International Finance Corporation (IFC) will invest $30 million in Indian School Finance Company (ISFC), a non-banking financial company (NBFC) that provides loans to educational institutions. The investment will be by way of equity as well as debt. The investment involves pumping in up to $15 million equity and the same amount in debt.
ISFC provides retail loans to affordable private schools, colleges, coaching centres, educational small and medium enterprises (SMEs) and teachers. The project supports the growth of India’s affordable private schools which are critical to providing quality education, especially for low-income families. Manappuram Finance last year agreed to acquire an 85.39 per cent stake in ISFC for Rs 212.20 crore (around $31 million).
However, the Reserve Bank of India had subsequently raised concerns with regard to the shareholding pattern and management changes that would take place as a result of the proposed transaction.
The current shareholding of ISFC stands at: Gray Matters Capital & affiliates (81.9 per cent), Caspian Advisors (3.5 per cent), key management and employees (14.6 per cent).
The current funding will enable ISFC to help schools expand their existing facilities and improve their current infrastructure.
The education finance sector is nascent with only three education infrastructure-focused NBFCs in the country. The affordable private schools are severely underfunded and IFC’s investment will demonstrate the sustainability of this business model and be an intervention in a space where most mainstream financiers are reluctant to lend, said the World Bank’s investment arm. IFC entering as a long-term investor will fit the company’s funding requirements as it is foraying into newer products.
Patient capital (where the investor has to be patient) is crucial to the success of this new business model, said IFC. IFC’s loan will be the first five-year lending to the company. Thus, as the company gathers momentum, IFC is uniquely placed to fulfil its needs for long-term funding along with the proposed equity infusion. This is particularly relevant now, where after liquidity shortage in the sector, smaller NBFCs like ISFC are finding it difficult to raise long-term funding at reasonable rates.
IFC is likely to provide regional and global lessons in the education financing sector which can help the company scale up rapidly. It is looking to help the firm in areas of risk management as well.