LGT Impact Fellow Spotlight: Smiti Sahoo

Smiti is working as a Fellow for our Portfolio Organisation Varthana in India.

Thinking of Schools, the initial associations that come up are academic pursuit or maybe holistic learning. An unlikely association is perhaps school management and even less likely: school’s financial management.

Financial Consulting for Private Schools in India

Schools are centers of learning and their core competency is imparting knowledge through teachers to students, but we often tend to overlook the infrastructure that facilitates this process. Infrastructure includes school building, amenities like classrooms, laboratories, playground and much more. Availability of financial resources is required to procure them. This article discusses Varthana’s first-of-a-kind offering at Affordable Private Schools (APS) to support efficient resource management as they strive to provide quality education to their students.

In larger, aided private schools, financial management may not be a key issue thanks to their benefactors and high fee income. In government funded schools, proper fund management might be desirable but not vital. However, in smaller and usually unaided APS, whose low fee levels are designed to cater to the weaker economic segments, proper management of the school’s finances could be the difference between well-functioning schools and schools that are battling for their very survival. This underlines the importance of financial management in schools in general and APS in particular.

Varthana began bridging the financial inclusion gap in the Indian APS segment through loan financing, as segment banks and other traditional financers would avoid these given their higher risk profile. However, merely financing APS doesn’t seem to be enough. Financial acumen is usually not the forte of such schools as they focus on their core offering: imparting quality education. While bigger schools can afford to hire experts in finance and accounting to help manage their finances, APS are usually financially far too stretched, to be able to afford this expertise.

Consequently, income from students’ tuition fees and expenses incurred remain inadequately tracked. When the school has a large expenditure due or a big investment in the pipeline, it usually doesn’t have sufficient cash and has to resort to expensive loans from local moneylenders, getting stuck in a debt-trap and making large interest payments rather than reinvesting in the school. Loan default is another hazard, due to fund crunch resulting from lack of financial management. Studies have shown default rate of such loans is ~3%. This results in further financial and legal encumbrances for schools. These are representative, not exhaustive, reasons for resource deficits at schools, with potential effects ranging from affecting the education quality to even the school’s very survival.

Over the years, Varthana has realized the need to go beyond loans and provide additional Financial Consulting services to schools by tracking cashflows, regular monitoring, budgeting and planning for the upcoming school year and achieving any specific financial goals desired by the schools.

For example, a client school wanted a certain cash surplus at the end of the school year to reinvest in future infrastructure for school development. At that time, the school had monthly cash deficits and our task was devising strategies to transform that into a surplus. Our Financial Consulting offering would be instrumental in achieving this goal.

Introducing schools to Financial Consulting:

‘Consulting services’ to schools is a novel concept in the education sector and has to be explained to early clients. Ensuring that clients understand the project goals is key to successful execution and obtaining requisite inputs in a timely and accurate manner. We organize training sessions to familiarize them with basic financial concepts such as cashflow, operating and non-operating income and expenses, assets, liabilities, etc. This enables schools to be self-sufficient in financial management and inculcates a spirit of financial discipline, which would persist post Varthana’s active engagement.

In the background, the team brainstorms to create the necessary tools and templates to analyze data, identify key insights and areas of concern and present the findings to School Leaders in an easy-to-understand format to help drive actionable decisions.

Facing and addressing challenges along the way:

Finance is a scary black box, even for the best of us, and it is no different with school leaders and administrative staff. Multiple and repeat trainings are conducted to familiarize clients with basic concepts to obtain the required data in a usable format with minimal additional effort. The challenge of not having a standardized format of maintaining ledgers in schools is being addressed by creating replicable tools compatible with various types of data inputs and standardizing templates. Lastly, extra efforts are being taken to ensure the school’s compliance to project timelines.

How exactly are we helping schools?

Schools have demonstrated immense interest for financial management services to help them set their house in order. Periodic financial snapshots provided on a bimonthly basis are helping School Leaders take stock of the school’s income and spends, identify and resolve problems faster and adhere to budgets. Cash generated by the operating activities is helping avoid exorbitant interest payments by repaying hand loans faster. Avoidable expenses are being identified and strategies are being formulated to improve fee collection efficiency. Conversations with school management are being held to create the budget for the school year and ensure adherence as well as achieve any specific financial targets. The benefits of investing in simple financial savings products, over keeping idle cash on hand are demonstrated.

Cash parked in simple term deposit earns incremental interest income unlike cash on hand

Till now and looking forward

Following a quarter of engagement with the example school mentioned above, we have identified the areas of potential spending reduction and have seen a firm commitment from the school to track their cashflows. This has resulted in lower levels of deficits and even some cash surplus over the past months and trends towards higher surpluses in the coming months! The client is satisfied with the progress and has engaged actively by implementing the recommendations. We have replicated similar projects with different desired outcomes for other schools and the received positive feedback. As we engage with more schools, we hope to better understand the requirements of school leaders and help them grow their schools as per their vision.

Eventually the end goal is to ensure that APS have the resources in place to achieve their core objective, to provide quality education to all sections of the society.