Keynote 3: Innovative Finance in Education CABRI
Description: Keynote 3: Innovative Finance in Education CABRI Education Dialogue Serena Guarnaschelli, Dalberg Global Development Advisors 26 February 2013 Share knowledge about current practices in innovative finance Align financing mechanisms with
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slide1. Keynote 3: Innovative Finance in Education CABRI Education Dialogue Serena Guarnaschelli, Dalberg Global Development Advisors
26 February 2013<br>
slide2. Share knowledge about current practices in innovative finance
Align financing mechanisms with current challenges for education
Provide recommendations for next steps Objectives<br>
slide3. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide4. Innovative Finance encompasses a wide range of initiatives, such as global taxes, social bonds and blended funds Channels Description Examples Type Mobilize extra funding either through mandatory (tax) or voluntary (philanthropic) contributions Taxes and levies
Voluntary contributions and donations
Debt swaps
Lotteries Airline Solidarity Contribution/Tax applied when passengers purchase tickets PRELIMINARY<br>
slide5. Over the past ten years innovative fundraising mechanisms raised US$ 60 bn with a focus on environment, health and infrastructure… Agriculture Education Energy and environment Health Infrastructure Investment funds
Guarantee funds
Partnerships (Information and policy) Partnerships (Information and coordination)
Investment funds Bonds
Investment funds PRELIMINARY Sample mechanisms Sample initiatives The African Enterprise Challenge Fund
AGRA/Standard Bank
Transfarm Africa Asian Infrastructure Fund
Infrastructure Bonds
EBP Investment funds
Bonds
PPPs Levies
Bonds
Performance based funds Airline Solidarity Tax
IFFIm
Global Fund
GAVI Alliance Green Bonds
Adaptation Fund Global Partnership for Education
1Goal Campaign
Affordable Learning Fund Note: The estimation of market sizes, by sector, is complicated by a lack of common definitions and methodologies, and by the highly diverse nature of initiatives across sectors. The World Bank estimates that innovative fundraising generated US$ 57.1 billion in official flows between 2000 and 2008 Observed activity Medium Low High High High<br>
slide6. Mechanism … and generated valuable lessons for the design and implementation of new mechanisms Explanation Initiative PRELIMINARY Use of standard risk/return profiles from existing issuance programmes, high transparency Green Bonds (US$ 3 bn) Highly rated fixed-income products that support sustainable development Grants and interest-free loans awarded to the private sector through competitive rounds Strong and sustained business engagement based on private-sector principles The African Enterprise Challenge Fund (US$ 150m) Tobin tax Tax on foreign exchange transactions Lack of political commitment, unclear impact on economic activity MassiveGood Branding, communication and operational problems Micro-fundraising scheme IFFIm (US$ 3.6 bn) Bonds to frontload future ODA commitments International coordination, strong execution, scale<br>
slide7. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide8. Public funding and public use of funds are the dominant paradigm for educating children both in developed and in developing countries %, by education level Spending on Education in Africa Source: UNESCO 100% Household Contributions Public and other
private expenditures Tertiary Education 100 22% 78% Upper Secondary Education 100 44% 56% Lower Secondary Education 100 49% 51% Primary Education 100 30% 70%<br>
slide9. Within categories of spending, the vast majority of public spending is on teacher salaries %,of current expenditure , by education level (2008 or more recent year) Salaries Costs Source: UNESCO Technical and Vocational Education Tertiary Education Primary Education Lower Secondary Education Upper Secondary Education<br>
slide10. Private sector funding for education in Africa is dominated by household expenditures on education % Sources of Education Financing for Madagascar and Benin Source: UNESCO-IEP Benin, 1998 Madagascar, 1993 Income generated by schools External subsidies 7% 0% NGOs and private organizations 5% 3% External loans 100% Households Local administrations Government 52% 10% 0% 4% 56% 1% 1%<br>
slide11. Private equity funds are emerging to capitalize on this spending and in anticipation of increased enrolment in the future. Note: Only funds disbursed to non-government actors in developing countries are included in this analysis. Analysis presented is meant to offer representative sample of grantors and impact investors, not to present a comprehensive view of all education impact investment activity. Many multi-sector portfolios include only 1 or 2 education deals. Foundation education portfolios for 2009 inclusive of both US and international grants.
