Highlighted Session: Innovative Financing for Education: Leveraging Private Capital

Group Submission Type: Highlighted Paper Session

Proposal

Achievement of SDG 4, inclusive and equitable quality education, has put increasing pressure on global and national budgets, requiring the mobilisation of additional resources through existing and new financial sources. Recent estimates show that the funding gap to reach SDG 4 in poorer countries has increased to USD 200 billion annually. As a result of the need for more funding, a search for new ways to fund development is emerging. At the same time, SDG 17 on partnerships and Transforming Education Summit encourage public-private partnerships to support SDG4 targets.

Innovations in financing approaches that look for non-traditional avenues to raise additional funds and to spend existing funds more efficiently and effectively using market-like practices are being explored to improve education financing. Many, but not all, innovative financing mechanisms move away from the traditional supply-driven paradigm of national education budgets and international aid financing to more market-oriented approaches that combine social and financial returns, foster collaboration between the public and private actors, distribute financial risk among stakeholders, and address market failures. Many actors have hoped to catalyse private capital investment into education to channel a portion of the 60 billion USD estimated to be in impact investment initiatives (Aggarwal & Hockerts, 2021). Innovating financing mechanisms like Social or Development Impact Bonds, Social Impact Incentives (SIINC), and Impact Loans engage private capital investors to cover up-front costs for service delivery in result-based financing initiatives.

While private capital investment into education could never fill the financing gap for SDG4, the introduction of it has the potential to significantly influence how education services are delivered. This approach is different from a linear transition to privatisation of educational service delivery, which is the primary responsibility of the state. It intends to, and potentially to a great extent does, bring in private sector principles, logic and quasi-marketisation of the education sector (Edmiston & Nicholls, 2017). The utilisation of private investment in social welfare service delivery, like education, has been justified as an avenue to bring further innovation in service delivery, improve social outcomes, save future costs, and even additionality (Edmiston & Nicholls, 2017). In general, the field is classified as “impact investment”, described as a private investment with the dual goal of generating financial returns and measurable non-financial benefits towards society, culture and the environment (Shome et al., 2023).

Alongside the enthusiasm for utilising private capital in education financing, there also exists scepticism and polarising debates, primarily around the engagement of the private sector in the financing and delivery of education as a public good. The debate on innovative financing is heated with proponents who, arguing from an economic perspective, point at the need for non-traditional and new means of funding. In contrast, opponents with a background in human rights and education highlight concerns of equity and quality when development work follows the logic of a market. Education is an attractive arena for private sector engagement, where both philanthropic and profit-seeking activities have considerably increased over the past few years. Undoubtedly, the private sector has discovered education service provision as a terrain where profits can be made given the right to education legislation in different parts of the world.

However, the engagement of private investors in education development or even social development as a whole needs to be studied more. Empirical research on the topic is scarce in capturing the experience of designing and implementing initiatives with private capital investment and critically analysing the stakeholder motivation for engaging in innovative financing projects. On a more practical side, there is also a need for more documentation on lessons learned around mechanism implementation in terms of relevance, applicability, adaptability, efficiency, efficacy, and effectiveness for reaching the targets of SDG4.

This panel will explore the theoretical conceptualisation of leveraging private capital for education initiatives aiming to reach marginalised and vulnerable populations. Presenters will discuss the findings from current academic and grey literature on the topic and findings from several innovative financing mechanisms that have engaged private investors. The presenters hope to engage the audience in a robust discussion and debate on the value and drawbacks of private investor engagement in education programmes, especially in reaching the marginalised and vulnerable populations.

Sub Unit

• Economics and Finance of Education SIG

Organizer

• Arushi Terway, NORRAG

Chair

• Gita Steiner-Khamsi, Columbia University Teachers College & NORRAG

Individual Presentations

• Examining Private Capital Investment in Education: Developing a Framework for Analysis - Arushi Terway, NORRAG; Marina Dreux Frotté, NORRAG

• Impact Bonds for Education: What have we learned? - Emon Nandi, Tata Institute of Social Sciences

• Linking Finance to Impact: Models for Results-Based Financing in Education - Archana Mahesh Mehendale, Tata Institute of Social Sciences

Discussant

• Amrit Thapa, University of Pennsylvania