ISFC’s loans are vital because affordable private schools are seen as high risk and unattractive borrowers by regular commercial banks and lenders. This is not totally unjustified. Affordable private schools often have scant financial records, little to no credit history, undesirable collateral, customers who may not always be able to pay and often pay late, and in many regions the schools face intense competition. Such fierce competition within the affordable private school system is a welcome sight for parents and students who benefit from lower fees, better school facilities, ever more diligent teachers and more attentive administrators. Nevertheless such competition also disturbs would be financiers who see schools suffering from constantly fluctuating levels of student enrolment with occasional precipitous and destabilizing falls arising as new schools open. Under these conditions and myriad challenges, accessing credit risk is very difficult. It is likely very wise that ordinary commercial banks do not lend to affordable private schools for they would almost assuredly lose money or be forced to charge exorbitant interest rates.
ISFC however is highly specialized and highly skilled in the affordable private school segment. ISFC understands the schools, the school owners and the risks of operating in this market. As such ISFC is uniquely capable of profitably lending to affordable private schools by building reliable financial models of school income and expense, evaluating the skill level of school administrators, gauging the threat of competition, preventing fraud, collecting repayments and ensuring that loans are used for their intended socially impactful purposes.
Why Private Schools?
In India the government schools are atrocious and the teachers are a particular disgrace. Government teachers are extremely difficult to fire and very well paid, as a result the profession attracts many who are uninterested in education. Teachers regularly miss work and when they are in the classroom they rarely teach. Furthermore physical punishment is still prevalent in many government schools. In essence, the education students receive in government schools is truly abysmal.
As a result the poor have taken it upon themselves to provide a better education for their children. Educated neighbors and entrepreneurs have established affordable private schools to serve their communities. These schools generally charge fees in the range of $5-$15 per month and often offer needs based discounts to make them accessible to the vast majority of the poor. Students at affordable private schools score significantly higher on Indian standardized tests and receive their education in English, opening a tremendous number of job opportunities to graduates. In areas such as Hyderabad these schools have become so popular that over two thirds of students attend them despite the availability of free public education coupled with endemic and pervasive poverty.
There is no question that affordable private schools far outshine government schools in quality of education and in humane treatment of the students. Where they lack is in infrastructure, neighborhood teachers and entrepreneurs do not have the same kind of access to financial resources as the government to construct sturdy school buildings or purchase computers. This is why the mission of ISFC to provide affordable private schools with access to capital is so crucial. The poor deserve an alternative to the atrocious public school system. ISFC is helping to build the private sector into an affordable, robust, safe and modern alternative.
ISFC to Date
ISFC has been in operation for 4 years during which time the company has made over 900 loans to more than 650 schools. ISFC manages a portfolio of approximately $6.5 million, disbursing loans that range in size from around $7,000 to $80,000. ISFC is wholly self-sufficient and is leveraging its profits to grow into new markets across India. ISFC operates primarily in Hyderabad and Bangalore with smaller operations dispersed throughout the states of Andhra Pradesh and Karnataka. ISFC is in the process of launching a major operation in Delhi, scouting new markets in Pune and expanding the radius of operation of each office.
ISFC comes from a distinguished pedigree of impact investors. ISFC was founded with $5 million in funds from Gray Ghost Ventures, an Atlanta based micro-finance and impact investment fund with over $800 million under management. ISFC is also part owned by Caspian, a Hyderabad based investment management fund specializing in micro-finance and financial inclusion, itself with over $90 million in capital under management. ISFC raises additional capital from Indian financial institutions willing to take a risk on a young social impact business.
Vision for the Future
ISFC envisions themselves as becoming a key catalyst in the growth and development of a vibrant and competitive affordable private school system across India. This means exploding in size from supporting 650 schools to over 12,000 in the next two to five years. After four years of fostering specialized skills, refining best practices and testing growth strategies ISFC is well positioned to absorb this expanding client base. It is evident that ISFC is propitiously poised to create an impact on a grand scale.