Propelld Shows the Way for Fintechs to Tackle NPAs in Education Loans

Propelld Shows the Way for Fintechs to Tackle NPAs in Education Loans
Propelld Shows the Way for Fintechs to Tackle NPAs in Education Loans

In a country like India, with a burgeoning population of middle-income families, it’s common to see students compromising on the quality of education due to budget constraints. The lack of credit access in the form of education loans for upskilling has further compounded this problem.

Tackling this socio-economic problem head-on is Propelld, a Bangalore-headquartered fintech startup specialising in education financing. So far, they have enabled access to educational loans to over 200,000 students by partnering with 2000+ educational institutions.

The Series-B funded lending platform was founded in 2017 by IIT-M alumni Victor Senapaty, Bibhu Prasad Das and Brijesh Samantaray. Recently, Propelld’s subsidiary Edgrow procured an NBFC license from the RBI and aims to disburse loans worth Rs 2000 Cr by FY24 to bolster its direct lending proposition.

In an exclusive interview with Victor Senapaty, one of the founders of Propelld, we discuss the origins of the platform, the role of tech in enabling credit access, their unique approach to minimizing non-performing assets (NPAs) in education, and challenges in running an ed-tech loan platform.

A Shared Vision for Education

The story of Propelld begins with a common bond that its founders share – a deep-rooted belief in the transformative power of education. Victor Senapaty and his co-founders discovered that premier institutions represented only a tiny fraction of the educational landscape in India, and banks were reluctant to provide education loans to those who couldn’t get into “premier” institutes.

Senapaty explains, "We realized that our lenses were blurred. Graduating from IITs, loans were always easily available to us. But if you remove the top 100-200 institutes in India, specifically catering to engineering, medical, or MBA, then it's just a barren land, and you will not get a loan even if you apply for it."

Moreover, the top 100 or 200 colleges only contribute to 2% of the total students studying in the entire ecosystem.

“For education loans. I'm pretty sure many more people would need it and would benefit from it. This gap we identified was big enough for us to attack through Propelld.”

This realization laid the foundation for Propelld’s mission: to bridge the gap in education financing and empower students to pursue quality education without compromising on their dreams.

Creating a B2B Marketplace for Education Loans for Upskilling

There are two parts to any loan process: One is the demand for funds, and the other is the supply of funds. Senapaty says, “What holds the key for us is the supply actually, not the demand, because the demand for loans always exists. The supply does not exist to fulfil the demand.”

“Lenders do not have confidence in the education market because of NPAs that have happened in the past. With the mushrooming of engineering colleges where students take loans for Rs 8-10 lakhs but end up getting a job with only a 15-20k salary, this system was designed to fail. So, educational loans became untouchable for the lenders,” states Senapaty.

To tackle this risk of NPAs and build trust with the lenders, Propelld operates primarily as a business-to-business (B2B) lending platform. Unlike consumer-facing loan platforms, Propelld offer loans to students via educational institutes to overcome NPA issues that banks typically face while providing educational loans directly to students.

So, Propelld’s users are NOT the students. Its users are lenders (NBFCs or banks) on the supply side and educational institutes on the demand side. To be more specific, on the demand side, Propelld started its lending journey by focusing on the niche market of providing loans for upskilling.

“The upskilling market with institutes like upGrad, Great Learning, and Simply Learn has mostly working professionals. Their loan repayment performance is way better. So we started building confidence in the lender community about how we identify our institutes, how we do our underwriting, how we evaluate the student, and slowly we started adding newer loan segments,” says Senapaty.

B2B Loan Products vs B2C Loan Products

The business model of disbursing loans directly to the institutes (B2B) rather than students (B2C) ensures that the loans are used only for the intended purpose of education and enables Propelld to streamline the lending process. The sales agents in the institutes that Propelld is partnered with guide students in choosing loan options, making education financing more efficient.

“The interest is basically paid for by the Institute so that the product looks like a zero cost for the student. So, instead of paying one lakh in one installment, you're now paying one lakh in 10 installments of 10,000. There is not a penny extra. So, these sorts of features will not be available for learners if we are not partnering with the Institute and go a B2C route.”

This approach also addresses the trust factor and NPA issues that banks typically face while providing loans. This also enables Propelld to streamline the lending process through institutional channels from an operational point of view. Institutes’ sales agents guide students in choosing loan options, making education financing more efficient.

Three Key Components of Propelld's Product

Victor delineated three crucial components of Propelld’s product: consumer-facing, institute-facing, and lender-facing. Each of these components plays a vital role in the overall ecosystem.

