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Changing funding pattern in non-aided education Industry

Wednesday, June 21, 2017

For development of any country, providing high quality education is the basic need and according to a report by the rating agency CARE Ltd, the market size of the Indian education industry was pegged around INR 3.83 trillion (USD 62.34 billion) in the financial year 2014-15. Education industry is thus attracting sizable investment, most notably in the primary, secondary and higher education. Further, the education sector has attracted foreign direct investments (FDI) worth USD 964 million during April 2000 to September 2014, according to the data released by the Department of Industrial Policy and Promotion (DIPP).

To couple up the problem, the gestation period for an educational institute ranges from 2 years to 8 years to break even, depending upon the type of the courses, Industry preferences and the overall demand and supply matrix.

New ways that are catching trends are as follows:
Private Equity Investment

Quite a few private equity players are active in the education sector and specifically looking for companies who are into the non- regulated space and there is no or minimum Government intervention. During the past one year, about 12- 15 deals have been closed.

Sale and lease back
There are quite a few structure deals that are happening on the basis of Sale and lease back. Sometimes the underline value of the assets is quite high and it makes sense to structure a transaction to explore the real value of the asset and plough back the same in business to reduce the debt or use it for expansion. Some of the advantages of Sale and lease back as mentioned below:

  •     Unlock the real value of assets.
     
  •     Utilize the same for reduction in debt or expansion of business or improves working capital.
     
  •     Structure deal can be worked out to buy back the property at the end of the lease period with pre- defined or at market value or at the negotiated price.
     
  •     Different variants of lease could be Finance lease and Operating lease.

Education loan based on course duration
There are few NBFC’s offering educational loans which are linked to the tenure of the course. With the education cost rising, many parents and professionals are now opting for such schemes as this reduces the pain of paying lump- sum amount for the fees at one go. Some companies also offer corporate guarantee to cover for bad debts and get interest benefit for the students.

Crowd- Funding
Crowd- Funding is the practice of funding a project or venture by raising monetary contributions from a large number of people. Crowd- Funding is a form of crowd sourcing and of alternative finance. With the ever increasing education fees, meritorious and desirable students can now opt for Crowd–Funding, which is digital, transparent and students are now opting for Crowd- Funding to pay tuition fees and this trend may catch up in times ahead.

(This article is written by Sachin Karnik, Finance Controller, ITM Group of Institutions)

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