Varthana Expands Education Lending With Rs 1,700 Cr Portfolio, Covering 16 States, 41 Branches Across India

Education loan is a growing space in Indian financial sector. However, there are very specialised players, which are focussed on providing loan facilities to schools. Varthana is one such NBFC, which is focussed on giving loans to schools. It also provides student loans to individuals pursuing technology, programming, and vocational education.

In an interview with the Bizz Buzz, Steve Hardgrave, Co-founder & CEO of Varthana said that the company manages around Rs 1,700 crore of loan portfolio. It has presence in more than 16 states as of now. Apart from funding, the NBFC also provides support through its panel of education experts for improving the quality of education of schools. The financial institution provides loans not only to larger schools, but also to smaller schools outside the urban region

Can you provide brief overview about the journey of Varthana? Is the scope for education-focussed NBFCs growing in India?

Varthana was started in 2015. Brajesh Mishra and myself (Steve Hardgrave) founded this company. We had previously worked together to start Indian School Finance Company (ISFC), which was a Hyderabad-based company, which was doing very similar activity (to Varthana). This was perhaps the first company, which was focussed on leading to the private schools in particular. Especially, affordable private schools were the focus. That company was founded in 2009 and as we grew, we needed more capital. The capital structure of that company (ISFC) didn’t allow for diversified shareholding structure. That’s when we left that company and worked on raising funds for Varthana. We started Varthana in Bengaluru and spread our operations to different states. We now operate in 16 states and have 41 branches across India.

Are you an American citizen?

Yes, I was born and grew up in the US. I was in Mexico, where I founded a microfinance company. I am settled in India since 2012.

What is the operating model of Varthana? Can you provide some perspective on this matter?

Principally, we try to identify different schools at different price points in all the communities. We focus on better quality schools even if the fee is Rs 500 per month or so. We want to help those schools improve and expand their operations. One major difference (from other lenders) is that we also provide support to help that school improve its quality. We have a team of education specialists, who are tied up with different schools. These specialists help the schools way beyond the finance. If the school management is interested, we provide that kind of support. The basic model (of our operations) is focussed on K12 education space. We also have colleges in our portfolio, which are into nursing and other segments. For last couple of years, we are also providing student finance under which education loans are disbursed to students pursuing post-secondary and vocational education.

Can you provide some numbers with regard to the total portfolio of loans managed by Varthana? How is the portfolio performing?

We have a portfolio of loans amounting to around Rs 1,700 crore. Our loan portfolio is performing well. Most of the time, this portfolio does well as schools are pretty stable businesses. A lot of sectors go up or down with the economy but parents keep their children at school, no matter what stress they come under. So, it’s a pretty stable business. The major stress came to school during the Covid as the government shut down schools as precaution. As schools were closed for around two years, schools had come under stress. In higher education segment, educational institutions were able to shift to digital education. However, those schools which didn’t have the necessary tools, were not able to hold classes. So, that was the time when we saw some increase in the stress of our portfolio. That mostly got cleaned up now. We still have some schools, which have taken some time to recover (from those stresses) because for two years, they were dead in the waters. There is no NPA (non-performing assets) in our portfolio for the loans disbursed in the post Covid period.

What is the amount of loan disbursed to schools and how much has been disbursed as education loans out of the total Rs 1,700 crore portfolio? Can you give us a perspective?

Out of the total loan book, school loan is around Rs 1,400 crore and the rest Rs 300 crore is the student loan. These student loans are disbursed to those students, who are pursuing post secondary education. We don’t provide any kind of loans in the K12 category. Different technology careers, and programming are very popular segment in our student loan portfolio. Then, hospitality and aviation training are other areas to which we lend. Financial services training is the other area to which we lend to students. So, our loan portfolio is diversified across many different segments.

How is lending to schools evolving in India? Is it a growing space? How do you view the competitors?

When we started the business, there was almost no competition. It was white space for us. Now after years of our operations, industry is able to see our performance. So, many have entered into this space. We believe that this is a good space. Many lenders including NBFCs are lending to educational institutions. However, they are lending to much larger schools. So, there is much competition for larger schools but for smaller schools, which is outside the city, there is not much competition. Though some other financial institutions can offer lower interest rate, but we are specialised player in this field. We have a much better understanding of the sector and we tend to provide better service.

Can you throw some light on the aspect of fund raising done by the company? What is your banking relationship with partners as a NBFC?

We have a healthy relationship with banking partners. We raise funds from small finance banks, larger financial institutions. We also raise funds through NCDs (non-convertible debentures) and we have some listed NCDs. We are also financed by some international funds and development finance organisations.