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Episode 84 · Impact · 36 min

The school with no salary slip

Varthana lends to the institutions banks won't touch — trusts and societies charging ₹500 to ₹600 a month, whose owners hold property but can produce no salary slip and so fail every loan-against-property test. Hardgrave's claim is that India's four lakh private schools are not a scandal to be argued away but a market to be underwritten, because the alternative on offer was a hand loan at 50 to 60 percent a year.

Education & skilling Credit & lending Impact & outcomes

Steve Hardgrave

Co-founder, Varthana · with Vishal Krishna

35:48

Said in this episode

▶ 11:21

₹1,100 cr

Varthana's loan book at recording

The host's figure, confirmed on air; the stated plan is to grow the portfolio past ₹3,000 crore over the next couple of years.

▶ 6:20

4 lakh

Private schools in India

Private schools alone; government schools were described only as roughly three times that number.

▶ 2:32

250 million

Children enrolled in K-12

Hardgrave's caveat: that is the enrolled count, and there should be more; roughly half sit in government schools and half in private, with the private share rising.

▶ 9:51

50–60%

Annual interest on the informal alternative

What school promoters were paying on hand loans in the informal segment before an institutional lender would take them.

▶ 29:04

2% → high teens

NPAs before and during COVID

1.5–2% pre-COVID, spiking into the high teens when 20–30% of the school base had no remote alternative; since brought back to reasonable but not yet normal.

▶ 30:34

₹1 lakh

Typical student-loan ticket

Domestic study only — no study-abroad lending — and aimed primarily at underserved families; the student book is about 10% of the portfolio and targeted above 30%.

The brief

The argument in sixty seconds

Hardgrave's claim is that the low-cost private school is the most under-banked institution in India, and that fixing it is a credit problem rather than an ideological one. He arrived at it sideways — a microfinance business in Mexico, then impact investments across Latin America, Africa and India, where he kept finding that half the women in his borrower groups were sending their children to private schools, and the other half said only that they could not yet afford to. India has four lakh private schools against roughly three times as many government ones, about 250 million enrolled K-12 students, and a private share that climbs as families move from abject poverty into some stability. Those schools own property and take fee income, but the promoter has no salary slip and a trust that is not allowed to show profits, so the loan-against-property desk declines and the hopes get raised and dashed until someone accepts a hand loan at 50 to 60 percent a year. Varthana was built to be the institution that says yes: an acquired Kerala NBFC, balance-sheet lending from day one, field officers on two-wheelers because this customer does not click on ads, and a book now around ₹1,100 crore heading past ₹3,000 crore. COVID tested every part of it — closures, paper worksheet packets carried home, NPAs from under two percent into the high teens — and his answer is still that technology is salsa, not the meal. The stakes he names are blunt: if India does not solve this, in a couple of decades it is screwed.

Worth your time if you are

Lenders underwriting borrowers with no salary slip

Impact investors who want returns and outcomes in one book

Edtech founders wondering why schools don't adopt

Anyone who assumes private schooling in India means privilege

NBFC operators building field-led distribution

Episode map

Where the conversation travels

Every block is a chapter, coloured by what it's about. Click any of it to jump straight to that minute on YouTube.

Education & skillingCredit & lendingImpact & outcomesIndia macroFounder journeySales, GTM & growth

