BYJU'S, the world’s most-valued edtech company, has been looking for a sense of calm throughout 2022. And just when it seemed like it was entering a phase of relative calm after it conducted mass layoffs to focus on capital-efficient growth, the Bengaluru-based firm found itself being pulled up by the National Commission for Protection of Child Rights (NCPCR) over alleged hard-selling and mis-selling of its courses to students. The child rights body summoned BYJU’S after it took cognizance of a report that alleged that the edtech major was pushing households to take heavy debts and exploiting students.
Appearing before the commission, BYJU’S denied the allegations and said it follows a triple-layered audit mechanism to ensure that its sales staff doesn’t pursue customers who are uninterested in or unable to pay for its products.
However, NCPCR says that the company has submitted that it will conduct an affordability test to ensure that its courses are not sold to customers whose income is below `25,000 a month, and that it will pay back the fees collected from parents who would have failed the affordability test.
Industry watchers say the submission does little to address the allegations against the company. For instance, how does the company plan to conduct the affordability test, or what tools, formats, platforms and data would be used to determine the income status of a customer, they ask, adding that there are no answers.
“This [the affordability test] is doable, but the question is, does the company genuinely want to do it? You can assess the bank statement or pay slips of the customers to determine the income levels. What if the parent is self-employed? What would you do with customers who may not have relevant documents or be unwilling to share those?” asks the founder of a fintech start-up that works with edtech companies.
NCPCR Chairperson Priyank Kanoongo tells BT that the company would be carrying out the affordability test directly with its customers. Experts fear that an affordability test by the company would be nothing more than a column in the sales form that the customers would inadvertently sign off.
An affordability test is not a common practice among edtech firms in India, which are struggling to keep up the growth momentum after the pandemic-led boom. BYJU’S has said it does not directly offer loans to its users but connects parents to third-party banks and financial institutions.
In a normal scenario, a lender would conduct an affordability test as a standard protocol at its end irrespective of whether its edtech partner has done the checks or not. However, there is a catch. According to sources BT spoke to, many edtech companies, especially in the K12 space, have been operating on shady partnerships with financial institutions wherein they demand as many loan approvals as possible irrespective of the financial status of customers. In return, the heavily capitalised start-ups act as guarantors and foot the bill if the customer fails to pay back in time.
BYJU’S had earlier stated that the First Loss Deposit Guarantee (FLDG)— an arrangement between a third-party entity and a financial institution whereby the former guarantees to compensate the lender if the borrower defaults—is an accepted industry practice. “Were it not for FLDG, the majority of consumer parents would not have been able to raise personal loans from banks and financial institutions at affordable rates,” it had said.
As maximum approval becomes the mandate, allegations of mis-selling arises where sales professionals do not clearly communicate to customers that they are signing up for a loan, which may deter some.
“When the edtech firm acts as a guarantor, it becomes more like a secured loan for the lender. Many fundamental protocols and basic checks are sacrificed... an edtech player is trying to sell a course and a fintech is trying to increase its AUM as both want to grow their valuations and get the next round of funding,” says the founder of an NBFC on condition of anonymity. Consequently, loan default rates have been skyrocketing lately with some players in the K12 segment witnessing non-performing assets to the tune of 20-25 per cent, he says.
There is more to it. NCPCR says these partnerships between edtech platforms and financial institutions are illegal because as per the Reserve Bank of India’s guidelines for education loans, there is no provision to provide loans to parents for tuition of their children. “There is no mention [in the RBI guidelines] that financial institutions can give loans for the purpose of tuition. Is providing personal loans part of their business?” asks Kanoongo. He says non-payment of such loans will affect the credit score of parents, which in turn can impact their children’s future chances of getting loans for higher education as the parents wouldn’t be eligible to act as guarantors. Also, he says that these loans put children under stress as it becomes difficult for them to discontinue an online programme if they wish to, as their parents wouldn’t let them due to the loans they have taken. The commission says it will approach RBI with a recommendation to ensure proper implementation of the guidelines.
“Nobody is going to verify if it (BYJU’s) is doing the affordability test. It’s not like the commission will employ an auditor to audit or to certify it. The tone at the top has been about valuations, and not values. This looks more like a PR exercise from BYJU’S, rather than a genuine attempt,” says Shriram Subramanian, Founder & MD of InGovern Research Services.
As things stand, it is still unclear as to how the company plans to take care of the issue, and it needs to be seen how the child rights commission will proceed with the case.
@binu_t_paul
