For too long, microloans in the education sector were difficult, unprofitable, and unsustainable. Cash flows were irregular, the returns on investment took time. And lenders could not stomach the risks.
But big data, our ability to collect and analyse large amounts of information, has minimised this risk, lifting our loan repayment rates to 99 percent and opening new possibilities for education microfinance.
In 2014, we launched a three-year education microfinance project in Uganda, with funding from DFID’s Girls Education Challenge (GEC) Fund and others. A mid-term review shows how microfinance can help fix the global education crisis, including the woeful lack of schooling for girls.
For the wider development community, of course, girls’ education is one of the most effective social investments possible. Better-educated women tend to be healthier, more productive, with less children, and better able to take care of their children’s health and education too.
And yet, the global education crisis – in which some 124 million children aged 6-15 are thought to have been out of school in 2013i - affects girls even worse than boys. Lack of finance partly explains this crisis.
Uganda is a good example. In 1997, the East African country began a big push to provide universal primary education, dramatically increasing primary school enrolment from 3.1 million pupils to 8.4 million by 2013.ii
So there was no shortage of political will. Indeed, in 2012, Uganda’s government spent some 14 percent of its budget on education, higher than the global average.iii But even with generous donor support, this simply was not enough.
And as the money spread thin, needing to reach more and more children, it was not enough to go round. Drop out rates and grade repetitions were high. In 2010, just 32 percent of Uganda’s children reached the final grade of primary education.iv
Meanwhile, population growth keeps shifting the goalposts. In Uganda, the average woman gives birth to five or six children.v Providing universal primary education just gets harder and harder.
Less lice and jiggers boosts education
Enter microfinance. “Economic challenges” are the most commonly cited barriers to girls’ education in Uganda, so our GBP1.8 million (US$2.6 million) project addressed exactly these challenges.
In Uganda, we worked with Opportunity Bank Uganda, a microfinance institution, and Private Education Development Network (PEDN), a youth development non-profit, to provide a range of microfinance products for schools and parents.
The products included school improvement loans, school fee loans, financial literacy training, child savings accounts, and insurance. And while they targeted boys and girls alike, we measured the impact on girls.
We know, for example, that half way through, our three-year project has benefitted 44,000 girls, improving not just enrolment, but attendance, retention, and learning too.
When a school improvement loan funds the installation of concrete floors, it improves attendance by making children in Uganda less susceptible to influenza, lice, and jiggers, a tropical parasite.
Building extra classrooms means not only that a school can accept more students, but also that the classrooms tend to have less students, so concentration also improves.
Microfinance differs most obviously from other sources of finance by its scale and sustainability.
A typical education grant gets used just once, for example. But with repayment rates on our education loans now at 99 percent, the money gets used again and again. We lend the money, get it back, then lend it again. In the first 19 months of our project, the funds were reused 10 times.
But while the donors certainly get value for money, we’re more interested in the private sector. If microfinance can catalyse more private money into education, then it will be truly transformational.
We know the private sector will only lend more money to this sector when they are reassured about the risks. This process has begun, though, because nearly two years into the project, other Ugandan banks are now offering school proprietor loans.
Getting to this point with education microfinance has not been easy. We have endured a lot of trial and error, gathered data, and lost money before understanding how to lend in the education space.
But the results so far have all been worth it. We all benefit when Uganda’s girls and out of school children all around the world can get an education.
i UNESCO Institute for Statistics and Education for All Global Monitoring Report Policy Paper 22/Factsheet 31 (2015) – “A growing number of children and adolescents are out of a=school as aid fails to meet the mark” -http://www.uis.unesco.org/Education/Documents/fs-31-out-of-school-children-en.pdf
ii Alon Mwesigwa, 23 April 2015, in the Guardian “Uganda’s success in universal primary education falling apart”,http://www.theguardian.com/global-development/2015/apr/23/uganda-success-universal-primary-education-falling-apart-upe
iii EFA Global Monitoring Report (2015) – “Education for all 2000-2015: Achievements and challenges” - Table 9, p384, Financial Commitment to education: public spending - http://unesdoc.unesco.org/images/0023/002322/232205e.pdf
iv UNESCO, Institute for Statistics (2012), Global Education Digest 2012, “Opportunities lost: the impact of grade repetition and early school leaving”, Table 3, p104 - http://www.uis.unesco.org/Education/Documents/ged-2012-en.pdf
v World Bank, Uganda country page – context - http://www.worldbank.org/en/country/uganda/overview