Source: Foundation Center - Top Education Grants 2009; Fund / investor websites, investor interviews; Dalberg analysis. Open Society
Foundations Richard Chandler
Corporation Kaizen PE Carnegie
Corporation MacArthur
Foundation Ford Foundation Dell Foundation Echoing Green Deutsche Bank
Foundations Hewlett Foundation GroFin Africa Fund Acumen Fund Omidyar Network Fund Africinvest Sequoia Capital SONG Investment
Management Company Fanisi Venture Capital Fund International Finance
Corporation (IFC) Edu. Portfolio Gray Ghost Ventures Partnership for Higher
Edu. in Africa First Education
Holding Education-dedicated Portfolios Multi-sector Portfolios Grant-making investors Financial-first investors Impact-first investors TARGETED BENEFICIARIES Most vulnerable Middle income Low income Upper-middle income Private donors and investors in education<br>
slide12. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide13. Within education, innovative financing mechanisms are being used to mobilize additional resources and improve the use of existing resources Example Mechanisms Cash on Delivery (COD)
The Education Venture Fund (EdVF)
Indian School Finance Company (ISFC)
The 2010 FIFA World Cup Legacy Trust
Diaspora Bonds Stakeholders International donors
Impact Investors (including both equity and debt based approaches)
Philanthropic organizations
Diaspora community Innovative Finance to Mobilize Resources Bridge Academies (Low-cost private education)
Vouchers programs
Pay-for-performance Schools
Families and students
Teachers Innovative Finance to Use Resources More Efficiently Items in bold will be discussed in the following sides<br>
slide14. Mobilize Resources: The Education Venture Fund (EdVF) Source: Results for Development; Dalberg analysis.<br>
slide15. Use Resources More Effectively: Bridge Academies Source: Bridge Academies; Dalberg analysis. Objectives To launch a large-scale network of high-quality, ultra low-cost, for-profit primary schools
To give every child access to high quality education Funding Source Private equity funds and venture capitalists
High impact philanthropy
School tuition Status Launched in 2009 Size and Scale 83 schools across Kenya catering for 26,000 pupils.
$4 per child per month Feasibility Franchise-like model with standard curriculum, materials, training programs, technology, etc.
BIA recruits school managers and teachers from the communities it serves. Relevance and Acceptance Will vary depending on attitudes toward public education<br>
slide16. Use Resources More Effectively: Education Vouchers in Colombia Source: World Bank. "Innovative Finance for Development Solutions.“; Dalberg analysis. Objectives To expand private provision of public services
To increase secondary school enrolment rates Funding Source Government Status Implemented in 1991 Size and Scale More than 125,000 pupils
Vouchers cover more than half the average cost of private secondary school. Feasibility Operated in all large cities in the country
Targeted low-income neighbourhoods
Targeted students who attended public primary schools
Requires a private school infrastructure Relevance and Acceptance Voucher holders had substantially higher high school graduation rates and test scores<br>
slide17. Successful innovative finance mechanisms must be closely aligned with the challenges of the country in which they operate.
Three potential ways for governments to mobilize funds:
A philanthropic program (FIFA 2010 Trust Fund)
A bond or results based pay mechanism (Diaspora Bonds or Cash on Delivery)
Impact investment (The Education Venture Fund (EdVF) and the Indian School Finance Company (ISFC))
Results-based-aid mechanisms and impact investing hold the most promise
Very few proven innovative finance models for education in Africa
Implementing new innovative finance models will require political coordination and support Key findings from review of case studies<br>
slide18. Recommendations How can policymakers support innovative finance? Align mechanisms with country specific challenges
Assess political will to make changes
Ensure appropriate regulatory environment
Develop and promote public private partnerships How can civil society support innovative finance? Experiment with new approaches
Provide feedback to policy makers
Partner with the private sector How can the private sector support innovative finance? Demonstrate that low-cost private education is higher quality
Develop and promote public private partnerships to scale solutions<br>
slide19. Questions and Discussion ?<br>
slide20. Additional Cases<br>
slide21. Mobilize Resources: Cash on Delivery (COD) Source: Center for Global Development; Dalberg analysis. Objectives To provide additional funding to developing countries in return for achieving progress against pre-agreed targets Funding Source Official and private donors Status In pilot stage Size and Scale COD Aid needs to be additional and complementary to existing aid flows Feasibility DFID is currently piloting a Result Based Aid Project in the education sector in Ethiopia, which shares many features with the COD model.
