MUMBAI, January 22: After a series of bond issues from corporate houses, public sector units and municipal corporations, it is now the turn of schools to raise money thus. The prestigious Bombay Scottish Orphanage School, Mahim, is likely to set a precedent for educational institutions across the country by issuing ``education bonds'' to finance its expansion and modernisation plans.According to sources, Bombay Scottish is preparing to issue bonds to raise Rs 1 crore for five years. Leading credit rating agency, CRISIL, is in the process of finalising a rating for these bonds. Normally, bonds are issued by companies and semi-government bodies to finance their projects and the repayment with interest is made from the income generated through these projects. Earlier, the school authorities' bid to raise finance through donations had failed. ``The parents were asked to pay Rs 5,000 and above to finance the expansion plans. The plan failed because most of us did not want to dole out huge amounts as
donations,'' said one of the parents.
The school authorities, however, are not too keen to discuss the scheme, yet. Despite repeated attempts, the school principal refused to talk to this reporter on the issue. But sources said that the school, which recently opened a branch in Powai, needed the money for ultra-modern facilities like computer education with internet connectivity and library facility with CD-Rom among other things. Money is also required to repair the old school building at Mahim which is 150 years old.
The actual amount to be raised is unconfirmed (estimate range wildly from Rs 50 lakh to Rs 50 crore). While one CRISIL official put the bond issue size at Rs 50 crore, another official contradicted it with a modest amount of Rs 1 crore. And Rajat Datta, Assistant General Manager of CRISIL put forth another estimate: ``At present the plan is to raise Rs 50 lakh,'' he said.
According to sources, Bombay Scottish is resorting to bond issues because the income from fees is not enough to
finance a series of expansion plans the school authorities have drawn up. Though Bombay Scottish may become the first educational institution in the country to issue bonds, other elite schools are likely to follow suit. As the government is reducing subsidy for education, the cost of running a school is going up and there is an affluent section of society which is willing to pay for high-tech educational skill offered by such schools.
For non-aided private schools, borrowing through bonds is an attractive option. Navodaya schools are funded by the central government, aided schools by state government. For non-aided schools which plan modernisation and expansion to impart 21st century education to their elite students, there is no other way of raising finance. The bond issue will also help the school set up modern facilities and repay the money from regular fee payments by students. Since it is unaided, there is no government funding, and finance comes from other channels.
Currently, there are about
3,000 students from the upper middle class in Bombay Scottish ensuring a steady cash flow from the regular annual fees of Rs 3,000 per student. The annual fees was in the range of Rs 500 to Rs 1,000 per year till recently. ``Unlike other commercial ventures, cash flow is stable for a school ensuring a regular income to repay the bonds. Bond issue by educational institutions is common in the West, and Scottish is going to set a new trend in India," said Crisil's Rajat Dutta.
While trusts running educational institutions cannot raise money through bond issues, schools run on commercial considerations can. For aided schools, government permission is required, unaided schools can issue bonds after the issue document is vetted by the SEBI, which is regulating such bond issues. ``Depending on the regular cash flow from students, the bonds can be structured for long-term repayment and the parents can be asked to subscribe to the bonds,'' said a CRISIL official. Even if capitation fees and donations are illegal,these amounts can also be treated as refundable deposits from the parents. However, educational experts differ on the issue. ``Self-financing education is not a viable option in India because schools cannot be run purely on commercial considerations. Most people cannot afford to pay for their education. Schools like Doon and Scindia were initially meant for the Maharajas,'' said V Shankar, Hon Secretary, SIES.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
