Education Finance Market Knowledge

for Annapurna Finance Pvt Ltd

16 December 2020
Background
• Started in January 2017
• Worked with
• South India - ESAF, Shiksha, Indel money
• North India – ISFC
• Central – Pahal
• Eastern - Adhikar, Mahashakti, Sarala, Janakalyan
• Recently talked to 2k clients to understand impact of covid-19
1. Understanding the demand
side
Understanding the demand side
Incidence of the private education

Nearly 50% of all students in India are enrolled today in the 4.5 lakhs privately managed schools across the country.
In our studies we have observed confirming trends among microfinance clients.
Use of existing loan for education

40% clients shared that they used part of loan for

education
- 40% used loan to pay annual fees
- 24% used loan for books and dress
- 20% used loan for monthly/term fees
- 10% used loan for coaching / tuition
Demand of the education loan

• States • Bihar • MP • Odisha

01 02 03 04

◼ Around 69% of the HH ◼ 60% of the HH need an ◼ 50% of the HH need a loan ◼ 80% of the HH need an
would need Edu-finance, if EF for their education for their education Edu-finance service
provided
◼ An average loan amount ◼ That creates an average ◼ Average amount of INR ◼ Amount of INR 34k
of INR 30 thousand is loan demand of around 22k required for loan approximately is required
required for education
purposes INR 30k in Bihar cohort for education loan
Income range and edufinance requirement
70%
63%
60%

Income range in '000

50%

40%

30%

20% 17%
16%

10%
4%

0%
Upto 10K 10-20k 20-30k Above 30k
Evident need
 Open Floor for Discussion:
Understanding the demand side
 69.6% demand 34.4% demand
comes from comes from
students going students at
to private Government
schools schools
67.4% students enrolled are
ready to avail Education loan
69% 2.72% 9.74%
households Drop-outs in Drop-outs in
need elementary secondary
Edu-finance schools schools

79% education “An investment in education always pays the highest returns”
loan demand is
from household - Benjamin Franklin
having income
3975 $Million <20000
Estimated projected loan demand
in 2021 42.9% of the Avg ticket size
sample took of 29000
group loans for borrowed from
education from MFI for
MFIs Education
2. Alignment with supply side
Alignment with supply side
Macro – Micro – Nano financing
Need – business fit
Strategic Recommendations

Safety Net Walk the path Quantum Jump

Cashflow smoothenin Sustained investment Leap of faith
• Speed • Impact commitment • Value-chain partnership
• Ease of transaction • Long and deep game • Micro-market
• Assurance • Blended finance • Asset liability management
Need and enablers

Safety Net Walk the path Quantum Jump

Urgent need felt by billions – Recurring regular need of billions

Felt need of this model of delivery
waiting to exploited by commercial to be served by routine banking
among philanthropic sector
capital channel

Emotional investment results into Realistic assessment of potential

Big data, AI and ML provide critical
reciprocal relationships opportunity
evolving correlation models
Interplay - Ability - willingness to High importance to willingness
High importance to ability to repay
repay and future projections to repay

Economy of scale Perseverance Economy of scope

OI Edufinance Compass
SWOT analysis of edufinance products

Strength: Aligned with client’s deepest

Weakness : Delayed feedback loop
emotions and bolstered by social factors

Edufinance

Opportunity: Expanding social base and Threat : Utility of the education vis-à-vis
interconnectedness of client's life. economic scenario
3. Next Steps
Next Steps
Micro research (qualitative) in 3-4 pilot branch locations with the
following aim:
• Design loan product
• Delivery model – directly to parents or through schools
• Loan underwriting
• Prepare loan management processes
• Pilot test planning
• Staff Training
• Risk Management
Workplan
Tasks / Experts' Distribution of Workdays January February March April May
w w w w w w w w w w w w w w w w w w w w
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 13 14 15 16
1. Market Research
Desk/secondary research (schools, regulation,
competition/existing f inancial service providers)-overall and
select states under research
Qualitaitve survey (FGD/IDI)telephonic interview w ith 100
clients around the pilot branches
Data analysis and report w riting
Finalise report (af ter incorporating f eedback)
Presentation to ETAF team and partner
2. Financial Product and Process Developm ent
Review of existing processes of group loan and other
documents
Prepration of f inancial product and process development
report w ith inputs f rom the MFI and ETAF team
3. Pilot Test Planning
Preparation of pilot test plan w ith inputs f rom MFI's product
& ETAF team
Orientation of pilot test team (HO level) on the f inalised pilot
test plan
4. Staff Training
Preparation of staf f training module based on inputs f rom
MFI's product and training team as w ell as ETAF team
TOT or pilot branch staf f training
Training f eedback report (w ith training photos)
5. Risk Assessm ent
Preparation of credit and risk assessment report based on
inputs f rom MFI's risk and ETAF team
Orientation of risk management and product team on report
f indings
Total [ALL PHASES]
Stages of Loan Product Development
4. Delivery Models
(to be explored and validated during the micro/qualitative research around the pilot branches)
1 Disbursing to Parents only
Sourcing, Underwriting, Disbursement
Lender Parents
Repayment

2 Disbursing to School only

Sourcing Underwriting, Disbursement

School Lender Parents
Underwriting, Disbursement Repayment

3 Disbursing to School & Parents

Sourcing Underwriting, Disbursement (Extra-expenses)

School Lender ParentsRe
Underwriting, Disbursement(fee amount) Repayment