According to a recent census by UNESCO, there are as many as 124 million children and adolescents worldwide out of school, 17.7 million – or 14 per cent – of whom are Indian. Without education, this underprivileged and neglected section heads down a path that leads to lower-paying jobs, poorer health and the possible continuation of a cycle of poverty that creates immense challenges for families and communities.
While there are a number of reasons, low finance is no doubt the biggest part of the story behind the increasing number of out-of-school children in the country. A land of paradoxes, on one hand, there is the urban elite that has easy access to loans to study abroad, and on the other, the poor who hardly manage to fund their children’s schooling. It is this ever-widening gap that chartered accountants – VL Ramakrishnan (42) and Jacob Abraham (40) – wanted to bridge through Shiksha Finance.
This was an RBI-licensed, non-banking financial company (NFBC) that they set up in April 2014 to reduce school dropouts by providing financial assistance to educational institutions and parents of economically backward students in Tamil Nadu. They were bringing to their mission a collective 40 years of experience in banking, retail lending and finance. Apparently the first NBFC for schools in the country, the startup offers micro-finance to middle and lower-income families to support their children from kindergarten to Class 12. Ramakrishnan explains, “Apart from dropouts, it is not uncommon for schools in some neighbourhoods to face a lack of funds to expand their classrooms and physical infrastructure, besides having inadequate access to academic and extracurricular tools for their students. This lack of capital is what Shiksha Finance aims to address, by providing finance and loans.”
Shiksha offers two types of loans: student loans that can be availed of by parents to finance tuition fees, books, uniform, shoes, bag etc, and asset finance loans to schools for creation of infrastructure and assets. While institutions may approach Ramakrishnan and Abraham directly for loans, the onus is on the school to identify parents deserving of a loan to support individual students.
Explaining how the funds are organised, Ramakrishnan says, “We have a few angel investors who are really committed towards creating a better education system. We raise money through equity and debt, for which we pay interest. We receive interest from the loans we offer to parents and schools. In most cases, the interest that we charge is half of what the customer is currently paying. Also, if the customers’ EMIs are paid on time, they are assured of a repeat loan the following year for their child’s continued education through school. So it’s a perpetual revenue model.”
Shiksha Finance has successfully dispensed loans that amount to Rs 10 crore to over 85 government-recognised schools and over 100 individual students in eight other schools. For the nonce though, he says, “Our ultimate aim is to create an ecosystem in which every child is ensured its fundamental right to quality English medium education, irrespective of where he or she comes from.”