Download Education Outcomes Fund Briefing Note

BUILDING A MARKET IN GLOBAL EDUCATION:
THE CASE FOR AN EDUCATION OUTCOMES FUND
April 2016
Funding for education is broken
There is a disconnect between education spend and learning outcomes. Over $120 billion is
spent on education by governments and donors in low and middle income countries annually1
yet education outcomes in many of these countries remain poor. Millions of children do not
attend primary and secondary school. Millions more leave school without the basic skills and
knowledge in maths, science and literacy that would enable them to improve their lives and
benefit their countries’ economies.
The Sustainable Development Goals, with their commitment to achieving inclusive, quality
education for all, puts education at the top of the global agenda, yet donor funding for
education has declined in recent years. This is perhaps not surprising given that, in countries
like India and Indonesia, increased education funding and higher teacher salaries not only
failed to improve learning outcomes, in some cases the outcomes got worse.2
Now more than ever there is a pressing need to build the link between spend and outcomes in
education. Domestic budgets – by far the largest source of funding for education – are largely
committed to teacher salaries, leaving little room for innovation. Donor funds, while vital, have
tended to be fragmented and often do not allow for scaling of success. In both cases, the focus is
on inputs (e.g. teachers, facilities and classrooms) rather than outcomes (e.g. reading and
numeracy) often producing poor results.
The time for change is now. The education sector is on the cusp of a new wave of innovation,
enabled by the use of technology to reach broader populations – including those at the base of
the pyramid – while tailoring learning to the needs of each individual. This will precipitate a
shift away from traditional approaches to measuring the quality of education, such as a focus
on inputs like class size and student-teacher ratios, to a focus on whether children and young
people are effectively learning.
Many low and middle income countries are also on the cusp of a demographic shift as fertility
rates decline and the school age population peaks. Without a solid educational environment
this could be a lost generation, with long-term social and economic consequences. While the
focus on access to education was central to the Millennium Development Goals, new
approaches and tools will be needed to achieve the Sustainable Development Goals’ focus on
ensuring learning and supporting those that have been left behind.
To scale new approaches successfully will require rigour and adaption to local circumstances.
The availability of capital for this type of innovation will be key. Traditional approaches to
education funding involves prescribing inputs, which leaves little room for innovation or
adaptation to varied and changing local needs. Valuing and monetising education outcomes, on
1
Steer, L and K. Smith, 2015. This figure refers to domestic public spending (2012) and annual basic education ODA (average 2011-13)
for low income and lower middle income countries.
2
Accountability Initiative, 2014; Mularidhan et al 2015.
Private and Confidential
2
the other hand, creates space for providers to innovate and encourages constant improvement.
Over time, predictable outcomes-based revenue streams, rewarding effective intervention
models, would drive a market of new providers and new investment to improve global
education.3 An Education Outcomes Fund that supports results-based funding for education at
scale could have a transformational effect on the education of the world’s poorest children and
young people.
The Education Outcomes Fund: An opportunity to transform funding
for education
An Education Outcomes Fund of up to $1 billion – supported by philanthropists, governments
and donors – could have a game-changing impact on the availability and affordability of quality
education across the world. It would pool funding to pay private education providers for
improved education outcomes for priority populations in low and middle income countries. As
most providers are expected to need pre-financing, the Fund would also stimulate the
development of specialist investment funds to support the development of an active, engaged
investor base through professional due diligence and analysis.
Strengthening the link between funding and education outcomes and focusing on innovative
providers can attract new funders who have not been engaged in global education to date.
Tremendous untapped potential exists in the form of social impact investment. As governments
have come to realise that more resources, skills and capacity are needed to tackle society’s
issues effectively, a movement of socially oriented investors is growing and harnessing
entrepreneurship, innovation and capital to power social improvement.
Key to the Fund’s success will be its ability to:
 Unlock private sector innovation: providers that successfully develop and adapt
interventions to meet local needs will be rewarded
 Stimulate investment: the clear link between funding and results creates a rational
investment market enabling working capital loans, risk-sharing through equity and
Impact Bonds
 Require rigorous measurement and adaptation: evidence of what works, where will
accumulate rapidly strengthening market confidence
The Fund would be open to applications from all private sector providers including non-profits,
NGOs, faith-based organisations and for-profit enterprises. It would support intermediate level
programmes – beyond small-scale pilots, but below national roll-out – with a focus on
improving outcomes for the most vulnerable groups. Critically, it would engage with
governments to identify priority target populations and measures of success, building a
pathway to sustainability from the start.
The Fund would build on emerging experiences and interest in results-based funding
approaches for education, but would take these approaches to a new level in terms of scaling
and replicating success. The ambition of the Fund is to attract new funding commitments to
education by strengthening the causal link between education spending and education
outcomes. This should crowd-in new education funding and investment from philanthropists,
corporates, donors and governments, to complement existing donor activities. In doing so, it
3
‘Private providers’ and ‘private sector’ refer to both for profit and non-profit providers that operate independently of government
either to deliver education outcomes directly, or to work with and through public education systems to improve education outcomes.
Private and Confidential
3
would stimulate a market of innovative, adaptive private providers and investors to improve
quality education services for the world’s poorest children and young people.
Figure 1: Education Outcomes Fund: A new platform to improve the impact of education spend
Builds the market
- Leads to increased allocation of
education funding
- Scales & replicates what works
Disseminates learnings
- Develops causal link between
spend and outcomes
- Increases confidence about
programme spend
Pays for success
- Evaluates sustained impact
robustly
- Provides a “value for money”
case
Creates partnerships
between government, funders,
private providers and investors
Coordinates commissioning of
outcomes-based contracts
- Reduces transaction costs
- Builds best practice in design
Enables adaptive delivery of
education services
- Provides flexible funding
- Encourages innovation &
adaptation
Social Finance is developing the Education Outcomes Fund as part of our work for the Global
Social Impact Investment Steering Group and the International Commission on Financing Global
Education Opportunity led by Gordon Brown, the UN Special Envoy for Global Education.
While Social Finance is working to develop the details of the proposal, we are seeking partners
that share our vision of harnessing the power of the private sector to deliver quality education to
the poor. We are seeking Commission backing for the proposal to enable strategic engagement
with governments and potential outcome funders with a view to announcing a pilot Fund in two
to three countries alongside the Commission report in September 2016.
For more information please contact:
Peter Nicholas, Director – Social Finance
[email protected]
Katy Jones, Associate Director - Social Finance
[email protected]
Rita Perakis, Associate - Social Finance
[email protected]