01Cold open: why a school needs a loan 0:00 Vishal frames his own debt to education, and Hardgrave gives the one-line version of Varthana — schools cover operating costs from fees but cannot fund a second storey, and banks avoid them because they are trusts and societies. 02Two books, and a ₹600 monthly fee 1:31 Varthana runs institutional loans to K-10 and K-12 schools plus student finance for post-secondary study, aimed at schools charging ₹500-600 a month at the low end and ₹2,000-3,000 higher up, in a system with about 250 million enrolled children split roughly half government and half private. 03A microfinance detour into low-cost schooling 3:20 A Mexico microfinance business and a decade of impact investing led him to articles about low-cost private schools he could not believe existed, until borrowers from Latin America to Africa to India told him the same thing — better accountability, English, longer hours. 04Why India, and four lakh private schools 5:21 School owners were out of seats and stuck between microfinance tickets that were too small and banks that would not lend at all, and no country offers the demographic moment India does, with four lakh private schools and roughly three times as many government ones. 05Gems, squeezers and men on two-wheelers 6:34 He refuses to romanticise the segment — some owners squeeze every drop, others are the school's whole personality — and describes sourcing as an old-school field problem: riders working a wedge of geography, past the gateman and the secretary to a promoter who is often also the teacher. 06Why banks always said no 9:35 The loan-against-property test wants a salary slip, and a school promoter has an opaque mix of fee income inside a trust that cannot show profits — so hopes get raised and dashed by bank after bank, and the promoter turns to hand loans at 50 to 60 percent a year. 07You cannot bootstrap a lender 11:21 A finance company shovels money out of the door faster the better it does, so bootstrapping was never available — Varthana acquired an existing Kerala NBFC with the founders' own funds in its first year, screened hard for skeletons in the entity's track record, and lent from its own balance sheet from the start. 08Policy at one remove 14:40 Being a finance company keeps Varthana a degree away from education policy, and Hardgrave deliberately declines the advocacy role — a long-haired Californian is not the right voice for Indian education policy — while noting that free-seat mandates shocked the system and these schools simply adapted. 09The first school, and 400 becoming 1,000 16:40 The first customer was a Bengaluru school that had taken in orphans, run by a woman he names as Victoria, which grew from roughly 400-500 students to more than a thousand across eight or nine years of successive loans; another customer went from 300 students to close to 3,000. 10COVID in three tiers, down to paper 17:55 Technology is not a magic wand: the top tier switched to apps effortlessly, the middle needed help getting parents ready or ran on WhatsApp-based content, and for the bottom tier Varthana built paper packets delivered home and marked back at school — material a couple of state governments then used themselves. 11The setback and the edtech hangover 20:28 The NEP is a step in the right direction, but India closed schools more aggressively than almost any country and the children in the system now are handicapped by it, while edtech's glory days have given way to a hangover and the players that survive are the ones embedded in schools. 12Colleges, and what a loan may buy 22:30 Top-tier schools have bank relationships and cheaper rates than an NBFC can match, so Varthana works down-market and with local and nursing colleges, funding anything that improves quality or expands capacity — classrooms, furniture, a playing field, CBSE-grade infrastructure — but not a family wedding. 13India's elite exception 24:02 India's showing on global benchmarks is poor even as its elite runs the world's boardrooms, and the real problem is institutionalising quality down-market against a cram-and-repeat pedagogy and parents who have never navigated education themselves. 14Pragmatism about private schools and CSR 26:34 He has never attended a day of private school and believes in strong public institutions, so his prescription is a split — let government budgets improve government schools for those who can afford nothing, and let finance and CSR reach the rest, though lakhs of tiny schools never show up on a CSR map. 15NPAs, and the road to ₹3,000 crore 29:04 NPAs ran at 1.5 to 2 percent before COVID and spiked into the high teens when 20 to 30 percent of the school base had no remote alternative, and the plan now is to grow past ₹3,000 crore while taking student loans from about 10 percent of the book to over 30. 16Salsa, and a band called No One 31:34 Technology is a condiment rather than a silver bullet, India has no choice but to solve this, and the conversation closes on eleven years in India, driving like a local, a college band called No One, U2 and Sapiens.

Takeaways

Ideas to carry out of this hour

The collateral is fine; it is the income that fails

A loan against property is India's default small-business product, and it asks for two things — property and provable income. The affordable-school promoter has the property but no salary slip, only an opaque mix of fee income routed through a trust that is legally not allowed to make profits. Worse, the property is a school, which a bank quietly knows it cannot foreclose on, so the collateral works against the lender rather than for it. That double failure, not any shortage of demand, is why Hardgrave found a segment that had been promised loans and turned down time and time again.

