New crop of lending startups push boundaries in education-loan business

Want an education loan? Get ready for an aptitude test, and more.

Aptitude screening, evaluating education records and gauging borrowers’ income prospects are among the measures a new crop of lending startups are taking to evaluate students before offering loans. They also are not averse to playing talent scouts, even head hunters, to ensure students get a job and their repayments are ensured.

India’s education loan market is worth several billion dollars, say experts. Lending startups want to disrupt the market but also want to ensure that the loan is paid back.

“If the startups can connect the loan disbursal and repayment to jobs and the employability of students," said Srikrishna Ramamoorthy, partner at Unitus Ventures, which has invested in $2 million in Eduvanz.

Quality checks

New Delhi-based Credenc is looking for quality students trying to get into courses with high employability. To overcome the challenge of evaluating students who typically don’t have a credit background and limited financial data, the startup takes an aptitude test. It is a multiple-choice set that tests students in mathematics, logical and aptitude skills.

The test allows it to evaluate if a student is serious enough to see the course through and also gauge her employability, which in turn decides the loan amount. The average ticket size of its loans is around Rs 7 lakh.

Credenc is among a clutch of early-stage companies trying to mend the broken education loan market in the country.

India has around 800 universities, more than 39,000 colleges and almost 12,000 standalone institutions, according to the All India Survey on Higher Education of 2016, conducted by the human resource development ministry.

Since banks primarily do not cater to students joining colleges that are not among the top 500, these startups sense an opportunity there.

Burdened with non-performing assets, banks have gone slow on education loans as defaults mount. Reserve Bank of India data shows an 8.5 percent drop in education loans— from more than 24.6 lakh loans in March 2018 to 22.5 lakh in June 2019.

Unitus Ventures’ Ramamoorthy says India’s education loan market is worth around $10 billion. To get a play in this market, startups have either applied for a licence to process such loans or have tied up with large lenders, acting as marketplaces for needy students.

“The biggest problem in the education loan segment is the mismatch between potential earning of the student and the repayment amount, this is the basic reason for the large chunk of repayment failures,” said Propelld co-founder Bibhu Prasad Das.

Propelld has raised Rs 15 crore from India Quotient and Stellaris Venture Partners.

Insuring against default

To guard against default, these companies work with the students and their colleges to ensure they get placed.

“There is a gap between available jobs and talent in the market, if these startups can bridge that, it will open a huge opportunity,” said Ramamoorthy.

Eduvanz is betting on courses such as blockchain, data analysis, data mining and others which are in demand in the job market.

It evaluates borrower’s education qualifications to gauge if the student will be good at such courses. It has a loan book of Rs 100 crore with 1,500 loans for which repayment has been done. It currently claims to have a bad asset share of 0.01 percent.

Some startups are also using data science and machine learning to fund students going to lower-ranked colleges and skill training institutes.

Unlike banks, these platforms lend based on the income prospects of students. They leverage past employment data of the candidate or placement history of the college for this.

“The ideal EMI should be less than one-third of the future income possibility of the student,” said Mayank Batheja, co-founder of Credenc.

The Omidyar Network-backed startup has partnered with banks like Bank of Baroda, Axis Bank and other large NBFCs to give out loans to 1,200 students.

“We meet them once in a quarter to address their requirements, we are going for a community approach to ensure steady repayments, once they get a job they are made to feel part of a network, this has helped us,” said Batheja.

These new generation tech-enabled lenders are also evaluating colleges before partnering with them.

Credenc has developed a scorecard for institutes by analysing their tax returns, financials, placement records, promoter profiles. If an institute measures up, the startup works with it to offer credit to its students.

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