Money in the Classroom
Schools are fast becoming money-spinners,despite the governments intention to shelter them from the wheels of profit.The latest to hop on are school management companies,which are attracting entrepreneurs and PE investors.Till the going is good,theyll keep going,says Ahona Ghosh
Schools are fast becoming money-spinners,despite the governments intention to shelter them from the wheels of profit.The latest to hop on are school management companies,which are attracting entrepreneurs and PE investors.Till the going is good,theyll keep going,says Ahona Ghosh
EARLIER this month,Career Point Infosystems,a Kotabased tutorial service provider,had a dream debut on the bourses.Its shares more than doubled on listing,and the company raised 115 crore from its initial public offer (IPO).The overwhelming investor response was as much a comment on Career Points old business,tutorials,as it was on its new business,schools.The concept of schools as a business is at odds with the governments stated position on the issue.Saying schools shouldnt be run like a business,the government mandated a trust structure for all schools from kindergarten till class 12,or K-12 schools.So,only non-profit trusts can operate schools;and if a trust has a surplus,it has to reinvest it in the school it runs.At least on paper.In reality,there are ways and ways to take money out of a school.The surplus of a trust cant flow out,but money can flow out on the pretext of payments real or fictitious for services provided to the school.Its been happening all these years, says Madhav Chavan,CEO and president of Pratham Education Foundation,a voluntary organisation focused on educating underprivileged children in India.
Increasingly,its getting organised.Companies and investors are hooking up to devise business models that are legal,but are morally ambivalent in the present construct of the law.The essence of these business models is companies providing services to schools for example,leasing a building or managing its operations in return for a fee.That fee is negotiated between the trust and the company;in dealings that are not at arms length,this arrangement makes a mockery of the trust structure.
For companies and investors,it is making available an increasing chunk of the schools segment $20 billion,and growing at 14% a year,according to Kaizen private equitys education report.Suddenly,schools have become big business.In 2010,till August,private equity funds had invested $168 million into the sector through 14 deals,according to VC Circle,an investment research firm tracking private equity,M&A and venture capital (See table: Going to School).
Its a stable business,as children tend to continue in one school till they graduate.And it offers terrific growth.Only 40% to 50% of the 360 million population below the age of 20 is enrolled in a primary or secondary school.In higher education,just 10% are, says Rashi Prasad,associate director strategic and commercial intelligence,transaction services at KPMG India.Sorting out the farce of trusts or allowing for-profit schools is another debate,one that is unlikely to be resolved soon given its sensitive nature (See box: An Erosion of Trust).Meanwhile,companies are nudging their way past the regulatory network using two business models.They are also tapping two other business models in which there is no ambiguity on their presence.