Concerns that COD could create incentives for fraud Relevance and Acceptance A focus on outcomes and a hands off approach<br>
slide22. Mobilize Resources: Indian School Finance Company (ISFC) Source: ISFC; Dalberg analysis. Objectives To provide loans to affordable private schools
To build a network of affordable education solution providers Funding Source Impact investors and capital markets Status Founded in 2008 and currently operates in seven Indian cities Size and Scale 240 loans totaling $4.2 million by the end of 2010
33,000 additional students attending private schools
950 new school jobs. Feasibility ISFC estimates that approximately 45,000 private schools for the low-income segment exist in India
Loans are typically used for infrastructure investments (such as new classrooms, computer labs, and furniture), which allow an increase in enrolment and revenue Relevance and Acceptance A focus on outcomes and a hands off approach<br>
slide23. Mobilize Resources: 2010 FIFA World Cup Legacy Trust Source: FIFA Legacy Trust Fund; Dalberg analysis. Objectives To support education and healthcare initiatives of NGOs that use football as a vehicle for community development
To promote football within South Africa Funding Source Revenues of the 2010 FIFA World Cup Status Selecting projects for funding Size and Scale $100 million, $80 million of which is allocated directly to social community projects
A one time event focused on South Africa Feasibility The trust will be administered by the international auditing company Ernst and Young while the trustees, consisting of representatives from FIFA, SAFA, the government and the private sector, will evaluate which public-benefit projects are funded Relevance and Acceptance Education is one of four focus areas<br>
slide24. Mobilize Resources: Diaspora Bonds Source: Leading Group for Innovative Finance for Development; Dalberg analysis. Objectives To raise large scale funding from overseas diaspora for the support of national budgets and the filling of financing gaps in development programs Funding Source International diaspora of country issuing the bond Status Not implemented for education Size and Scale World Bank estimates suggest that annual diaspora savings of SSA could be in the range of $5 to $10 billion. Feasibility Credit enhancements for diaspora bonds may be required
Diaspora would shift resources from remittances to diaspora bonds Relevance and Acceptance May include conditions on management of educational investments and include incentives for countries to produce the desired results<br>
slide25. Use Resources More Effectively: Performance-based pay for teachers in OECD countries Source: OECD; Dalberg analysis. Objectives To reward and motivate teachers who perform well rather than paying all teachers equally
To link spending on schools and outcomes Funding Source Public and private funding for schools Status About half of OECD countries Size and Scale Unknown Feasibility Requires consent of the teachers unions
Requires accepted approach to measure performance Relevance and Acceptance Unknown<br>
26 February 2013<br>
slide2. Share knowledge about current practices in innovative finance
Align financing mechanisms with current challenges for education
Provide recommendations for next steps Objectives<br>
slide3. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide4. Innovative Finance encompasses a wide range of initiatives, such as global taxes, social bonds and blended funds Channels Description Examples Type Mobilize extra funding either through mandatory (tax) or voluntary (philanthropic) contributions Taxes and levies
Voluntary contributions and donations
Debt swaps
Lotteries Airline Solidarity Contribution/Tax applied when passengers purchase tickets PRELIMINARY<br>
slide5. Over the past ten years innovative fundraising mechanisms raised US$ 60 bn with a focus on environment, health and infrastructure… Agriculture Education Energy and environment Health Infrastructure Investment funds
Guarantee funds
Partnerships (Information and policy) Partnerships (Information and coordination)
Investment funds Bonds
Investment funds PRELIMINARY Sample mechanisms Sample initiatives The African Enterprise Challenge Fund
AGRA/Standard Bank
Transfarm Africa Asian Infrastructure Fund
Infrastructure Bonds
EBP Investment funds
Bonds
PPPs Levies
Bonds
Performance based funds Airline Solidarity Tax
IFFIm
Global Fund
GAVI Alliance Green Bonds
Adaptation Fund Global Partnership for Education
1Goal Campaign
Affordable Learning Fund Note: The estimation of market sizes, by sector, is complicated by a lack of common definitions and methodologies, and by the highly diverse nature of initiatives across sectors. The World Bank estimates that innovative fundraising generated US$ 57.1 billion in official flows between 2000 and 2008 Observed activity Medium Low High High High<br>
