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Rajat’s fall dashes expansion hopes of city school chain

Edupreneurship, For-profit education

HYDERABAD: The fall from grace of former ISB chairman and McKinsey director Rajat Gupta has all but dashed the hopes of Sri Chaitanya Educational Group, an AP-based private educational institution operating in the school and junior college sector, from spreading its wings.

According to sources, the $1.4-billion New Silk Route Private Equity, an Asia focused PE fund co-founded by Gupta, had finalised an investment of Rs 325 crore (roughly $70 million) in the Sri Chaitanya Educational Group last November. This was seen as one of the biggest foreign investments in India’s education sector and the transaction aimed at the fund picking up between 33 to 49 % stake in Sri Chaitanya institutions.

“Now, the chances of the Sri Chaitanya group getting the investment from New Silk Route are remote as Gupta has left the firm,” said sources privy to the talks between the company and Sri Chaitanya. Gupta was on Wednesday jailed for insider trading and is out on bail now pending trial.

Sri Chaitanya runs around 160 institutions, mostly in Andhra Pradesh, including 116 schools and junior colleges. The 25-year-old group had mandated Ernst & Young to raise funds. The sources said Gupta closed in on investing in the AP-based educational institution after he became chairman of the Hyderabad-based Indian School Business.

The New Silk Route firm’s decision to invest in the education sector came after private equity funds Sequoia Capital and SONG, in which billionaire George Soros is an investor, invested in Gowtham education group, another Hyderabad-based school chain.

Rajat Gupta started New Silk Route in 2006 with partners including Raj Rajaratnam, the billionaire hedge-fund manager who went on trial in New York for insider trading. “Gupta took leave of absence from New Silk Route in March this year, after allegations on his support to Rajaratnam were made public. With regard to the investment in Sri Chaitanya, it is now almost ruled out,” said the sources.

Times of India, 28 October 2011

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Shiv Nadar Foundation forays into elementary education

Edupreneurship, For-profit education

After making its presence in higher education, Shiv Nadar foundation is now making foray into elementary education with the establishment of its schools across the country.

The foundation, which has a corpus of nearly one billion, on Wednesday announced the establishment of Shiv Nadar School in India. To start with, the foundation is coming up with two schools in Noida and Gurgaon.

Going forward, the foundation aims to establish 25 schools across the country by 2020.

Earlier, Azim Premji, chairman of Indian software major Wipro had said that the non-profit Azim Premji Foundation will start work on setting up a school in every district in India.

The Shiv Nadar Foundation has been established by Shiv Nadar, Founder, HCL — a $6 billion leading global technology and IT enterprise, which employs over 85,000 employees across 31 countries.

The 34-year-old enterprise, founded in 1976, is one of India’s original IT garage start-ups and offers diverse business aligned technology solutions spanning the entire hardware and software spectrum, to a focused range of industry verticals.

The Foundation is committed to the creation of a more equitable, meritocracy based society by empowering individuals to bridge the socio-economic divide.

The foundation has set-up the SSN Institutions in 1996, comprising the SSN College of Engineering (already a highly ranked private engineering college in India), the SSN School of Management and Computer Applications and the SSN School of Advanced Software Engineering, in Chennai, Tamil Nadu. Building on the experience from successfully running the SSN Institutions, the Shiv Nadar Foundation has now set up the Shiv Nadar University in a 286- acre campus in Greater Noida. In addition the Foundation runs the VidyaGyan schools, a radical social experiment in nurturing leadership from amongst highly gifted rural poor children at Bulandshahr, Sitapur and an upcoming school near Varanasi in Uttar Pradesh. The Foundation is also setting up Shiv Nadar School across India to build world-class schools aiming to provide children with education for life.

Business Standard, September 15, 2011

Comment

Education sector: fail marks this year

Edupreneurship, Finances & Budgets, For-profit education, Licenses and Regulations, Private Equity

Everonn Education Ltd’s corporate governance troubles have thrown the spotlight on education services stocks. Given the much talked about demographic dividend, the shortage of employable people and the government’s thrust on vocational skills training, it would seem there was easy money for the taking in this sector.

But the reality is far different in the listed stock universe. While the recent troubles may have seen the Everonn stock losing some 42% over the past three trading days, the sector as a whole has underperformed the broader markets for quite sometime now. Even before these allegations came to light, the scrip had shed 23.6% since the start of the current fiscal, against the 12.7% fall in the BSE-500 Index of BSE.

Rival Educomp Solutions Ltd lost half its market value in the same period (though that was partly due to a Securities and Exchange Board of India consent order on alleged insider trading by the promoter). Others such as Career Point Infosystems Ltd and Zee Learn Ltd, too, have fallen behind the BSE-500.

The primary reason these stocks are lagging is that the financials—which may look good in isolation—are not meeting Street expectations, say brokerages. Many of the stocks had listed at high price-earning multiples of up to 100 times, which implied growth rates of 50-60% for investors. That hasn’t happened.

The latest new share sale in this sector, Tree House Education and Accessories Ltd, listed at some 50 times fiscal 2011 earnings and has declined since.