▶ 10:21 ▶ 10:37 ▶ 10:52

Low-cost private schooling is a demand story, not an ideology

The insight did not come from a study; it came from asking women in microfinance groups why half of them sent their children to private schools. The answers were operational — better quality, more accountability, English, longer hours — and the ones using government schools said only that they could not yet afford private. Roughly half of India's primary and secondary students are in private schools and the share keeps rising as families move from abject poverty into some stability, which is why the number of classrooms needed grows every year.

▶ 2:47 ▶ 4:37 ▶ 4:52

A finance company cannot be bootstrapped

Hardgrave's line is that you can bootstrap a technology company on instant noodles in someone's living room, but a lender shovels money out of the door every day and shovels more the better it does. Neither founder was wealthy enough to fund that, and raising in 2011-12 meant pitching into the shadow of the microfinance crisis. The workaround was to acquire an existing Kerala NBFC with their own money — screened hard, because a licence carrying a shady track record sends institutional investors running for the hills — and then raise on the back of it.

▶ 11:35 ▶ 12:37 ▶ 13:05

This customer will not come to you through a digital ad

The school promoter is not a digitally savvy buyer, so Varthana's distribution is field-shaped: officers on two-wheelers working an assigned wedge of geography, going lane by lane because schools are at least visible from the road. Then comes the human obstacle course — past the gateman, past the secretary, to the third person, who is usually the promoter and often also the head teacher. The pitch has to overcome a history of banks that promised and withdrew, so the first job was simply being the institution that kept its word.

▶ 8:51 ▶ 9:05 ▶ 11:06

Technology is a condiment, not the meal

COVID sorted Varthana's borrowers into tiers by what their families could physically receive: app-ready at the top, WhatsApp-based content in the middle, and at the bottom, homes with neither devices nor connectivity. For that tier the company built paper packets, delivered home, marked up by students and returned to teachers — remote and entirely non-digital — and a couple of state governments used the materials themselves. Hardgrave's framing is that technology is like salsa: it makes other things better but you cannot eat only salsa, and something this consequential should not be surrendered to euphoria cycles.

▶ 18:10 ▶ 19:58 ▶ 32:06

The pandemic put a decade of underwriting on trial

Before COVID, Varthana ran NPAs of 1.5 to 2 percent in a segment most lenders had called crazy to touch — bank-grade numbers from borrowers no bank would take. When schools were ordered shut, 20 to 30 percent of its base had no remote alternative at all and the NPA number spiked into the high teens. It has been brought back to a reasonable level but, in his own words, not yet back to normal, which is the honest version of what a two-year closure did to a fee-funded balance sheet.

▶ 29:04 ▶ 29:18 ▶ 29:34

Let public money fix public schools, and finance the rest

Hardgrave never attended a day of private school and says he believes in strong public institutions, which makes his position on the private-schools-are-evil argument a pragmatic split rather than a defence. Government budgets should go to making government schools better, because a huge share of India cannot afford any flavour of private school. The gap is that lakhs of tiny private schools never appear on a CSR map, so there is a whole middle industry to be built in channelling resources to them — and he is wary of the dependency that a chunky, fickle CSR cheque creates when parents already sacrifice a high share of income for the same school.

▶ 27:04 ▶ 27:50 ▶ 28:32

The next growth is the student book, and the college should pay for it

School loans still dominate, but the student-finance book — domestic only, no study-abroad, tickets around ₹1 lakh to underserved families — is about 10 percent of the portfolio and he wants it above 30 as the total heads past ₹3,000 crore. The argument he makes to colleges is a marginal-cost one: the teacher is hired and the infrastructure is built, so an empty seat costs almost nothing to fill, which makes interest subvention rational rather than charitable.

▶ 30:20 ▶ 30:50 ▶ 31:06

The numbers, drawn

What the episode measures

Every figure below was said on air — timestamps included, caveats kept.

Conversation share

portion of the hour spent on each theme

Education & skilling26%

Credit & lending21%

Impact & outcomes15%

India macro12%

Founder journey9%

Sales, GTM & growth6%

Computed from the chapter map of this episode.