slide6. Mechanism … and generated valuable lessons for the design and implementation of new mechanisms Explanation Initiative PRELIMINARY Use of standard risk/return profiles from existing issuance programmes, high transparency Green Bonds (US$ 3 bn) Highly rated fixed-income products that support sustainable development Grants and interest-free loans awarded to the private sector through competitive rounds Strong and sustained business engagement based on private-sector principles The African Enterprise Challenge Fund (US$ 150m) Tobin tax Tax on foreign exchange transactions Lack of political commitment, unclear impact on economic activity MassiveGood Branding, communication and operational problems Micro-fundraising scheme IFFIm (US$ 3.6 bn) Bonds to frontload future ODA commitments International coordination, strong execution, scale<br>
slide7. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide8. Public funding and public use of funds are the dominant paradigm for educating children both in developed and in developing countries %, by education level Spending on Education in Africa Source: UNESCO 100% Household Contributions Public and other
private expenditures Tertiary Education 100 22% 78% Upper Secondary Education 100 44% 56% Lower Secondary Education 100 49% 51% Primary Education 100 30% 70%<br>
slide9. Within categories of spending, the vast majority of public spending is on teacher salaries %,of current expenditure , by education level (2008 or more recent year) Salaries Costs Source: UNESCO Technical and Vocational Education Tertiary Education Primary Education Lower Secondary Education Upper Secondary Education<br>
slide10. Private sector funding for education in Africa is dominated by household expenditures on education % Sources of Education Financing for Madagascar and Benin Source: UNESCO-IEP Benin, 1998 Madagascar, 1993 Income generated by schools External subsidies 7% 0% NGOs and private organizations 5% 3% External loans 100% Households Local administrations Government 52% 10% 0% 4% 56% 1% 1%<br>
slide11. Private equity funds are emerging to capitalize on this spending and in anticipation of increased enrolment in the future. Note: Only funds disbursed to non-government actors in developing countries are included in this analysis. Analysis presented is meant to offer representative sample of grantors and impact investors, not to present a comprehensive view of all education impact investment activity. Many multi-sector portfolios include only 1 or 2 education deals. Foundation education portfolios for 2009 inclusive of both US and international grants.
Source: Foundation Center - Top Education Grants 2009; Fund / investor websites, investor interviews; Dalberg analysis. Open Society
Foundations Richard Chandler
Corporation Kaizen PE Carnegie
Corporation MacArthur
Foundation Ford Foundation Dell Foundation Echoing Green Deutsche Bank
Foundations Hewlett Foundation GroFin Africa Fund Acumen Fund Omidyar Network Fund Africinvest Sequoia Capital SONG Investment
Management Company Fanisi Venture Capital Fund International Finance
Corporation (IFC) Edu. Portfolio Gray Ghost Ventures Partnership for Higher
Edu. in Africa First Education
Holding Education-dedicated Portfolios Multi-sector Portfolios Grant-making investors Financial-first investors Impact-first investors TARGETED BENEFICIARIES Most vulnerable Middle income Low income Upper-middle income Private donors and investors in education<br>
slide12. Overview of Innovative Finance Overview of Current Financing Models for Education in Africa Analysis of Innovative Finance Models for Education in Africa<br>
slide13. Within education, innovative financing mechanisms are being used to mobilize additional resources and improve the use of existing resources Example Mechanisms Cash on Delivery (COD)
The Education Venture Fund (EdVF)
Indian School Finance Company (ISFC)
The 2010 FIFA World Cup Legacy Trust
Diaspora Bonds Stakeholders International donors
Impact Investors (including both equity and debt based approaches)
Philanthropic organizations
Diaspora community Innovative Finance to Mobilize Resources Bridge Academies (Low-cost private education)
Vouchers programs
Pay-for-performance Schools
Families and students
Teachers Innovative Finance to Use Resources More Efficiently Items in bold will be discussed in the following sides<br>
slide14. Mobilize Resources: The Education Venture Fund (EdVF) Source: Results for Development; Dalberg analysis.<br>
slide15. Use Resources More Effectively: Bridge Academies Source: Bridge Academies; Dalberg analysis. Objectives To launch a large-scale network of high-quality, ultra low-cost, for-profit primary schools
To give every child access to high quality education Funding Source Private equity funds and venture capitalists
High impact philanthropy
School tuition Status Launched in 2009 Size and Scale 83 schools across Kenya catering for 26,000 pupils.
$4 per child per month Feasibility Franchise-like model with standard curriculum, materials, training programs, technology, etc.
