Varthana and the rise of budget private schools in India
India’s villages and the underbelly of its cities house not-so-glamorous budget private schools, which offer education to the low-income population at an affordable price. But getting funding was never easy until Varthana came on the scene in 2013 with its school-financing venture.
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Debleena Majumdar
20 Jun 2018
JERRY COOKE/CORBIS VIA GETTY IMAGES
A few kilometres from Delhi’s bustling Uttam Nagar, the roads suddenly become narrow. You are still in India's capital, but it’s another world. As houses with exposed bricks stare at you, children, on their way to school, pass you by in their bicycles. And then, right next to the small fruit-juice stand flaunting a picture of Salman Khan, and a mobile number scrawled on the wall for repairing air conditioners, refrigerators, and more, you find the first signboard for a school. A small, independent, private school. The sign board of a school on a wall in Uttam Nagar, Delhi; photo by Debleena MajumdarAs you cross the road, you find many such schools dotting the landscape. While colonies such as Uttam Nagar are now part of India's rapidly growing urban sprawl, these schools have been on the rise across the country over the last few decades.
Called affordable or budget private schools as they cater to marginalised or low-income families, they operate as independent, profit-making entities. They charge fees between INR15,000 and INR20,000 per annum and often face criticism from those who believe that education is a public good. Yet, the very growth of the schools shows a market response to the gap in the quality of state-led education.
This is why Varthana is unique. This school-financing venture started in 2013 with a focus primarily on budget schools. Steve Hardgrave, founder of Varthana, is no stranger to the financing needs of marginalised communities. He has worked with them in Los Angeles and Mexico before developing the financial inclusion initiative for Omidyar Network, a philanthropic-investment firm.
This was followed by the budget private-school initiative of Gray Ghost Ventures, an impact-investment firm, and the launch of the Indian School Finance Company (IFSC). By 2013, for Steve and his partners, their deep knowledge of the sector resulted in Varthana.
Hardgrave declined to be interviewed for this story. That’s quite alright because the work Varthana has done speaks for itself.
In less than five years, the company has been able to reach 2.5 million children across 3,500 schools in 28 locations, while making INR62 crore in revenue. To achieve this, Varthana has raised USD79 million in funding.Given 270 million school-going children, schools are a big need in our country. With enrolment in government schools, which cater to, at best, 70% of our students, dropping by 11 million between 2011 and 2015, private schools have filled in, with enrolments rising 16 million over the same period.
Within the broad category of private schools, a new kind of school has been emerging like the Uttam Nagar ones — schools for children of low-income communities, providing a choice of better education at an affordable price.
Between 60 million and 90 million children in India are expected to attend such schools and, according to current estimates by various researchers such as Geeta Gandhi Kingdon and James Tooley, there are between 200,000 and 400,000 such schools in the country.
Given their private, independent status, how do these schools manage their financing needs?
The government spending on education is at less than 4% of the GDP and these schools are not the beneficiaries. What about private capital? India’s education market is currently a USD100 billion opportunity and is expected to reach USD180 billion by 2020, according to estimates by IBEF, a government resource centre providing information on the economy.
However, this has been driven by the growth in online and digital markets, not schools. According to venture-investment research platform VCCEdge, since 2012 over 50% of the private capital in education has gone into test preparation and learning portals.
The large population of children, who cannot access premium schools or online training, needs to learn, and that’s where Varthana’s work becomes extremely important. The key differentiator is Varthana’s ability to understand the budget-school space.
The economics of a budget private school
According to research by consulting firm FSG, the budget private-school market is fragmented. The schools are typically small, with about 400 students on average, of which about 70% do not go beyond Class 8.
They earn revenue through different fees, starting with annual fees, admission fees, and textbook charges at the beginning of the academic cycle to exam fees, monthly charges, computer fees, and other activity fees over the year.
Independent research by FSG as well as economist Kingdon show that if managed well, these schools could earn over 30% in profit margins — an attractive market segment for loans indeed in times when bad loans abound.