The supply side: private vs government schools

schools (lakh)

Four lakh private schools was stated on air; government schools were described only as 'like 3x that', so 12 lakh is the implied figure rather than a cited count.▶ 6:20

What the closures did to repayment

% of book (NPA)

Stated as 1.5–2% before COVID (upper bound shown) and a spike into 'the high teens', plotted here as 18; Hardgrave says the number is back to reasonable but not yet back to normal.▶ 29:04

The book today and the book intended

₹ crore

₹1,100 crore was the figure put to Hardgrave and confirmed; he says the portfolio should grow to over ₹3,000 crore across the next couple of years, still mostly school loans.▶ 30:20

Worth keeping

Lines that stay

Most of the time banks won't lend to schools, because they're trusts and societies. That's the niche we serve.

— Steve Hardgrave ▶ 0:59

India has the most young people ever in the history of the world that a single country has — nor will any country in the future of the world have this many young people. It's a unique moment in time.

— Steve Hardgrave ▶ 5:51

You can bootstrap a technology company — you're eating top ramen and coding in someone's living room. But as a finance company you're shovelling money out the door every day, and the more successful you are, the more you shovel out.

— Steve Hardgrave ▶ 12:37

Your heart melts when these people say: every brick of this school was financed by Varthana.

— Steve Hardgrave ▶ 17:39

Technology is not the silver bullet. It's like a good salsa — I lived in Mexico a long time, and you can't eat only salsa. Salsa goes on other stuff to make it spicy and awesome.

— Steve Hardgrave ▶ 32:06

Clips that travel

Short on time? Start here

Lenders underwriting borrowers with no salary slip

Property, but no salary slip

The credit paradox in six minutes: why a loan against property fails a school promoter, and what a 50-60% hand loan does to the alternative.

9:35 → 11:21 · 2 min ▶ Watch clip

Founders raising for a capital-hungry business

You cannot bootstrap a lender

Raising into the shadow of the microfinance crisis, buying a Kerala NBFC with your own money, and screening a licence for skeletons.

11:21 → 14:40 · 3 min ▶ Watch clip

Edtech founders wondering why schools don't adopt

COVID in three tiers, down to paper packets

The clearest account on air of what 'digital' means at each fee level — and the non-digital remote system two state governments borrowed.

17:55 → 20:28 · 3 min ▶ Watch clip

Impact investors and CSR allocators

Are private schools evil?

A public-school believer argues for the split: government money to government schools, finance to the rest, and why chunky CSR is a two-edged sword.

26:34 → 29:04 · 2 min ▶ Watch clip

NBFC operators and credit analysts

Two percent to the high teens

The unvarnished COVID credit numbers, then the forward plan — ₹3,000 crore, and a student book meant to triple its share.

29:04 → 31:34 · 2 min ▶ Watch clip

Glossary

The jargon, unpacked

NBFC

A non-banking financial company — licensed to lend but not to take deposits like a bank; Varthana acquired an existing one in Kerala rather than applying from scratch.

Affordable private school

A small, usually owner-run private school charging fees low enough for low-income families — around ₹500-600 a month at the bottom of Varthana's range, rising to ₹2,000-3,000.

Loan against property (LAP)

The standard secured loan where a borrower pledges property and proves income; the second half is what school promoters cannot do, since a trust shows no salary and no profit.

Hand loan

Informal borrowing outside the financial system — the fallback for school owners who could not get a bank loan, at rates Hardgrave puts at 50 to 60 percent a year.

NPA

A non-performing asset: a loan on which repayments have stopped for long enough to be classified as bad — Varthana's ran at 1.5-2% before COVID and spiked into the high teens.

Interest subvention

An arrangement where the institution, not the student, absorbs part of the interest cost on a student loan — Hardgrave's pitch is that a college with empty seats faces almost no marginal cost in filling them.

Free-seat mandate

The education-for-all rule requiring private schools to reserve a share of seats for underserved children, with the government reimbursing the fees; described as a shock the segment adapted to.

NEP

India's National Education Policy, the overhaul Hardgrave calls a great step in the right direction while insisting the sector remains far from where it needs to be.

Connections

If this resonated, go here next

EP 72 · Impact

Full transcript

The whole conversation, searchable

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