BIA recruits school managers and teachers from the communities it serves. Relevance and Acceptance Will vary depending on attitudes toward public education<br>
slide16. Use Resources More Effectively: Education Vouchers in Colombia Source: World Bank. "Innovative Finance for Development Solutions.“; Dalberg analysis. Objectives To expand private provision of public services
To increase secondary school enrolment rates Funding Source Government Status Implemented in 1991 Size and Scale More than 125,000 pupils
Vouchers cover more than half the average cost of private secondary school. Feasibility Operated in all large cities in the country
Targeted low-income neighbourhoods
Targeted students who attended public primary schools
Requires a private school infrastructure Relevance and Acceptance Voucher holders had substantially higher high school graduation rates and test scores<br>
slide17. Successful innovative finance mechanisms must be closely aligned with the challenges of the country in which they operate.
Three potential ways for governments to mobilize funds:
A philanthropic program (FIFA 2010 Trust Fund)
A bond or results based pay mechanism (Diaspora Bonds or Cash on Delivery)
Impact investment (The Education Venture Fund (EdVF) and the Indian School Finance Company (ISFC))
Results-based-aid mechanisms and impact investing hold the most promise
Very few proven innovative finance models for education in Africa
Implementing new innovative finance models will require political coordination and support Key findings from review of case studies<br>
slide18. Recommendations How can policymakers support innovative finance? Align mechanisms with country specific challenges
Assess political will to make changes
Ensure appropriate regulatory environment
Develop and promote public private partnerships How can civil society support innovative finance? Experiment with new approaches
Provide feedback to policy makers
Partner with the private sector How can the private sector support innovative finance? Demonstrate that low-cost private education is higher quality
Develop and promote public private partnerships to scale solutions<br>
slide19. Questions and Discussion ?<br>
slide20. Additional Cases<br>
slide21. Mobilize Resources: Cash on Delivery (COD) Source: Center for Global Development; Dalberg analysis. Objectives To provide additional funding to developing countries in return for achieving progress against pre-agreed targets Funding Source Official and private donors Status In pilot stage Size and Scale COD Aid needs to be additional and complementary to existing aid flows Feasibility DFID is currently piloting a Result Based Aid Project in the education sector in Ethiopia, which shares many features with the COD model.
Concerns that COD could create incentives for fraud Relevance and Acceptance A focus on outcomes and a hands off approach<br>
slide22. Mobilize Resources: Indian School Finance Company (ISFC) Source: ISFC; Dalberg analysis. Objectives To provide loans to affordable private schools
To build a network of affordable education solution providers Funding Source Impact investors and capital markets Status Founded in 2008 and currently operates in seven Indian cities Size and Scale 240 loans totaling $4.2 million by the end of 2010
33,000 additional students attending private schools
950 new school jobs. Feasibility ISFC estimates that approximately 45,000 private schools for the low-income segment exist in India
Loans are typically used for infrastructure investments (such as new classrooms, computer labs, and furniture), which allow an increase in enrolment and revenue Relevance and Acceptance A focus on outcomes and a hands off approach<br>
slide23. Mobilize Resources: 2010 FIFA World Cup Legacy Trust Source: FIFA Legacy Trust Fund; Dalberg analysis. Objectives To support education and healthcare initiatives of NGOs that use football as a vehicle for community development
To promote football within South Africa Funding Source Revenues of the 2010 FIFA World Cup Status Selecting projects for funding Size and Scale $100 million, $80 million of which is allocated directly to social community projects
A one time event focused on South Africa Feasibility The trust will be administered by the international auditing company Ernst and Young while the trustees, consisting of representatives from FIFA, SAFA, the government and the private sector, will evaluate which public-benefit projects are funded Relevance and Acceptance Education is one of four focus areas<br>
slide24. Mobilize Resources: Diaspora Bonds Source: Leading Group for Innovative Finance for Development; Dalberg analysis. Objectives To raise large scale funding from overseas diaspora for the support of national budgets and the filling of financing gaps in development programs Funding Source International diaspora of country issuing the bond Status Not implemented for education Size and Scale World Bank estimates suggest that annual diaspora savings of SSA could be in the range of $5 to $10 billion. Feasibility Credit enhancements for diaspora bonds may be required
Diaspora would shift resources from remittances to diaspora bonds Relevance and Acceptance May include conditions on management of educational investments and include incentives for countries to produce the desired results<br>
slide25. Use Resources More Effectively: Performance-based pay for teachers in OECD countries Source: OECD; Dalberg analysis. Objectives To reward and motivate teachers who perform well rather than paying all teachers equally
To link spending on schools and outcomes Funding Source Public and private funding for schools Status About half of OECD countries Size and Scale Unknown Feasibility Requires consent of the teachers unions
Requires accepted approach to measure performance Relevance and Acceptance Unknown<br>