Blended Finance Models: Paving the Way for Inclusive Educational Lending
According to the report by UDISE+, in India, while primary school enrollment is 97.2%, dropout rates shoot up at the secondary level owing to financial constraints
By : DC Correspondent
Update: 2025-02-11 11:50 GMT
Access to quality education is one of the most powerful tools for driving social and economic mobility. However, education financing remains a major hurdle, especially in underdeveloped and rural communities. According to the report by UDISE+, in India, while primary school enrollment is 97.2%, dropout rates shoot up at the secondary level owing to financial constraints. As education costs rise, many families find it challenging to fulfill their children's aspirations for the future. A report by ASER also highlights that the average annual cost of private schooling for a child in rural areas is ₹17,000—a substantial amount for low-income households. In this setting, blended finance has emerged as a transformative solution, bridging the gap between the demand for education and access to affordable credit.
Understanding Blended Finance in Education
Blended finance pools public, private, and philanthropic capital to develop sustainable mechanisms for financing in key sectors, such as education, which can then create scale to address the challenge of educational access. Public-private partnerships (PPPs) or direct government subsidies amplify their impact by providing policy support and financial incentives that facilitate quality education at affordable prices. These collaborations also encourage private sector participation and foster long-term, sustainable outcomes. Blended finance reduces risks for traditional lenders and attracts investment in underserved segments.
Partnerships between NBFCs, banks, and impact investors could help build an ecosystem through which more families and institutions could be served. Each one of them brings their strength to the table:
• NBFCs have specialized expertise in understanding local markets and last-mile connectivity in underserved areas.
• Banks bring scalability and access to large pools of capital.
• Impact investors focus on measurable social outcomes, ensuring the financial model is not only viable but also purpose-driven.
The Role of Blended Finance in Educational Access
Blended finance models can help families and educational institutions transform access to finance.
• Expanding Outreach: Access to affordable credit is a significant issue in rural and semi-urban areas. Blended finance partnerships can create loan products that align with family income cycles, making quality education affordable without financial strain.
• Bridging the Risk Gap: Low-income households have often been out of banking because of risk considerations. In line with this, a report by NITI Aayog reveals that 70% of Indian low-income households are unbanked, and only a minuscule number have access to formal credit. Blended finance models with NBFCs and impact investors can create guarantees or first-loss mechanisms, reducing risks for banks and making it easier to serve these segments.
• Empowering Schools and Institutions: Affordable school financing is a vital solution to such systemic issues as inadequate infrastructural facilities, lack of basic amenities, teacher shortages, and insufficient digital tools. Most private schools face challenges in offering quality education due to these problems. Blended finance can therefore fill this gap by availing capital for schools to improve facilities, equip classrooms with digital tools, and enhance the training of teachers. This ensures that institutions are better prepared to meet the needs of students and deliver a higher standard of education, even in resource-constrained settings.
• Sustainable Financing: Besides having access to funding, the approach creates a sustainable ecosystem. Impact investors ensure accountability by linking returns to measurable outcomes like higher literacy rates and better learning, reducing banks’ risks, and encouraging them to serve these segments.
• Harnessing Digital Tools in Blended Finance Models: Technology automates credit assessments and fund disbursements, reducing administrative expenses. Digital platforms also make transparency and accountability easier by enabling the tracking and reporting of data in real-time, thereby making it easier to attract diverse stakeholders and optimize resource allocation. This will ensure that capital is better utilized in underserved communities, leading to improved accessibility and outcomes in education financing.
The Path Forward
To truly transform educational lending, collaboration cuts across sectors. Policymakers must create a supportive regulatory framework to foster partnerships between financial institutions and impact investors. Similarly, technology can scale efforts by using digital tools to assess creditworthiness, track loan usage, and monitor educational outcomes. Education as an investment also requires public awareness. The problem is that families hesitate to take loans for education considering it a burden but not a stepping stone in leading to success. Financial literacy can boost this kind of mindset.
A Collective Responsibility
It has never been as important as it is today to ensure that every child is integrated into the education system. Such models can be a significant tool in making this a reality by combining the NBFCs, banks, and impact investors. The former for flexibility, the latter for capital, and the third for a purpose-driven approach. This is how a future can be created where every family can access quality education, and every school has the resources to deliver the education children deserve. To understand the value of education is to realize that it is not just a social good but a way to transform the lives of individuals, communities, and nations. Blended finance can help this investment reach all corners of society, leading the way to a more inclusive and equitable society.
Penned By - Mr. Steve Hardgrave, CEO and Co-Founder, Varthana