India’s villages and the underbelly of its cities house not-so-glamorous budget private schools, which offer education to the low-income population at an affordable price. But getting funding was never easy until Varthana came on the scene in 2013 with its school-financing venture.
Share Gift this article
Debleena Majumdar
20 Jun 2018
JERRY COOKE/CORBIS VIA GETTY IMAGES
A few kilometres from Delhi’s bustling Uttam Nagar, the roads suddenly become narrow. You are still in India's capital, but it’s another world. As houses with exposed bricks stare at you, children, on their way to school, pass you by in their bicycles. And then, right next to the small fruit-juice stand flaunting a picture of Salman Khan, and a mobile number scrawled on the wall for repairing air conditioners, refrigerators, and more, you find the first signboard for a school. A small, independent, private school. The sign board of a school on a wall in Uttam Nagar, Delhi; photo by Debleena MajumdarAs you cross the road, you find many such schools dotting the landscape. While colonies such as Uttam Nagar are now part of India's rapidly growing urban sprawl, these schools have been on the rise across the country over the last few decades.
Called affordable or budget private schools as they cater to marginalised or low-income families, they operate as independent, profit-making entities. They charge fees between INR15,000 and INR20,000 per annum and often face criticism from those who believe that education is a public good. Yet, the very growth of the schools shows a market response to the gap in the quality of state-led education.
This is why Varthana is unique. This school-financing venture started in 2013 with a focus primarily on budget schools. Steve Hardgrave, founder of Varthana, is no stranger to the financing needs of marginalised communities. He has worked with them in Los Angeles and Mexico before developing the financial inclusion initiative for Omidyar Network, a philanthropic-investment firm.
This was followed by the budget private-school initiative of Gray Ghost Ventures, an impact-investment firm, and the launch of the Indian School Finance Company (IFSC). By 2013, for Steve and his partners, their deep knowledge of the sector resulted in Varthana.
Hardgrave declined to be interviewed for this story. That’s quite alright because the work Varthana has done speaks for itself.
In less than five years, the company has been able to reach 2.5 million children across 3,500 schools in 28 locations, while making INR62 crore in revenue. To achieve this, Varthana has raised USD79 million in funding.Given 270 million school-going children, schools are a big need in our country. With enrolment in government schools, which cater to, at best, 70% of our students, dropping by 11 million between 2011 and 2015, private schools have filled in, with enrolments rising 16 million over the same period.
Within the broad category of private schools, a new kind of school has been emerging like the Uttam Nagar ones — schools for children of low-income communities, providing a choice of better education at an affordable price.
Between 60 million and 90 million children in India are expected to attend such schools and, according to current estimates by various researchers such as Geeta Gandhi Kingdon and James Tooley, there are between 200,000 and 400,000 such schools in the country.
Given their private, independent status, how do these schools manage their financing needs?
The government spending on education is at less than 4% of the GDP and these schools are not the beneficiaries. What about private capital? India’s education market is currently a USD100 billion opportunity and is expected to reach USD180 billion by 2020, according to estimates by IBEF, a government resource centre providing information on the economy.
However, this has been driven by the growth in online and digital markets, not schools. According to venture-investment research platform VCCEdge, since 2012 over 50% of the private capital in education has gone into test preparation and learning portals.
The large population of children, who cannot access premium schools or online training, needs to learn, and that’s where Varthana’s work becomes extremely important. The key differentiator is Varthana’s ability to understand the budget-school space.
The economics of a budget private school
According to research by consulting firm FSG, the budget private-school market is fragmented. The schools are typically small, with about 400 students on average, of which about 70% do not go beyond Class 8.
They earn revenue through different fees, starting with annual fees, admission fees, and textbook charges at the beginning of the academic cycle to exam fees, monthly charges, computer fees, and other activity fees over the year.
Independent research by FSG as well as economist Kingdon show that if managed well, these schools could earn over 30% in profit margins — an attractive market segment for loans indeed in times when bad loans abound.
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