NEWS

• Shiksha will use the funding to expand its presence in Tamil Nadu, Andhra Pradesh, Telangana and Karnataka and enter Maharashtra
• Shiksha provides student loans to parents of school-going children, and school loans to educational institutions

Topics Shiksha Finance |Zephyr Peacock

Mumbai: Private equity fund Zephyr Peacock India Growth Fund has led a ₹55 crore funding round in Shiksha Finance, a Chennai-based education finance company, said a senior executive.

The round also saw participation from existing investors of the company. Shiksha finances students in classes I-X and also provides financing for working capital and capital expenditure to schools that run classes from nursery/kindergarten to Class 12.

“ ₹55 crore of growth capital has been raised from new investor Zephyr Peacock India Growth Fund and existing investors Aspada Investment Company and Michael and Susan Dell Foundation,” said Shiksha chief executive officer and director V.L. Ramakrishnan. Shiksha will use the funds to expand its presence in existing locations and foray into new locations such as Maharashtra. It is currently present in Tamil Nadu, Andhra Pradesh, Telangana and Karnataka.

Prior to the current round, Shiksha raised a ₹21 crore Series A round from Aspada and the Michael and Susan Dell Foundation in 2017. It has also raised an additional ₹115 crore of debt so far. “Shiksha is uniquely placed in the education financing ecosystem as a lender to both schools and students. Its product offerings help improve the quality of affordable private schools and help children from low-income backgrounds access quality education,” said Pankaj Raina, managing director, Zephyr Peacock India.

Access to quality education is an aspiration for most lower and lower middle income households in India and Zephyr Peacock India believes this is a multibillion dollar market, he said. “Zephyr Peacock has been closely tracking the education finance space. Our investment in Shiksha fits well with Zephyr’s investment thesis in the education financing sector,” Raina said.

Shiksha provides student loans to parents of school-going children, and school loans to educational institutions. The average student loan is for ₹25,000 for 12 months, while the average school loan is of ₹7 lakh for a tenure of four years, said Ramakrishnan. It has a loan book of ₹102 crore, which it aims to double over the next 5-6 quarters.

For many of our customers, it is their first time borrowing from a formal financier. They usually approach private money lenders, said Ramakrishnan.

“In many cases, the interest that the customer pays for our loan is less than half of the interest paid to a private financier. In that way, Shiksha’s loan helps our customers reduce their interest burden and enhance financial inclusion in India. What is unique about our model is that credit delivery happens at the customer’s doorstep,” he added.

The Michael and Susan Dell Foundation has announced its investment of Rs. 6.7 crore along with Aspada Investment Company in Chennai-based school financing company Shiksha Financial Services India Private Limited.

A pioneering non-banking financial company (NBFC), Shiksha Finance, provides loans in the range of Rs. 0.5 to 10 million to affordable private schools. These loans are used by the schools for education infrastructure development.

Apart from loans to schools, Shiksha Finance also provides loans to middle and lower-income families to finance school fees of their children. The loans, secured through unique social collateral, can be paid back through a manageable repayment schedule.

This investment reiterates the Michael and Susan Dell Foundation’s commitment to increasing access to quality education for the poor. While the foundation has invested in market-based solutions to increase the supply of high-quality service providers for the affordable private schools, the schools still struggle with the availability of finance to invest in the improvement of infrastructure and quality.

Shiksha is a compelling solution to improve education quality in the sector and become a full-service solution for the schools and parents of the children studying in these schools.

Shiksha will use this round of funding to further strengthen its technology backbone, launch more innovative products and expand into newer markets.

This investment will enable the organization to provide loans to 2,300 schools over the next three years.

“We are glad to have Aspada and the Michael and Susan Dell Foundation invest in Shiksha. While education loans for higher education is quite common in India, Shiksha is addressing the vacuum in school financing through an innovative Go-To-Market solution. Enhancing Financial Inclusion in the education sector will eventually lead to more inclusive growth. We believe that improved education infrastructure at our schools will eventually translate into enhanced learning outcomes for our children,” said Director and Chief Executive Officer Shiksha Finance, V L Ramakrishnan.

“The recent investment in Shiksha supports the Michael and Susan Dell Foundation’s belief that a market-based, scalable financing sector can contribute to improving access to high-quality education for students who are at the bottom of the pyramid. We hope that Shiksha’s offering will develop into a platform through which schools are able to access quality linked education products and services, and get financially rewarded for improving quality,” said Education Director India Michael and Susan Dell Foundation, Prachi Windlass.

“Access to essential services is a key investment theme for Aspada, and we view education as a particular area of interest because of its unparalleled ability to unlock opportunities for lower income segments. Operating in a sector which has insufficient formal financing available, Shiksha has a tremendous opportunity to catalyze infrastructure up-gradation and capacity increase necessary for schools to meet the demand for a good quality, yet affordable, private education in India,” said Co-founder and Partner Aspada, Tom Hyland.

Shiksha Finance, a Chennai – based school financing startup. It plans to open more branches in nearby towns and villages, to further reduce school dropout rates! “During 2015-16, we provided education loans to 600 students and financed 240 educational institutions for asset and infrastructure creation. This year, we have set aside Rs.3.5 crore for this activity against Rs.1 crore provided last year. Besides, we are strengthening our technology backbone to scale up student education loan model”, said V.L. Ramakrishnan, Director and CEO of Shiksha Finance. “Over the next few months, we have plans to cover entire Tamil Nadu by opening five more branches. Soon, we will be entering Karnataka and opening more branches in Andhra Pradesh. For the next 12-14 months, we will be focused on providing education loans to students and later expand it to other areas. Currently, we have 30 staffers and this will be doubled. We will be achieving break even by February 2017”, V.L. Ramakrishnan added. Read more on Education

Jacob Abraham, COO at Shiksha Finance said that they were building a new psychometric – based business model to assess the financial status of their no-income customers as they cannot furnish bank statements or Cibil score to avail loans. “Through the new method, we can easily find out, whether one has the ability or intent to pay back the education loan. Besides, the loans approval time will be cut from 24 hours to two hours”, Jacob Abraham said. Shiksha Finance was started in June, 2015 by V.L. Ramakrishnan and Jacob Abraham. Shiksha Finance provides educational loans, at low rate of interests (5%), to middle and lower – middle class families, who find it very difficult to fund their children’s education right from kindergarten to class 12. The educational loans are provided through unique social collateral that can be paid back through a manageable repayment schedule. The average ticket size of education loan was about Rs.15, 000 while loans to educational institutions ranged between Rs.10 lakh to Rs.1.5 crores. “After the infrastructure expansion, the student enrolments in these institutions have increased and drop-outs have also reduced”, Jacob Abraham said.

The services provided by the education – funding startup, Shiksha Finance are very noble indeed. Ever since Independence, Indian schools have been struggling with the issue of school dropouts. The people in towns and villages of India do not have enough money to fund their children’s education. Some people send their children to school upto class 10 and then make them go to work because they are unable to fund their children’s education thereafter. Some villagers and town folks do not send their child to school at all because they are so poor and cannot afford to educate their child! It is heartening to see an Indian startup solve this problem. It is doing what the Government of India did not do for seventy years after Independence! The Government of India should learn from this startup and atleast fund useful startups like these if it does not want to do the task itself. Hats off to V.L. Ramakrishnan and Jacob Abraham for their noble initiative. Read more on Startup News

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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.

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.