Skill Loans

 Today ‘Skill Economy’ is market led as new age learning is finding its way in the skill development eco-system. We are witnessing an accelerated fee-based market as youths from urban and semi urban areas are recognizing the availability of skilling and livelihood improvement opportunities. There are ample opportunities for choice of skill courses for any aspiring candidate in sectors such as healthcare, IT, AI-data science, cloud application, digital marketing, hospitality, animation, gaming, graphic designing, drone technology, etc.  These are demand led courses for which the fee is paid by the candidate through self-financing or by availing skill-loan. To scale up the market for fee-based advanced level skill courses, there is a need to ensure availability of funding avenues for candidates to undertake such advanced level courses as these courses entail higher course fees. Access to finance is a significant constraint for many aspiring candidates to pay for futuristic and in-demand industry skills courses. Skill Loan Guarantee Scheme (Scheme) anchored by Ministry of Skill Development & Entrepreneurship has been modified in July 2024 to ensure supply of affordable institutional credit to individuals for undertaking skill development courses.

The Modified Skill Loan Guarantee Scheme notified in July 2024 brings significant changes compared to the earlier scheme launched in July 2015. These changes are aimed at expanding the scheme's reach and effectiveness in supporting skill development across India.

• Loan Limit:
  1. 2015 Scheme: The maximum loan amount was capped at ₹1.5 lakh.
  2. 2024 Scheme: The loan limit has been increased to ₹7.5 lakh, allowing students to access larger financial support, especially for high-cost courses.
• Eligible Lending Institutions:
  1. 2015 Scheme: Only banks were eligible lending institutions for providing loans.
  2. 2024 Scheme: The revised scheme includes non-banking financial companies (NBFCs), micro-finance institutions (MFIs), and small finance banks as eligible lenders, broadening the access points for students.
• Course Coverage:
  1. 2015 Scheme: Primarily focused on courses aligned with the National Skill Qualifications Framework (NSQF).
  2. 2024 Scheme: Now includes a wider range of skill development courses, including non-NSQF courses offered by Training Entities on-boarded on Skill India Digital Hub (SIDH), thereby offering more options for students.
• Course Fee:
  1. 2015 Scheme: Only tuition/course fee was included as an eligible component for loan
  2. 2024 Scheme: Apart from the regular course fee, the component of skill loan also includes any other reasonable expenditure found necessary for completion of the course including but not limited to assessment fee, examination fee, library charges, laboratory fee, caution deposit, purchase of books, equipment’s and instruments, etc. may also be covered. Also, the cost of boarding and lodging if necessary be considered on merit based on the cost of living in the particular area.
• Credit Guarantee and Accessibility:
  1. 2015 Scheme: The uptake was low due to stringent credit requirements.
  2. 2024 Scheme: With enhanced credit guarantees cover, skill loans will be more accessible even to those with weaker credit histories.
• Strategic Focus:
  1. 2015 Scheme: Focused broadly on supporting skill development.
  2. 2024 Scheme: Aligns with long-term strategic goals, such as adapting to future technologies and job market changes. 

The modified scheme is expected to benefit the skilling eco-system in varied ways: 

• Increased Enrollment: Easier access to loans for students will lead to higher enrollment rates for training partners thereby expanding their market reach.
• Reduced Rejections with increased financial Security to lending institutions: The guarantee provided by the scheme reduces the risk for financial institutions, encouraging them to offer loans to even students from economically weaker sections who might not have been able to afford skill development training otherwise.
• Sustainability: The increased and steady flow of students and funds will help skilling institutions sustain and grow their operations, contributing to the overall success of the skill development ecosystem in India.

These modifications are expected to make the scheme more impactful by addressing the limitations of the previous version, especially in terms of financial accessibility and the variety of courses covered.