Secondly, while there is strong demand in this sector, the potential has meant that competition has grown strongly in the past few years leading to saturation and driving down margins.

In the case of Everonn and Educomp—to name the two most visible stocks in this sector—high capital intensity in their preferred segment of multimedia education has led to wobbly balance sheets.

“Like Educomp, Everonn’s cash burn from capex has risen substantially, which has begun to meaningfully impact PAT (profit after tax) as interest costs almost tripled in the last quarter,” Ambit Capital Pvt. Ltd said in a recent note.

Thirdly, firms have to deal with a fragmented market, and for some, geographical concentration risk. For Career Point, which is mainly in the business of test preparation, nearly half its revenue comes from one city—Kota, in Rajasthan. While it is expanding into schools and private universities, these are more regulated segments.

Firms operating in this segment have to come up with smart capital structures to beat the not-for-profit clause, and it will be quite sometime before the results show.

These problems may not go away overnight, but those who have lots of patience may do well to remember that education is the biggest middle-class household spend after food.

Mint, September 6, 2011

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England’s first free schools open their doors to pupils

Charter Schools, Edupreneurship, Global news, UK

Twenty-four are due to open in the next few weeks – the majority next week.

On Thursday, lessons will begin at two schools – Aldborough E-ACT primary in Redbridge, London, and the Hindu Krishna-Avanti primary in Leicester.

The government says the state-funded but semi-independent schools will improve standards but critics say they will take pupils and money from other schools at a time of cut-backs.

Free schools are very similar to academies in that they do not have to follow the national curriculum, can vary the pay and conditions of teachers, are directly funded by central government and are outside of local authority control.

Summer holiday

The Aldborough free school is being set up by the E-ACT charity which already sponsors 11 academies.

It is opening with a reception class and a Year 1 class in a refurbished school building. E-ACT said that there was a shortage of school places in the area and approached the council to run a school.

It is one of the new free schools to change the school year by having a shorter summer holiday (one month) with longer half-term breaks in the autumn and spring (two weeks each).

Mark Greatrex, from the group, said: “We are taking a week off each side of the summer holidays. The holidays are too long. They were made that long so children could help with the harvest.”

The Redbridge free school will offer an extended day and different school year
There will be an optional extended day – with an educational slant – says Mr Greatrex, who will be the leader of the school’s governing body.

Children could be at school from 08:00 to 18:00 – and could find themselves in extra lessons after school if they are not making enough progress.

“Teachers’ focus will be on high attainment and they will track pupils’ progress in every lesson. If a child does not make enough progress in a lesson, they will be asked to stay later that day,” said Mr Greatrex.

He says the after-school activities will be “fun, with an educational slant”. For example, children playing cricket or rounders will have to do some mental arithmetic.

In Leicester, more than 30 four and five-year-olds will have their first full day at the Krishna-Avanti school on Thursday. They had a taster session at the school with their parents earlier in the week.

The school has been set up by the I-Foundation, which promotes state-funded Hindu education in the UK, in a grade II listed building, bought by the Department for Education.

There will be an emphasis on getting children to read “reasonably well” by the end of Year 1 (age six) and children will practise yoga and meditation and eat vegetarian meals.

Finishing touches

The new principal is a Christian, Christopher Spall, who says the aim is for the school eventually to be half Hindu and half other faiths.

“I think there are an enormous number of parallels between Christians and Hindus,” he said.

“We don’t want to convert anyone but to create an understanding, so that people get on better and respect each other.”

This year’s applications were mainly from Hindu families, Mr Spall says, but he thinks that will change.

Teaching unions oppose the policy of creating free schools, which they say will break up the state education system.

Mary Bousted, the general secretary of the Association of Teachers and Lecturers (ATL), said: “The free school policy is completely undemocratic and a huge waste of public money, established regardless of need, with contempt for the local community while privileging small sectional interests.

“[Education Secretary] Michael Gove… cannot know whether this disparate group of sponsors, including many minor faith groups, is capable of providing a good balanced education.”

BBC, September 1, 2011

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Ambassadors in place for Wikipedia education programme

Edupreneurship

Pune: Wikipedia has selected 22 students/professionals from the city as campus ambassadors for its India Education Program, an initiative aimed at using the online user-generated encyclopaedia as a learning tool. These ambassadors — trained at the Symbiosis Institute of Computer Studies and Research last month and now been assigned colleges — will interact with students and teachers, urging and teaching them to use Wikipedia as a medium of sharing knowledge.

Wikipedia had, a few months ago, announced Pune as the first city outside the US for implementation of the programme.

“It is basically a voluntary initiative and the reason I joined the India Education Program is because it is an opportunity to share knowledge on a global platform. For instance, in the US, even small things such as streets are on Wikipedia and that is how people learn about them. In India, where we have so much of diversity and knowledge to share with the world, what needs to be taught is to put the knowledge on Wikipedia and share it with the world,” says Abhishek Suryawanshi, 20, pharmacy student and campus ambassador for SNDT University.

“We will interact with students and teachers in the city and train them how to write, edit articles on Wikipedia. By doing this, we are increasing the number of contributors to Wikipedia, increasing the knowledge base and promoting the use of Wikipedia for learning.”

