Who's Picking Up the Check? Financing the Training of 500M Indians by 2022

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As India continues the transition to an advanced service economy, it is facing a critical shortage of skilled labor.  Although universities are producing upwards of 70 lakh (7 million) graduates per year, only 15% have the skills necessary to get a good job upon graduation.  To bridge the gap, there is a growing sector of skills and training enterprises focused on finding innovative ways to train, equip and place employees into India’s expanding workforce.  These companies are in the business of taking unskilled workers and providing them the training they need to find employment at companies seeking skilled labor.  While some livelihood companies are having success, the sector as a whole is still struggling with the following questions: Who is going to pay for it? The students seeking training, the businesses seeking employees, the government seeking to jump-start the economy, or some combination of the three? Also, is there some kind of financing that might help out?

 

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To address these questions, we’ll dive into the challenges facing individuals and businesses along with some of the approaches venture are utilizing to achieve success at scale.  In the second article we’ll explore how the government is promote scalable solutions through partnerships before diving into ways companies are addressing the financing challenge specifically.

Training & Placement economics & baseline education info

Before diving in, here’s a quick intro to the basic economics and risks within the space.  While there are a myriad of training programs, costs and lengths, an average program takes 3 months, costs 10,000 rupees (USD $166) and, requires an additional 10,000 rupees to cover cost of living during the duration of the program (see pg 8-9 of this NSDC report for a more comprehensive break-down). While explored more fully below, three significant risks associated with skill training are:

  • Will the student complete the training? (Interest, Ability, Skill, etc.)
  • Are the skills, training, and placement sufficient? (Prepared for success)
  • Will the student default on obligations? (Underpaid, Pay structure, etc)

In a sophisticated market economy, companies need employees who possess specialized education and technical skills.  Unfortunately, the overwhelming majority of the Indian workforce does not possess marketable skills.  According to recent data, only 20% of men and 11% of women living in urban areas have marketable skills, and only 10% of men and 8% of women in rural areas (Click here for a deeper look at education & literacy levels by sector).

Challenges within student-driven funding models

Skills & training companies are caught in a challenging cycle where they must make significant investments in business-relationships in order to offer a skills-focused curriculum aligned to their needs.  Moreover, these curricula require significant capital to provide adequate skills to trainees.  Many programs carry a high price tag, both in actual cost and opportunity cost of lost wages, for the trainees who inevitably bear the financial burden in the absence of company or other support. The cost of training therefore presents a significant financial hurdle for most people and limits the number coming out of these programs.

New program structures are breaking the cycle

iSTAR is an example of a skill & training company breaking this cycle successfully.  By partnering with 6 universities and increasing the time required for repayment, iStar has provided training services to over 3,000 students at an affordable cost.  The program connects students to a curriculum designed explicitly to meet the requirements of hiring companies, while also providing career counseling and job placement services.  Job training is integrated into a local university’s curriculum through one course each semester during each student’s three years in college.  In lieu of one large payment up-front, student’s fees are also paid as part of their college bill across the three year span.  Through this approach, iSTAR is able to ensure more students are trained and therefore get into the workforce.

SkillPro

Another example is SkillPro, a sustainable social venture focusing on vocational training and placement-linked skilling.  SkillPro helps Government, NGOs, and Corporations in implementation of large-scale vocational education programs. SkillPro is in 12 states now and has started expanding into 4 more states. Their goal is to train and find employment for 1 million people in 5 years.

Why Businesses Are Hesitant to Pick Up the Bill

India needs 20 million workers in retail, finance, and related service sectors during the next 2-3 years.  While the demand is significant, businesses are hesitant to spend significant amounts on training and placement services due to the levels of quality and non-specialized training many candidates receive.  They also struggle with high levels of attrition and lack of loyalty with a high percent of entry level-employees departing to pursue slightly-better opportunities within a few months.  As a result, it is hard to justify investing in new-employee training services when those trained often leave soon thereafter.

How Edubridge and V-Shesh are breaking the cycle

To disrupt this cycle, skills & training companies are targeting high-growth sectors to foster new types of relationships with companies to enhance training and lower attrition.  In addition to ensuring candidates have the company-specific requirements to succeed, they identify and seek candidates who are a good fit, and therefore more likely to remain with the company for an extended period of time.  When the risks associated with skillset and retention are lowered, companies are more willing to invest time and money in the form of commissions and placement awards.  Two companies enjoying success in this area are Edubridge & V-Shesh.Edubridge

Edubridge targets unemployed youth who are no longer part of the education system.  For RS 5,000 ($85), students receive 3-8 weeks of training and a money-back guarantee tied to job placement.  The result is that students are often the first members of their family to receive formal employment and they step into jobs making RS 6,000 – 15,000 ($100-$250) per month.  With strategic partnerships, a franchise model and an innovative pay-per-use infrastructure system, Edubridge generates 10x capital efficiency compared to competition.  Through this model, they are aiming to help 10 lakhs (1 million) rural Indian youth by 2015 by creating a “rural-corporate link which provides a steady flow of quality talent and info between rural areas and economic centers.”

Meanwhile V-Shesh is bridging the skill and training gap in a comparable way for India’s population of people with disabilities (PwD).  There are 7 crore (70 million) Indian PwD, 95% of which are sub-optimally trained. Through job-specific training aligned to partner company requirements, V-Shesh provides companies a unique way to bring value to their operations. At the same time, they are able to provide dignity and livelihoods to a minority that is often unseen and forgotten within society.

V-Shesh

By focusing on individuals with challenging and disadvantaged backgrounds, employers can select candidates with higher levels of appreciation for their jobs and loyalty to their employers. Reliable and loyal employees are attractive, which makes employers more willing to invest into the relationships and placement fees necessary for companies like Edubridge and V-Shesh to be successful.

Other Approaches and What’s On The Horizon?

While Edubridge and V-Shesh provide great examples, they represent just the tip of the iceberg in a training space with $20 billion market potential through 2022.  For more examples into innovative and scalable companies such as Unnati, Rural Shores, Head Held High and others, be sure to check out the “The Trainers” portion of 75 Companies Transforming India’s Livelihoods where these and 25 other ventures in the vocational training and skills ecosystem are explored.  In addition to illustrations, you will also find different trends and potential game changers addressed, such as:

  • Will e-learning technology enable training providers to deliver content at a high level of quality and provide better objective assessment of student outcomes?
  • Will marketplaces like Babajobs or Just Rojgar provide means to highlight job seekers’ training credentials, making them more employable?

These solutions are just the start

Even though India’s livelihood development ventures must address a variety of significant challenges facing both applicants and employers, they are beginning to take meaningful first steps towards filling India’s skill & training gap.  Unfortunately meaningful steps alone will not allow India to increase the annual training capacity of 4.5M a year by the 8-10X necessary to achieve the national goal of training 500M by 2022.  For insight into the innovative ways India’s government and partnerships are stepping in to help bring solutions at scale, check out the second part of this mini-series Splitting the Check: Partnerships Key to Training 500M by 2022.

Next livelihoods article: Splitting the Check: Partnerships Key to Training 500M by 2022

Visit the Education & Skilling Sector Page for additional news and new research

 

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