 locations – 11 in Tamil Nadu and four in Andhra Pradesh. It is looking to expand to Kerala, Karnataka and Maharashtra.

According to Ramakrishnan, they visited nearly 4,500 schools, received loan applications from about 600 and given loans to 450 schools. The number of children studying in these schools is almost two lakh, he adds.

While studying the need, they learnt from the schools that drop-outs were a major issue, mainly because the parents could not afford the fees. Thus, Shiksha started offering education loans, where for eligible students it will pay the fees directly to the schools. This product is structured in such a way that it is for 10-12 months, coinciding with the academic year and the interest rate will be around 15.5 per cent.

Looking for funds
Shiksha’s loan book is about ₹32 crore, of which the student loan will account for ₹2 crore. In December, Shiksha raised about ₹6.5 crore ($1 million) from venture capital firm Aspada Investment Company and Michael & Susan Dell Foundation. It has just raised ₹14 crore from them and looks to go in for an even bigger financing round later this financial year.

By March 2018, Shiksha, according to Ramakrishnan, is looking at a balance sheet of ₹100 crore. He believes that the proprietary product architecture and the recently introduced psychometric assessment of customers will help the company stay ahead of competition in this space.