While Pune was selected for the pilot programme because of the high population of students and large number of colleges, the response was overwhelming as the organisation received as many as 700 applications from across the country in May. “We shortlisted them based on resumes and then had video or audio interviews with select 50. The campus ambassadors were given basic primers on Wikipedia — which covered introduction to the project as well as the essentials of editing. They were also given assignments prior to the formal training,” says Hisham Mundol, who leads programmes in India.

As of now, four campuses and 1,000 students are learning the way to share knowledge using Wikipedia.

Wasim Mogal, a third-year Civil Engineering student of Imperial College of Engineering and campus ambassador for Modern College of Engineering, says, “In engineering, we hold seminars where students make presentations. These can make wonderful inputs for Wikipedia.”

The Indian Express, July 08, 2011

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Law threatens low-cost private schools

Budget Private Schools, Edupreneurship, Right to Education

In a small hamlet in Andhra Pradesh’s Ghatkesar district, 20km from Hyderabad, Indus Academy is one of four schools offering private education for the poor. Run by Career Launcher India Ltd’s foundation, its three single-storey buildings house around 40 children in the age group of 4-10.

The walls of the school are festooned with bright-coloured pictures, and the school boasts a laptop, a television, a DVD player and plentiful study materials. But the appearance of prosperity can be deceiving. Charging as it does a student fee of less than Rs200 a month, Career Launcher is planning intensive door-to-door canvassing next year to enroll an additional 60 students—at least to recoup its Rs1.5 lakh investment on its educational tools.

At the same time, three other groups are furiously developing a chain of affordable private schools, or non-government schools for poor families, in and around Hyderabad. The corporate race, which started two years ago, includes microfinance firm SKS Microfinance Ltd, a Singaporean private investor, India’s No. 2 drug maker Dr Reddy’s Laboratories Ltd, and local entrepreneurs.

Over the last decade, the number of poor private schools in India charging Rs100-250 a month and run mostly by small local businessmen has risen to 75,000. English language skills of students in such schools are better than those of government-school children, according to an annual study by education not-for-profit Pratham. English language skills of students in such schools, the study shows, are better than those of government-school children—largely because low teacher absenteeism ensures regular tutorials. But pedagogy in these schools is still lacklustre.

Even as these entrepreneurs search for low-cost teacher training and curriculum improvements to add “high quality” to the “affordable” label, the Right to Education (RTE) Act of April 2010, which seeks to ensure primary education for all 6-14-year-olds, threatens to fracture their efforts.

This law requires all schools to be government-recognized—a bribe-ridden and expensive process, costing at least Rs50,000 per school, according to school operators and policy advocates. The law also mandates higher teacher salaries. Last week, amid increasing pressure from states, Union human resource minister Kapil Sibal signalled that a committee would work on exempting poor schools from some requirements.

“We are readying for a big confrontation,” says Parth Shah, president of the Centre for Civil Society, a Delhi-based policy advocacy. “Politically, the government will find it hard to close down affordable private schools. But people may have to pay higher bribes to meet higher infrastructure standards, pumping up fees and pricing out the poor.”

Andhra Pradesh is known to have 18,000 such schools, according to a yet-to-be published budget schools rating report by Gurgaon-based Micro-Credit Ratings International Ltd (M-CRIL). The pilot study of 35 schools, which offers a sort of report card for parents and financiers, signals better reading skills in students attending poor-private schools but abysmal arithmetic capabilities compared with the average student’s performance in Hyderabad.

To support better education, funding agencies such as the Michael and Susan Dell Foundation (MSDF) are offering computer-aided materials and financing the training of a few schoolteachers in Hyderabad and Bangalore. What will be key for these schools is whether they can continue upgrading themselves without grant money or fee increases.

“It may be likely,” says MSDF’s Sangeeta Dey, “that if these schools increase their fees with improvement in pedagogy, that they start catering to a higher income group and become expensive for the underprivileged.”

But James Tooley, a British academic known for his groundbreaking 2006 study on budget private schools catalyzed by his observations in Hyderabad’s slums, believes he has an inexpensive polish for a shiny pedagogy.

After nearly a decade of observing these schools under the microscope, Tooley, a professor of education policy at the Newcastle University, stepped under the lens himself last year. He set up Empathy Learning Systems, a chain of 12 low-cost schools, investing Rs65 lakh along with Mohammed Anwar, an education entrepreneur featured in The Beautiful Tree, Tooley’s 2009 book on poor-private schools.

Tooley is hoping to treat two primary ailments without stretching his purse: shoddy instruction and teacher attrition.

The monthly salaries of private budget-school teachers are in the Rs1,500-4,000 range, only 10-20% of government school salaries. Many private-school instructors thus switch jobs even for Rs100-200 increments, says the M-CRIL report. But teacher salaries are often the largest chunk of these schools’ expenses; keeping salaries low keeps fees low.

At Empathy’s schools, detailed lesson plans are used to combat higher teacher turnover, so that new teachers can immediately fill in the shoes of their predecessors.

