The Indian School Finance Company makes loans to affordable private schools. Just like any financial institution that issues loans, ISFC must conduct due diligence to evaluate customer capacity and willingness to repay and then sustain itself on interest payments. If ISFC makes a mistake and lends to a school that cannot or will not repay the loan, then ISFC takes a very substantial financial hit. This loss directly reduces the amount of capital ISFC has remaining to lend to other schools. Additionally the banks ISFC relies on for debt financing lose confidence in ISFC’s portfolio and refuse to issue new loans or dramatically increase interest rates. Thus it is imperative that ISFC conduct the best and most professional credit analysis possible.
At the outset ISFC favored a more passionate approach, management would gush about the lovely schools they visited, the wonderful children and the inspiring teachers. This emotional exuberance only led to management making exceptions to credit policy in order to give loans to ineligible, but heartwarming schools. The result was clear, delinquencies and defaults skyrocketed and jeopardized the long term viability of the enterprise.
ISFC changed tack, today staff are expected to dispassionately and impartially evaluate schools. Subsequently new delinquencies have plummeted and defaults virtually eradicated. The enterprise is thriving and expanding. Despite ISFC’s social mission, jettisoning passion and empathy has been vital to its survival and fomenting stone-cold professionalism imperative to its success.