India’s Approach to Training Hundreds of Millions of Workers Quickly
This is the second of a two-part mini-series exploring how ventures in the vocational skills and training space are working to address India’s critical shortage of skilled labor. Click on Who’s Picking Up The Check? Financing the Training of 500M by 2022 for the first article of the series.
To equip India’s next generation for meaningful employment, India must increase annual training capacity by 8-10X. The vocational education and training space is centered around India’s national goal of training 500M by 2022, which will require explosive growth of annual training capacity from the current level of 4.5M to 50M a year. Who’s Picking Up the Check: Financing the Training of 500M by 2022, focused on the financial and logistic challenges facing India’s students and businesses before diving into innovative and scalable ways ventures are filling the gap with market-linked training and placement. While progress is being made, for a 10X capacity increase to occur India will require a new paradigm aligned to the scope of the challenge at hand. Splitting The Check steps in to address how the government is working to create a new paradigm through financing, supporting and leveraging partnerships with the potential to scale rapidly.
The Government’s Approach to Scaling Training
As part of a national goal aiming to produce 50 crore (500 million) highly-skilled Indians by 2022, National Skill Development Corporation (NSDC), a government-run organization dedicated to incentivizing wide-spread economic skill-development in India, committed to producing 15 crore (150 million) trainees with 1,000 crore ($185M) of investment funds raised through its public-private partnership.
Meaningfully distributing sums of money this large is hard, especially for the government, which does not specialize in finding efficient and scalable ways to disburse funding to students and training institutions. India doesn’t have the infrastructure or support in place to do this quickly via grants to organizations, or loans to students. Furthermore, even if there was infrastructure in place, pouring additional money into the traditional/current vocational skills and training companies in place is not the solution; nor is funneling money directly to students with the current student-loan terms and structure in place which are leading to a default rate between 40-60%. To account for these problems and complexities, NSDC is making funds available to help businesses and individuals pursue innovative solutions.
Government funding is helping businesses scale faster
Business models in the skills & training are often high volume and low margin, requiring significant investments of time and capital to establish momentum and prepare for scale. Through seeking companies with viable models, NSDC is making capital available via grants and loans to help successful companies—like iSTAR & Edubridge—leverage and scale their success for additional growth.
How individuals are getting paid to go to school
At the individual level, NSDC is innovating through initiatives such as their STAR program, which is ‘motivating youth to voluntarily join skill development.’ The program provides monetary awards up to 15,000 rupees for the successful completion of skills training in high-demand areas at approved training locations. In addition to providing a monetary reward, the program seeks to increase workforce productivity by aligning training and standardizing certification to ensure training better serve India’s needs.
Hybrid – Why can’t students just get a loan?
Traditional student-loans are not readily available in India. As with other sectors, the demographic and economic challenges leads some to point to microloans, which have demonstrated success when there is a viable model accounting for risks and the appropriate structure to ensure a high repayment rate. To date though, 95%+ of microloans are focused on individual producers of goods and services or micro-entrepreneurs. A few innovative players are working to discover what a viable student loan model will look like, taking into account new government programs and factors such as: down-payment, loan rate, loan duration, payment moratorium, co-signing, etc. Two interesting new government programs in this space are First Loan Default Guarantees (in which the NSDC guarantees against defaults for up to 10-20% of a portfolios value) and the new approaches the government is using to facilitate the conversion of grants into loans (See this NSDC report for more detail and great info in this area).
Bringing micro-loans to student lending
Two companies exploring this space are Vittana and Milaap. During the past four years, Vittana raised and disbursed 20,000 student loans across six countries through crowd-funding at a 98% repayment rate. The average increase of income across the board for students is an incredible 93%. In India, Milaap is innovating as well by working across sectors and course types to create sustainable loan programs for a wide variety of students with diverse qualifications.
Through their GRAVITY program (initiated in partnership with Grameen Financial Services Ltd) they are able to partner with vocational training providers like Edubridge and Talent Sprint. In the case of Talent Spring, Milaap loans of Rs. 25,000-35,000 ($400-$600) allow graduates the chance to take high-end software development courses, which enable them to be placed in highly reputed Indian and multi-national IT Firms.
Conclusion: We’re Going to Have to Split This Check
So, Who’s Picking Up the Check for job training? Everyone; but it will often require collaboration. Individuals, businesses and the government each have clear areas of opportunity to facilitate and bring about change on their own. While we explored a few concepts and companies at work, the larger goal is to see that there are opportunities for great companies who are able to bridge the gap and leverage the resources present within the entire sector. As seen in Who’s Picking Up the Check, the funding could come 100% from the individual, like in the situation of iSTAR, as a mixture between the individual and the business, as in Edubridge & V-Shesh, or with the additional funding from the government to scale exceptional opportunities to the next level. This is an area with great opportunities for investment, a chance to get in at the ground-level working with innovative companies to create holistic, scalable, transformational changes. However, this is only the tip of the iceberg, and we expect to see more opportunities open up and great opportunities seized by those by investors ready to leverage multiple opportunities to create new solutions in India. (For additional information regarding ventures working in the space check out 75 Companies Transforming India’s Livelihoods, where over 25 training companies in the vocational skills and training ecosystem are explored along with key trends and potential game changers).
In the next article of the Livelihood series Disrupting Exploitive Supply Chains: Comparing Two Approaches Enabling India’s Artisans, we step into the crafts and handloom sector to illustrate the key factors leading to the exploitation of producers and two innovative approaches being deployed to disrupt the exploitive cycles in place to empower India’s BoP craftsmen