“A low-cost teacher training model ensures that you are not investing in instructors so much that the whole system collapses when they leave,” says Tooley, whose current business interests have not diluted his reputation as a researcher.

Empathy’s teaching tools and training are also offered at a monthly charge of Rs15, to teachers from the 22 competing schools in the business. This reduces its dependency on school fees, which are often paid erratically due to the irregular salaries of parents.

As Anwar and Tooley look to increasing their school count next year to 15, by providing curriculum and training to 50 schools they might break even. But there’s pressure to squeeze rates even further. For teachers such as Ayub Shad of Jawahar High School, located a stone’s throw away from Hyderabad’s historical mosque Charminar, even the Rs15 rate is a tad unaffordable.

Meanwhile, the fight for sustenance in the two-year-old budget school chain phenomenon has already led to two break-ups. Tooley and Anwar split from a 2008 partnership with a Singaporean private equity group, now known as RF Chandler, which currently runs a franchisee model called Rumi Education Pvt. Ltd. SKS Microfinance’s SKS Educational Society and Career Launcher divorced within a year of their marriage; SKS now runs 16 schools under the Bodhi Academy label, charging monthly fees of Rs160-220, while Career Launcher runs seven Indus Academy budget schools.

While the parties refuse to clarify the reasons for their split, one thing is clear—the competition is intensifying. Dr Reddy’s Foundation is the latest entrant, with four Pudami—“earth” in Telugu—neighbourhood schools in and around Hyderabad, catering to around 1,000 children.

The hope is that an aggregation of dispersed poor private schools into a chain run by a single management will ultimately shrink tariffs of teachers and curriculum providers, as vendors need to knock on fewer doors. But the RTE Act, with its mandate for playgrounds and kitchens in schools, may yet put the brakes on this revolution.

“These businesses are striving to provide world-class education through a sustainable model, which like microfinance is not dependent on charity,” says Gurcharan Das, chairman of SKS Educational Society. “The threat from the government to close down these schools persists. How can a school in the slum have a football-field-sized playground and pay minimum salaries of Rs20,000? If they had to pay such salaries, the fees would go up fourfold.”

Anupama Chandrasekaran, Mint, June 25, 2010

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The Privatization of Indian Education

Access to education, Edupreneurship, For-profit education, Public Private Partnerships (PPPs)

It is difficult to ignore the spicing up that India’s education sector is undergoing. Ubiquitous private coaching centers, front-page ads inviting franchise expansion of schools, and landmark reforms allowing foreign universities to enter India all underscore the changing face of a sector that could best be characterized as lackluster just a few years ago, especially for private entrepreneurs and profit-mongers.

With India’s burgeoning middle-class, mouth-watering demographics and fast-changing government regulation, however, this once boring sector has managed to captivate the attention of capitalists from all corners of the world. From small-town tuition centers to globally renowned universities, from shrewd corporate pundits to leisurely housewives, and from private-equity suits to social-enterprise tweeds, the race to have some sort of stake in the growth of India’s education industry has become almost fashionable.

This year, in particular, has seen a massive inflow of capital and interest into the education sector, with Reliance Equity Advisors’ recent announcement to snap up a 1 billion rupee stake in Pathways Global School, a K-12 education provider; Azim Premji’s decision to invest 2 billion rupees in Manipal Global Education, a education resource provider; and Matrix Advisors’ decision to buy 1 billion rupees into FIIT-JEE, a private coaching provider.

Kapil Sibal, India’s education minister, too, gave an emphatic slap-on-the-back to the sector by comparing its future potential to that of India’s now red-hot telecom sector a decade ago.

While there is no denying the potential upside for investors in India’s education sector, it is worth considering the effect that massive entry of private capital into a traditionally not-for-profit sector can have on the Indian education sector as a whole and  especially on parents, students and teachers.

First and foremost, the entry of a greater number of privately managed institutions will automatically translate into greater competition in the education sector, as more organizations compete for a limited number of students. Consequently, schools and colleges will no longer be able to rely on students filling their classrooms term after term, something that is common in high population-density areas with few private schools.

Instead, schools will have to lower fees, improve teaching quality, hire better teachers and use efficient technology as ways of distinguishing themselves from competitors and remaining operational. This is similar to what transpired in India’s telecom sector a few years ago, when private firms slashed costs, improved customer service and emphasized innovation to differentiate themselves from their competitors.

This operational model, which challenges the “recession-proof” tag that educational organizations in India have perpetually had associated with them, will transfer greater power to student and parents, for if a school cannot offer its students a cheaper and better educational experience than the school next door, it is most likely going to shut down.

Even for employees such as teachers, a greater sense of competition among educational organizations could spell better payment terms, training facilities and employment benefits. This is because the quality of teachers and education administrators will determine the success or failure of a school. Like it is for for-profit corporations, talent will be a rare resource and one which educational organizations are willing to invest in more intently.

Another benefit of the growing influence of private investments in the education sector is likely to be the bridging of the large gap dividing the resourceful private sector from the resource hungry education sector. As it stands today, education-focused organizations are largely cut-off from the talent, the innovation and the leadership that characterize for-profit companies in India.