The consumer-facing aspect focuses on the student journey, complying with regulatory requirements, and ensuring a smooth loan process.

The institute-facing part is designed to assist educational counsellors and sales agents in guiding students through the loan application process. It enables institutes to monitor their students’ progress and assists in managing their receivables.

The lender-facing component is where all the data collected comes into play. It provides lenders and the Propelld team with insights to make informed decisions and helps in credit underwriting and risk assessment.

Tech is Enabling, but Understanding the Business is Crucial

One striking aspect of Senapaty’s perspective is his view on technology. He emphasizes that while tech is an enabler, it is not the sole differentiator for startups. He highlighted that the real differentiator for startups lies in their ability to understand the nuances of their business and adapt quickly.

Senapaty asserts, "What really matters and what really differentiates startups is not just about the tech capability. It is about how well they can understand what's going on in the ground, how well they can really understand the truths of the business and sort of move fast with it."

Senapaty cautioned against over-glorifying tech in the entrepreneurial ecosystem. Instead, he stressed the importance of understanding the ground realities, customer needs, and market dynamics. In essence, Propelld views technology as a tool to drive efficiency and innovation rather than a means to monopolize the sector.

But one place where tech plays an invaluable role is collecting data to mitigate risks. The Propelld platform collects a wide range of data, from KYC details to credit information and academic histories. This data is used not only for risk assessment but also to streamline processes and make informed decisions.

Senapaty explains, "We collect a lot of data, and we make a lot of decisions with respect to making informed decisions, streamlining loan disbursals, and matching students with appropriate lenders.”

Challenges in the Education Loan Market

While Propelld has made significant strides in revolutionizing the education loan sector, Senapaty foresees several challenges in his quest to empower students and minimize NPAs. He says that tech challenges can be addressed relatively easily, but their primary focus in the highly regulated ed-tech lending sector lies in these three spaces.

Risk Assessment: One of the primary challenges of Propelld while expanding its customer base is ensuring that loans are extended to students who have a highe likelihood of successful repayment. This necessitates sophisticated risk assessment and underwriting processes.

“We have been one of the biggest lenders in the domestic education space. As we explore newer loan segments in the domestic education space like MBA, BTech or BSc, which are bigger markets, we are also trying to build the right loan products to give loans, but not at the cost of risk. This is something that’s not been cracked before. This is one of our biggest challenges.”

Supply of Funds: Securing a consistent supply of funds for education loans, especially for longer tenures and repayment holidays, remains challenging. This requires building trust with lenders and creating attractive loan products.

“If we want to secure fund supply for a one-year or two-year loan, it's easy. But it is very difficult if we want to secure a supply for a 5-10 year loan, and on top of that, give a repayment holiday for three or four years, which is typically expected in an education loan, because the student is not earning. So cracking this is our second biggest challenge.”

Profitability: To ensure long-term sustainability, Propelld must achieve profitability while continuing to serve its mission of making quality education accessible. Striking the right balance is crucial.

“Propelld is profitable at this point, but to run a sustainable business, we have to be profitable at the right amount. I would say we are 80% of the way there and near break-even. In the Indian startup ecosystem, we have seen companies become really big, and then there are valuation cut-downs. There are several bad examples in the ed-tech space. We don't want to be that. We want to create real value for our stakeholders, employees and customers and be there for the long run. For that, profitability is important. That's one of the biggest challenges we are solving for.”

Scaling for Impact

Looking ahead, Propelld has ambitious plans for scaling its impact despite the challenges, as the only way to go is to go up. Their recent procurement of NBFC licence is a step in this direction and puts them in a better place to tackle the vastly larger market of domestic higher education. And he says that there is room for more players in this space.

In his words, "We have to understand here that lending is not like a typical consumer startup game. In a consumer startup game, you typically want to be a monopoly or a duopoly, like Uber, Ola, Zomato and Swiggy. They hope to make revenue or profitability with smaller margins from a higher volume. But lending, since it's a highly regulated space, you don't end up building monopolies. But you can still be a dominant player in this.”

Explaining the idea of scale in education lending, Senapaty explains, “Our idea is to scale both our existing markets and to scale the new market of domestic education, higher domestic education, which is probably 100 times bigger than the current segments that we are in.”

Through all these developments, Propelld remains as committed as ever to its mission of making education accessible to all. By leveraging technology, data-driven decision-making, and a unique B2B model, Propelld stands at the forefront of the battle against NPAs in education loans, poised to shape the future of education financing in India.

As Propelld continues to empower students with accessible education financing, Victor Senapaty’s insights serve as a valuable roadmap for founders and leaders seeking to navigate the challenges of the edtech and fintech space.

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