How has 2022 been for NBFCs and the Edu FinTech sector? How do you envision 2023?

NBFCs have had a fruitful year in 2022 and are likely to make a complete comeback on hopes of 11%-12% in total assets under management by the end of the current financial year. The sector experienced some quiet moments in 2020 and 2021 with the slow growth of 2-4%. Since then, however, it has declined, although some reports suggest the sector saw a 41% drop in the amount of funds raised this year (2022) as late-stage funding continues to be under stress.

However, the education sector saw an upswing with a number of Edu FinTechs securing investor interest and funds. Financepeer and PropellD, education-focused FinTechs, raised Series B funding of $31Mn and $35Mn. Even education-focused NBFCs Avanse and HDFC Credila strengthened their education loan portfolio. Avanse published reports with a total loan disbursement during the H1 FY23 phase of Rs. 3,369 crores, showing 3x growth over H1 FY22. The NBFC also collected Rs. 390 crores from its existing shareholders. The growth stems from pent-up demand among students pursuing academic ambitions, some of which were delayed by the pandemic. There is an increase in the overall demand for quality higher education in India and abroad, which made education financing one of the fastest growing segments. Despite the shock of the Covid-19 pandemic, the loan book of this segment has been among the best performers. This trend is confirmed by the fact that there has been an increase in education lending across lender types.

Several lenders have expanded their education loan book and entered the market to bridge the gap between students and their ability to access education finance by making the process seamless and strengthening the country’s education ecosystem.

There are two sides to every coin and the downside in this sector led the RBI to introduce digital lending guidelines. The digital lending guidelines came into effect on 1 December 2022 and were introduced to curb unethical lending and recycling practices. FinTechs with partnerships with NBFCs involved in mis-selling, unscrupulous lending practices and compromising customer privacy will be at a disadvantage. Most players were ready and/or have made necessary adjustments in their business models to stay compliant with the guidelines, which are aimed at safeguarding the customers. The guidelines could lead to a boom in joint loan deals as lenders will look for digital solutions that help them expand their loan portfolio in an optimized way.

Outlook for 2023

Study abroad is expected to grow at an increased rate, especially with the growing fear of recession. As they say, recession is the best time to enroll in a university. As per the MEA data, more than 13 lakh students are studying abroad and the number is expected to increase further. Contributing factors also include the pent-up demand for higher education abroad since the pandemic.

With the fear of recession comes the fear of layoffs. That could stress lenders and could contribute to NPAs in the education sector, which are already at 8% currently. However, this is bound to highlight sensible lending from bad lending only undertaken to achieve a goal.

Another subset of the education sector is online K-12, which has over 16.6K+ startups, with a total of $39.6B in funding across 3.5K+ companies. The business model is not yet proven, even with 8 unicorns. There is a huge opportunity for online tuition funding, and we may soon see lenders explore this arena.

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