Also, the potential for not just better principals or counselors but also for better education entrepreneurs—managers with an expertise in financial analysis and budgeting, strategy planning, human resources management and technology—is tremendous in India’s economy.

This vacuum in education management promises to be filled by private entrepreneurs who can utilize their business training and their vision for education reform more effectively. Corporate best practices like performance-based pay for teachers or inventory management of fixed assets like furniture or computers, which are everyday practices in educational organizations around the world, would also be better planned and implemented under guidance from the for-profit world.

There is only so much funding in India’s capital-starved economy that the government can provide to education ventures like schools and colleges. Eventually, like has been the case for power, infrastructure or telecommunications, financial support from the private sector will be crucial in leading the growth and progress of educational organizations in the country.

For this reason, the influx of greater capital into the sector should translate into its more comprehensive development and help convert the ‘education for all’ motto into reality. For instance, if public finances can target the development of rural education models and private funds can help growth in more urban areas, a greater number of educational institutes can become available for students.

The idea of private-sector investments in the education sector has its share of critics too and, often, for good reason. It can be argued that the private sector has little knowledge on the intricacies of the education sector as most private investors are neither trained in education management or non-profit work. Can such investors really improve the quality of education in India?

There is also the issue of the over-commercialization of education where profit-mongers ignore quality improvement and work on amassing more money. Finally, how easy is it for regulators to keep private institutes in check, ensure quality control and enforce policies?

Despite these drawbacks, the ability of students and parents to make independent decisions, discern education quality and aim for best quality per rupee spent should endear privately sourced investments to India. Also, there is no question that better training for teachers and education managers will have to take center-stage in efforts to improve quality and ensure policy enforcement.

In the end, the fact remains that for all the changes that private capital promises to bring into the education industry, perhaps the most challenging will be altering the age-old mindset of everyday citizens for whom education is simply a non-profit service, not a money-making business.

Mayank Maheshwari, The Wall Street Journal, 21 May 2010

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Schools turn smart to woo Private Equity

Edupreneurship, For-profit education

Hive off infrastructure to attract funds, have a scalable model.

When Chennai-based Everonn Education begins setting up international schools in the country next year, it plans to do so as a private limited entity under Section 25 of the Companies Act, 1956, and not as a trust. The reason: The company sees this as an alternative way of having a scalable model (which the trust structure does not allow as its bars payment of dividends).

Increasingly, educational institutions in the country are taking innovative routes to expand. For example, schools that cannot go for the Section 25 option have begun turning to “smart equity” from private equity (PE) players to expand access to new technologies, build new set of services and add resources.

This explains the $22-million (100 crore) deal that Reliance Equity Advisors — Reliance Capital’s PE arm — struck with Pathway World School recently. The stake acquired was, however, not disclosed.

Pathways World School is a group of International Baccalaureate curriculum schools from kindergarten to Class XII (K-12) in Gurgaon, Aravali and Noida. It will use the money to expand capacity and set up two more schools in the national capital region.

This was the first PE investment in any school in the country so far. Most PE investments have either been in education technology or coaching companies.

Some recent investments in the education space include Rs 200 crore by Premji Invest in Manipal Education, Rs 60 crore in Resonance Eduventures, and India Equity Partners’ Rs172-crore investment in IL&FS Education and Technology Services.

And, there are more deals waiting to be done.

For instance, Global Education Management Systems (Gems), which runs 100 schools worldwide, has sought PE money for a few of its schools. The group, which has been in India for around six years, is looking for funds to expand the number of its schools from 17 to around 100 over the next five years. Gems owns schools, takes management contracts (managing schools for others) and also has a consulting and audit advisory division.

Manipal Education’s Manipal K-12 is also scouting for Rs 100-crore PE funding. Manipal K-12 will tie up funds in the next few weeks to expand the number of schools from 11 (of which four are in Nepal) to 100 over the next five years. The group plans to expand across Asia.

Focus on ancillaries

“PE players mostly look at ancillary services (infrastructure, technology and services segments) as investment in trusts that manage schools is not allowed. In fact, many missionary trusts or individual families which have been running institutions the conventional way are exploring the PE route to raise funds. Also, with parents giving importance to factors like a school’s infrastructure and extra-curricular activities, educational institutions are choosing various parameters to build brands,” said a Mumbai-based analyst.

“You cannot expect a trust to be an expert in all aspects of running a school. One method of effectively running the school is allowing services companies to provide infrastructure support or content. This is where a PE player helps the school management by picking up stake in infrastructure services and providing the much-needed capital to scale up,” says K Ganesh, founder and chairman of TutorVista.com, an online tutoring company. Ganesh has joined hands with Manipal Education and Management group to run K-12 schools.

Manipal K-12’s model involves getting into a management contract with trusts for a fee. In such an arrangement, Manipal K-12 takes care of all aspects, including appointment of principals and teachers, curriculum, and managing information and communication technologies.

“Like any other company, K-12’s business is asset-heavy, as setting up schools is a costly affair. PE investors are keen on this space but their knowledge and understanding of the sector is limited. Also, the sector has a soft gestation period and profits do not double in a few years. PE investors should understand this and stay invested for over seven years,” said Ajey Kumar, country head for Gems Education.

