By Nicholas Burnett, Results for Development Institute.
Starting in 2010, it seemed as if innovative financing was about to make its mark on education, following at least some success in health. The Open Society Foundation commissioned Desmond Bermingham and me to survey the field. The Leading Group on Innovative Financing for Development set up a task force on education that produced an important report in 2010 (and another in 2012) – Bermingham and I were part of the writing group for those reports; important education donors like DFID, USAID and France took an active part. UNESCO got work going on debt swaps for education. The Open Society Foundation supported the debt swap work and also work on diaspora bonds for education, on a possible Education Venture Fund to invest in innovation in education (that I am still involved in developing at R4D in partnership with the French group Investisseurs et Partenaires), and a review of private investment in education. Lots of good work has been done, but no actual innovative financing has really emerged in education.
Why that flurry of attention, especially in 2010-11? And why has so little actually happened? Partly that is because some of the major actors have disappeared from the scene, like former French Foreign Minister Bernard Kouchner. But I have come to the view that it is mainly due to a more fundamental cause: the attention was driven for the wrong reasons. I was myself one of those making that mistake.
There were various reasons that interest began to grow about innovative financing for education. Aid to education, including aid to basic education, was stagnating, having grown at the same pace as aid as a whole over the first decade of this century. And aid to basic education was clearly going more to middle income countries than it was to low-income ones. It was becoming apparent even then that the 2015 Millennium Development Goals (MDGs) for education and the Education for All (EFA) goals were not going to be met by 2015 unless there was a further push to provide more financing, with governments having largely done their bit – low-income country governments having on average raised public spending on education by fully one percent of GDP, a major achievement. The UNESCO EFA Global Monitoring Report produced estimates of the financing gap, that eventually peaked at a staggering $26 billion per year. And there was the example of other sectors, especially health, with the International Financing Facility for Immunization (IFFIm) and the Advanced Market Commitment (AMC), where several billion dollars had been raised for basic vaccinations and to develop new vaccines. Other factors, of a very different type, included the arrival of new actors such as private foundations, corporations and impact investors on the international financing scene; the growth of non-state education, both NGO and purely private, in many parts of the developing world, especially in urban India, in Pakistan and in Ghana; and increasing interest in the aid world in results-based financing, again pioneered more in health but of growing attraction to education, with the Center for Global Development, for example, advocating Cash on Delivery aid for education, especially to meet the MDGs.
What was common about all this thinking was that it was focused largely on the need to increase international financing for basic education, and especially in low-income countries, in order to meet the international education goals. This thinking was heavily influenced by the work of the Leading Group, which was, under French influence, especially argued that innovative financing should be about public goods (which tend to be basic things like immunizations), should not substitute for aid, and should somehow offset some of the negative consequences of globalization.
In fact, I would now argue, innovative financing is actually most interesting for education when it is focused on increasing domestic financing, particularly for vocational and higher education, and especially in middle-income countries. Why do I say this? First, the major resource that could be tapped to increase spending on education (and, for that matter, other development sectors) is the huge pool of financial assets now built up by pension funds, insurance companies and the like in the developing world, estimated at around $6 trillion for low- and middle-income countries combined, with the bulk in middle-income emerging economies. These funds could be put to work for development through various types of bond-issuance and guarantee schemes
(see for example, the April 2013 NORRAG blog on debt conversion development bonds). Second, even when considering international finance, low-income countries do not, as a result of the HIPC and other initiatives, have much debt (other than very concessional debt) and so there is limited scope for debt swaps compared to that among more indebted emerging economies. Third, the education subsectors most suitable for such financing are those that have clear revenue streams, which tend to be vocational and higher education where fees are common, whether the provision is by the public or the private sector.
This does not mean that there is not a potential for innovative financing for education in low-income countries. There is indeed. But, as aid for basic education has now started to decline and not just stagnate, but remains still focused mainly on middle-income countries, a simpler arrangement would be to concentrate aid more on low-income countries and the international goals that are focused on basic education and to utilize innovative finance more for middle-income countries, including for education beyond the basic level.
Nicholas Burnett is the Managing Director for Education at the Results for Development Institute, Washington. Email: firstname.lastname@example.org