What is the need and the gap GyanDhan is trying to fill in the industry?
In India, only 28% of the population in the 18-23 age group is enrolled in higher education. A major reason for this low percent is the unavailability of financing options. Education loans are touted as the leading source of finance for students. The rising cost of education is another factor in the mix that results in many students dropping their higher education plans. Think about this - the tuition fee for out-of-state and international students in the US has risen 165% in the last 20 years. Even on the domestic front, an MBA from ISB will set a student back by INR 40 lakhs, which would have cost them INR 26 lakhs in 2016. Students, who are eligible for the loan, go through a long and cumbersome process, often ending up with a loan product that does not meet their financial requirements.
At the same time, the education loan segment has increased NPAs - as of 31st December 2020, NPA in the education loan sector stood at 9.55%. This has made lenders highly skeptical about education loans as an asset class. Several factors are attributing to this rising NPA, one of which is the archaic method of evaluating the applicant’s profile that does not consider the future employability of the student.
Started with the aim of optimizing the education loan process for both the lenders and the applicants, GyanDhan came up with a metric, called the GyanDhan score, to judge applicant profiles on various criteria. Further, the company onboarded a mix of lenders - public banks, private banks, Non-Banking Finance Companies (NBFCs), and international lenders. This ensured that the applicants with credible profiles are given an opportunity to pursue their higher education abroad, while the lenders are assured that it won’t turn into NPA.
Ankit Mehra, the co-founder of GyanDhan, had a similar experience trying to finance his MBA in Spain back in 2013, facing challenges to secure an education loan to one of the top MBA institutes. This experience is one of the inspirations to start GyanDhan.
How much funding has been secured until now and do you plan to raise capital in the near future?
Since its inception, GyanDhan has raised approximately $2 million cumulatively. The company started with an initial investment from Indian chapters of Stanford Angels and Harvard Angels, and angel investors including Satyen Kothari and Pravin Gandhi in 2016. Last year, the company raised funds from Education Catalysts Fund, an education-based impact investment fund to kickstart its NBFC operations.
In the near future, the Company is planning to raise $5 million. The funds will be used for loan book expansion and new product launches.
How many students have you onboarded until now and how do you see the progress in the next 5 years?
More than 6 lakh students have engaged with the company to finance their education. With the company’s evaluation model, only a few percent of the applications were taken forward. As of March 2021, the company has disbursed Rs. 825 crore in education loans for abroad studies, which translates to 2700 students. The education loan process is streamlined from both perspectives - lenders and applicants, with loans being granted only after thorough evaluation.
The company has set sight to originate Rs. 600 crore study abroad loans and Rs.60 crore in the domestic loan division in 2021. In the next five years, the company aims to disburse Rs. 20,000 crore assisting nearly 1 million students in their pursuit of education.
Has the pandemic affected the growth of your business and how?
The pandemic brought the world to a standstill with severe restrictions and lockdown. Banks were working at a limited capacity which affected loan approvals. At GyanDhan, we saw a drop of close to 80% in the overall application volumes. One of our partner lenders reported only 20% disbursements in the first quarter of 2021 compared to the year-ago period. GyanDhan worked with lending partners to make necessary changes to adapt to the emerging hybrid/online model for the study abroad segment.
Meanwhile, GyanDhan also seized on the opportunity in the domestic space that was witnessing a significant spurt, most notably, in the EdTech space. It entered into new partnerships to start offering 0% EMI loans/buy-now-pay-later loans for the vocational segment.
The business has seen a resurgence post the first-quarter impact in FY21. There was a pent-up demand for education loans for abroad, which rose once the lockdown restrictions were eased. Lenders registered 3 lakh new borrowers signing up for loans from March to October 2020. It can be safely said, the pandemic slowed down our operations for a while but since then we have bounced back strongly.
Please share more details on RBI's nod for an NBFC license
Since starting operations, we have seen a 2.5 times increase in approval rates of our lenders over the years. However, for every student who secured a loan from the platform, there were 3 students with similar profiles who were left in the lurch, primarily on account of inefficiencies or procedural delays from the lending partners.
The intent and the appeal of applying for an NBFC license was to improve efficiency, offer new products, and better services. To achieve this goal, the entire end-to-end customer experience had to be managed by a single entity. We discussed with our investors the prospect of GyanDhan disbursing education loans to facilitate an improved and efficient process. After thorough deliberation, we applied for the NBFC license in April 2020 and secured the license in January 2021. The process in itself was pretty smooth.
Please elaborate on the Data Analytics that GyanDhan is using to process loans
Traditionally, banks were only approving education loans based on the property and the co-applicant. The student, who is essentially responsible for repaying the loan, was overlooked. Other lenders like NBFCs, took the ranking of the course and different academic scores of the student into consideration. But these factors do not completely account for the student's ability to repay in the future. GyanDhan went a step ahead and incorporated student’s future employability as a metric to evaluate the profile.
Two students going to the same university but different programs will not have the same employment chances. Even students in a similar setup and program will have different employability outcomes. Built over data spanning 15 years, the GyanDhan score takes into account the academic and financial history of the student, while also accounting for the prospects of the college/course the student is planning to pursue and the industry outlook. The GyanDhan score was tested on a couple of lenders’ historical data and showed robust predictive power. It was used by a leading NBFC to score all their study abroad applications. The company continues to invest disproportionately in the tech/data science team because of the belief that a current underwriting assessment will be key to unlocking opportunities for the broader set of students.
Once the student checks their loan eligibility on our platform, a credit score is assigned to them after analyzing their academic and financial data along with their future employability outcome. The team has designed more tools such as the Admit Predictor - which analyzed and shortlisted the universities according to the student profile, SOP review - a tool to get application essays reviewed, and University compare tool - which helps a student, who received multiple admits, decide on a university.
We have further developed an institute assessment framework as part of our foray into the domestic market. The intention is to replicate the student employability assessment model in the domestic space in the coming financial year.
What are the different scholarship programs that you have introduced in 2021 and how is it benefitting GyanDhan?
GyanDhan aims to equalize and make abroad higher education financing more accessible. Apart from education loans, scholarships, scholarship-loan, and grants are an affordable form of financing abroad education. Initially, we created a portal to list every relevant scholarship for various countries, courses, and programs. The next step intended was to partner with different institutes to start and administer diverse scholarship programs. The talks for the partnerships were put on hold as the pandemic hit. However, we stuck to our plan to launch the GyanDhan Scholarship. The scholarship so far has received more than 2000 applications. The intent was to create awareness regarding various platforms to finance higher education and make them available to a larger audience. It was a bonus that the number of students applying for education loans also increased.
The Gyandhan Scholarship program will continue going forward and we anticipate that in the coming years, we will be able to build credible partnerships with numerous institutions to administer more scholarships to students.