Innovative structures
There are three ways of funding a school project — the promoter’s equity or trust; private equity; and debt. Traditionally, it’s been either trust or debt.

Setting up a school requires infrastructure and land. For 2,000 students, a player would require Rs 50-100 crore depending on the location.

The business gets divided into a property company and a management company. Since trusts can’t sell stakes (they are not allowed to give dividends), PE players pick up stake in either of these companies, which are registered as private limited companies.

“Under law, all schools are run by a trust or a society. But they hive off the infrastructure-owing entity,” said an industry player. The trust pays the lease amount annually. The leasing company can charge higher rent and thus the trust manages to break even just by transferring profits to the leasing company.

Internationally, the practice has been there for long, but it’s picking up in India now. Players say schools are looking at this model as it allows good “division of labour”.

Ganesh believes the concept of public private partnership and the Right to Education Bill will attract more players to the segment.

Educomp, one of the largest players, follows a similar model. It recently tied up with Lavasa Corporation. Under the deal, it will facilitate independent trusts to set up four educational institutes at Lavasa. The company plans to build 150 world-class schools by 2012 by providing infrastructure and education content.

Kindergarten-12 (K-12) is the most attractive segment, as a student once acquired usually stays for 12 years. This will be a direct beneficiary of rising income levels of the middle-class in India. According to a report by Kaizen Management this January, the K-12 segment comprises approximately one million schools.

“A lot of trusts running schools are looking at bringing a corporate structure. Many of them are turning to service providers who can bring turnkey solutions,” said an industry player.

For PEs, there are good exit options. They are already talking about setting up companies that can be sold on a standalone basis. The other options are sale to a larger fund or disinvestment through an initial public offer.

Kalpana Pathak, Business Standard, 5 May 2010

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Setting up private school is fundamental right of a citizen, says HC

Courts and PILs, Edupreneurship, Licenses and Regulations

MUMBAI: To set up a private un-aided school is the fundamental right of every citizen, the Bombay HC has ruled. Giving a major push to private equity in setting up schools, a division bench of Justice Ajay Khanwilkar and Justice Sambhaji Shinde overturned a 2009 ban on permissions for new unaided Marathi schools.

“The state should encourage private investment in educational institutions on unaided basis, which the private management is entitled to pursue on condition that it would fulfil the prescribed norms and standards and not indulge in profiteering and commercialisation of education,” said the bench.

“The induction of private institutions into the field of education would introduce competition, which is healthy for the growth of quality education and not merely paper-compliance-education imparted by the state through schools receiving grant in aid, which have dearth of highly trained and professional staff and are notorious for lack of punctuality and efficiency.”

The HC said it would also give children a “fair opportunity to choose between the two institutions”. The court was hearing a bunch of petitions filed by around 70 trusts challenging a July 2009 government resolution that refused approval for new private, unaided Marathi schools till the state has finalised a “School Development Plan”. The SDP has been in the works since 2000, but has still not seen the light of the day.

The court rejected the government’s contention that the ban was a reasonable restriction on fundamental right and termed the new rule “illegal and unconstitutional being discriminatory and arbitrary and also suffers from the vice of non application of mind”. The court said the plan was applicable only to government and aided schools and not to private unaided institutions.

Referring to the Supreme Court’s verdict on private professional colleges in the TMA Pai case, the court said the right to establish an educational institution was a fundamental right guaranteed to “every citizen” of India. The court held that the restrictions, such as the necessity to take prior permission to start a private unaided school, impinges on the fundamental right to occupation. The state can impose conditions on such schools, but only at the stage of granting/ continuing recognition, said the court.

“The demand for more educational institutions is ever growing. If the state cannot provide educational institutions imparting quality education at every corner of the state—even though constitutionally obliged to do so—on account of financial compulsions or inadequate infrastructural resources, there is no justification in denying the opportunity to the private management to establish an unaided educational institution in such areas, on the grounds that the locality is not included in the state’s perspective or School Development Plan,” said the judges.

The HC said the ban could not be sustained in the face of statistics that there was no secondary school in 50,000 villages and no primary school in 11,000 villages across Maharashtra. The government argued that it was the state’s duty to provide quality education. The court said the “subject of imparting education cannot be said to be in the exclusive domain of the state”.

The state’s other contention that the masterplan was necessary to prevent schools from crowding in one locality also failed to cut ice with the HC. The government counsel claimed that due to the mushrooming of schools, the state was forced to close down divisions or even entire schools due to lack of demand.

Disagreeing with the view, the HC said the existence of a particular school in a locality could not be the grounds to deny permission to set up a new institution. “The children from the locality will have a choice between the private unaided school and the municipal or grant in aid schools. Taking any other view would be denial of opportunity to the children to exercise the option to pursue quality education offered by unaided schools to make them self-reliant and not merely potential pen pushers.”

