In a joint conversation with Prashant Bhonsle, Founder, and CEO, Kuhoo Fintech & Brajesh Mishra, COO, Co-Founder, Varthana shares the details about the education loan scenario in India:
Ravi: What changes in education preferences have you seen in recent times? How has covid-19 impacted the demand for new educational loans?
Prashant Bhonsle: The student loan sector has been left relatively unscathed by the pandemic. Covid-19 has had the opposite effect on the segment. With the layoffs that characterize every industry, students became more concerned with upskilling opportunities and getting a comprehensive education. Many have to rely on student loans to finance this ambition. Therefore, there has been an accretive demand for student loans despite the pandemic.
Brajesh Mishra: Offline education had come to a virtual standstill during covid and there was a full diversion of all courses to online courses. However, post the lockdown being lifted, courses that are effective only in the physical environment have staged a dramatic comeback. If we look at India’s demographics and SEC profiles, the bulk of the population is in the lower and lower-middle-income segments. Most of the students from such families are pursuing courses that can provide jobs immediately. Accordingly, we are seeing an increase in demand for such courses.
Demand for loans during the lockdown had come to a virtual standstill. We are now seeing a rapid increase in demand from across the country for all kinds of loans – online courses focused mainly on IT as well as courses that require physical classroom training like hospitality, aviation, health-related courses, etc. In the lower-income segments, job-linked courses continue to be the most preferred courses.
Which segments of the student loan business are most impacted?
Prashant: Over the years, the student loan business has witnessed the increased acceptance of student loans in middle-income Indian households. The aspiration to achieve professional goals coupled with limited financial resources and the standardization and regulation of the lending sector in India has propelled this segment towards student loans. A recent report indicated that 57% of the Indian middle class is likely to spend on overseas education, and a significant part of this percentage must rely on education loans to fulfil their aspirations.
Brajesh: We saw the highest level of adverse impact in the lower-income segments. There were job losses and covid-related deaths which had a drastic impact on our borrowers. Most of such loans were towards job-oriented courses; once the economy opened and jobs came back, we saw gradual improvement in the repayment and also a gradual uptick in the disbursements.
Which segments of the student loan business are least impacted?
Prashant: Last few years have seen a big digital transformation and adoption of new-age technologies by the education industry. Virtual/ certifications and hybrid education models have evolved to make the ecosystem all-encompassing and approachable for students hailing from all walks of life. The Indian EdTech industry has successfully created value by helping students receive relevant and essential education critical for their career growth. In the bargain, they have attracted strong investment backing as well as new-age lenders equipped to support the financial needs of the students. There is a significant growth in the demand and supply of student loans for remote and virtual education forums.
Brajesh Mishra: Most of the courses that are able to move online were impacted the least. This includes all kinds of courses about the IT sector, management courses, courses in humanities, etc. Whether these were courses as part of a graduate degree program or short-term professional courses, we saw that the impact was the least.
Briefly describe the digital transformation of education loan origination and management system.
Prashant Bhonsle: The student loan sector is one of those segments with subjectivity in underwriting procedures and decision-making. The traditional lending systems treated these loans as personal loans and did the risk profiling based on the financial condition and earning capacity of the parent. This approach was inherently flawed and exclusionary.
However, technology integration to standardize the segment has helped overcome these shortcomings. Advanced data analytics and machine learning are now being applied to large volumes of pertinent data to draw veritable inferences related to the earning potential of various courses and the spending habits of applicants. This helps generate intelligent insights and determine the creditworthiness of students. Moreover, these technological advancements are transforming the LOS and LMS to give a superior customer experience.
Brajesh: At Varthana, we aspire to be the most preferred lender for our student customers. It was essential to have a paperless almost instant approval process which at the same time also took care of all the risk-related parameters. We have successfully implemented a fully automated digital loan origination system that allows us to disburse the loan on the same day. This has resulted in a lot of institutions seeking us out to become their preferred partner. It may also be mentioned that it is a matter of great pride to be one of the official lending partners for NSDC courses in the country.
Briefly describe your digital initiatives in collections and fraud management for education loans.
Prashant: AI and ML have seen massive adoption by new age fintech companies in the student loan sector. Since loan disbursement is done through robust verifications and rigorous analysis of the applicant’s profile, the chances of defaulting are significantly reduced. Additionally, lending institutes offer several alternatives, like EMI-free periods and flexible repayment options to aid payback. The process is automated, abetting customer convenience and engagement. Simply put, the latest AI helps with better fraud management and customer tracking, which in turn helps businesses to curb their NPAs.
Brajesh: In line with our digital journey on the origination side, we have also made full use of technology to reduce collection costs while increasing efficiency at the same time. We have integrated with payment gateways that allow customers to seamlessly pay us on time before time or even if they fall overdue. We use technology to reach out to our customers in a non-intrusive manner, thereby increasing collections. For fraud checks, technology helps in weeding out cases of identity theft, unverifiable addresses, applicants with previous fraud history, etc.