The government’s final argument that that private institutions exploit students as well as teachers, led the court to say that such a condition exposed its weakness. “The state should play a proactive role in setting up permanent regulatory authority invested with the task of continual monitoring of such institutions, in respect of infrastructure, quality of education and also matters related to the staff and oversee if the fees were used in profiteering and commercialisation of education.”

The court ruled that the July 2009 GR was discriminatory as private unaided English, Urdu and Gujrati medium schools as well as municipal Marathi-medium schools were approved during this period. The high court has directed the state to take a decision on the request of the schools for grant of recognition by May 31, 2010, so that they can start their academic year in June 2010.

Shibu Thomas, The Times of India, 19 April 2010

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The Right to Education Act: A critique

Access to education, Autonomy, Budget Private Schools, Edupreneurship, Government run schools, Learning Achievements, Licenses and Regulations, Right to Education, School Fee, School Management Committee, Teacher performance, Teacher salary, Unrecognized Schools

The `Right of Children to Free and Compulsory Education Act 2009′ (RTE Act) came into effect today, with much fanfare and an address by Prime Minister Manmohan Singh. In understanding the debates about this Act, a little background knowledge is required. Hence, in this self-contained 1500-word blog post, I start with a historical narrative, outline key features of the Act, describe its serious flaws, and suggest ways to address them.

Historical narrative

After independence, Article 45 under the newly framed Constitution stated that the state shall endeavor to provide, within a period of ten years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of fourteen years.

As is evident, even after 60 years, universal elementary education remains a distant dream. Despite high enrolment rates of approximately 95% as per the Annual Status of Education Report (ASER 2009), 52.8% of children studying in 5th grade lack the reading skills expected at 2nd grade. Free and compulsory elementary education was made a fundamental right under Article 21 of the Constitution in December 2002, by the 86th Amendment. In translating this into action, the `Right of Children to Free and Compulsory Education Bill’ was drafted in 2005. This was revised and became an Act in August 2009, but was not notified for roughly 7 months.

The reasons for delay in notification can be mostly attributed to unresolved financial negotiations between the National University of Education Planning and Administration, NUEPA, which has been responsible for estimating RTE funds and the Planning Commission and Ministry of Human Resource and Development (MHRD). From an estimate of an additional Rs.3.2 trillion to Rs.4.4 trillion for the implementation of RTE Draft Bill 2005 over 6 years (Central Advisory Board of Education, CABE) the figure finally set by NUEPA now stands at a much reduced Rs.1.7 trillion over the coming 5 years. For a frame of reference, Rs.1 trillion is 1.8% of one year’s GDP.

Most education experts agree that this amount will be insufficient. Since education falls under the concurrent list of the Constitution, financial negotiations were also undertaken between Central and State authorities to agree on sharing of expenses. This has been agreed at 35:65 between States and Centre, though state governments continue to argue that their share should be lower.

Overview of the Act

The RTE Act is a detailed and comprehensive piece of legislation which includes provisions related to schools, teachers, curriculum, evaluation, access and specific division of duties and responsibilities of different stakeholders. Key features of the Act include:

  1. Every child from 6 to 14 years of age has a right to free and compulsory education in a neighborhood school till completion of elementary education.
  2. Private schools must take in a quarter of their class strength from `weaker sections and disadvantaged groups’, sponsored by the government.
  3. All schools except private unaided schools are to be managed by School Management Committees with 75 per cent parents and guardians as members.
  4. All schools except government schools are required to be recognized by meeting specified norms and standards within 3 years to avoid closure.

On the basis of this Act, the government has framed subordinate legislation called model rules as guidelines to states for the implementation of the Act.

A critique

The RTE Act has been criticised by a diverse array of voices, including some of the best economists. MHRD was perhaps keen to achieve this legislation in the first 100 days of the second term of the UPA, and chose to ignore many important difficulties of the Act. The most important difficulties are:

Inputs and Outcomes

The Act is excessively input-focused rather than outcomes-oriented. Even though better school facilities, books, uniforms and better qualified teachers are important, their significance in the Act has been overestimated in the light of inefficient, corrupt and unaccountable institutions of education provision.

School Recognition

The Act unfairly penalises private unrecognised schools for their payment of market wages for teachers rather than elevated civil service wages. It also penalises private schools for lacking the infrastructural facilities defined under a Schedule under the Act. These schools, which are extremely cost efficient, operate mostly in rural areas or urban slums, and provide essential educational services to the poor. Independent studies by Geeta Kingdon, James Tooley and ASER 2009 suggest that these schools provide similar if not better teaching services when compared to government schools, while spending a much smaller amount. However, the Act requires government action to shut down these schools over the coming three years. A better alternative would have been to find mechanisms through which public resources could have been infused into these schools. The exemption from these same recognition requirements for government schools is the case of double standards — with the public sector being exempted from the same `requirements’.

School Management Committees (SMCs)

By the Act, SMCs are to comprise of mostly parents, and are to be responsible for planning and managing the operations of government and aided schools. SMCs will help increase the accountability of government schools, but SMCs for government schools need to be given greater powers over evaluation of teacher competencies and students learning assessment. Members of SMCs are required to volunteer their time and effort. This is an onerous burden for hte poor. Payment of some compensation to members of SMCs could help increase the time and focus upon these. Turning to private but `aided’ schools, the new role of SMCs for private `aided’ schools will lead to a breakdown of the existing management structures.

Teachers

Teachers are the cornerstone of good quality education and need to be paid market-driven compensation. But the government has gone too far by requiring high teacher salaries averaging close to Rs.20,000 per month. These wages are clearly out of line, when compared with the market wage of a teacher, for most schools in most locations in the country. A better mechanism would have involved schools being allowed to design their own teacher salary packages and having autonomy to manage teachers. A major problem in India is the lack of incentive faced by teachers either in terms of carrot or stick. In the RTE Act, proper disciplinary channels for teachers have not been defined. Such disciplinary action is a must given that an average of 25 percent teachers are absent from schools at any given point and almost half of those who are present are not engaged in teaching activity. School Management Committees need to be given this power to allow speedy disciplinary action at the local level. Performance based pay scales need to be considered as a way to improve teaching.

25% reservation in private schools

The Act and the Rules require all private schools (whether aided or not) to reserve at least 25% of their seats for economically weaker and socially disadvantaged sections in the entry level class. These students will not pay tuition fees. Private schools will receive reimbursements from the government calculated on the basis of per-child expenditure in government schools. Greater clarity for successful implementation is needed on:

  • How will `weaker and disadvantaged sections’ be defined and verified?
  • How will the government select these students for entry level class?
  • Would the admission lottery be conducted by neighbourhood or by entire village/town/city? How would the supply-demand gaps in each neighbourhood be addressed?
  • What will be the mechanism for reimbursement to private schools?
  • How will the government monitor the whole process? What type of external vigilance/social audit would be allowed/encouraged on the process?
  • What would happen if some of these students need to change school in higher classes?

Moreover, the method for calculation of per-child reimbursement expenditure (which is to exclude capital cost estimates) will yield an inadequate resource flow to private schools. It will be tantamount to a tax on private schools. Private schools will endup charging more to the 75% of students – who are paying tuitions – to make space for the 25% of students they are forced to take. This will drive up tuition fees for private schools (while government schools continue to be taxpayer funded and essentially free).

Reimbursement calculations should include capital as well recurring costs incurred by the government.

By dictating the terms of payment, the government has reserved the right to fix its own price, which makes private unaided schools resent this imposition of a flat price. A graded system for reimbursement would work better, where schools are grouped — based on infrastructure, academic outcomes and other quality indicators — into different categories, which would then determine their reimbursement.

What is to be done?

The RTE Act has been passed; the Model Rules have been released; financial closure appears in hand. Does this mean the policy process is now impervious to change? Even today, much can be achieved through a sustained engagement with this problem.

Drafting of State Rules

Even though state rules are likely to be on the same lines as the model rules, these rules are still to be drafted by state level authorities keeping in mind contextual requirements. Advocacy on the flaws of the Central arrangements, and partnerships with state education departments, could yield improvements in atleast some States. Examples of critical changes which state governments should consider are: giving SMCs greater disciplinary power over teachers and responsibility of students’ learning assessment, greater autonomy for schools to decide teacher salaries and increased clarity in the implementation strategy for 25% reservations. If even a few States are able to break away from the flaws of the Central arrangements, this would yield demonstration effects of the benefits from better policies.

Assisting private unrecognized schools

Since unrecognized schools could face closure in view of prescribed recognition standards within three years, we could find ways to support such schools to improve their facilities by resource support and providing linkages with financial institutions. Moreover, by instituting proper rating mechanisms wherein schools can be rated on the basis of infrastructure, learning achievements and other quality indicators, constructive competition can ensue.

Ensure proper implementation

Despite the flaws in the RTE Act, it is equally important for us to simultaneously ensure its proper implementation. Besides bringing about design changes, we as responsible civil society members need to make the government accountable through social audits, filing right to information applications and demanding our children’s right to quality elementary education. Moreover, it is likely that once the Act is notified, a number of different groups affected by this Act will challenge it in court. It is, therefore, critically important for us to follow such cases and where feasible provide support which addresses their concerns without jeopardizing the implementation of the Act.

Awareness

Most well-meaning legislations fail to make significant changes without proper awareness and grassroot pressure. Schools need to be made aware of provisions of the 25% reservations, the role of SMCs and the requirements under the Schedule. This can be undertaken through mass awareness programs as well as ensuring proper understanding by stakeholders responsible for its implementation.

Ecosystem creation for greater private involvement

Finally, along with ensuring implementation of the RTE Act which stipulates focused reforms in government schools and regulation for private schools, we need to broaden our vision so as to create an ecosystem conducive to spontaneous private involvement. The current licensing and regulatory restrictions in the education sector discourage well-intentioned `edupreneurs’ from opening more schools. Starting a school in Delhi, for instance, is a mind-numbing, expensive and time-consuming task which requires clearances from four different departments totaling more than 30 licenses. The need for deregulation is obvious.

Please support our efforts towards ensuring Right to Education of Choice through some of the activities suggested above. Join our RTE Coalition.

Parth Shah, Ajay Shah’s Blog, 1 April 2010

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