Accountability, EduFinance, and UNESCO's GEM Report

The UNESCO Global Education Monitoring (GEM) Report has just published its first annual edition, reporting this year on sustainability in education, and we’ll be posting our thoughts about it later this week.  This report serves as oversight for education-related Sustainable Development Goals.

In the meantime work continues at GEM on next year’s report, which will focuses on Accountability. Accountability is a cornerstone for our EduFinance work, and we therefore contributed our findings to next year’s report when GEM called for evidence from stakeholders. We share what we submitted below: 

Like others, we are excited by the adoption last year of SDG4, which creates fresh momentum for meaningful progress on education. The global education crisis is a scar on our collective conscience. And we welcome the accountability theme in next year’s Global Education Monitoring Report.

“We” are Opportunity International EduFinance, a rapidly growing group within the non-profit Opportunity International, focused on developing and delivering microfinance solutions for schools, families and their communities in order to improve access to and quality of education in the developing world. Though we often hear of a global education crisis and look to a battery of major issues as causes, we recognize that much of the global education crisis, in which 59 million children were out of school in 2013, comes back to a question of funding. Whether it is properly-allocated funding within an educational infrastructure, proper monitoring of utilization of those funds, the growth and maintenance of a tax base to support socially-focused funds or funds to grow the private sector, properly-appointed funding itself remains a central question to resolving the global education crisis.

We provide solutions by raising private and other funds to use in the building of microloan portfolios in service to the education sector. In the absence of fully-functioning education ministries and the presence of sufficient state funds to meet the total need for high-quality state-sponsored education for all, microfinance is simply the most efficient and cost effective way to channel finance to large numbers of actors, including schools and parents. Between 2012 and 2015, we disbursed over US$58 million in loans to benefit as many as 1.1 million children. We operate in ten countries with a number of actors, including school heads and administrators, teachers, parents, education ministries, microfinance institutions (the lenders), and investors.

Accountability is important to our work. In fact, it is the primary factor that allows such financing to be effective as a solution to the global education crisis. Effective accountability helps establish the right set of incentives.

Traditionally, for example, education ministries fund state schools for the provision of education. In practice, however, schools and ministries may be geographically distant and connected only loosely through several layers of bureaucracy. As the accountability links weaken, either due to this distance or due to a faulty network of incentives, service provision breaks down.

Within a private sector model, schools are directly accountable to parents who pay school fees. The accountability is real and immediate, and will be ignored only at the peril of school operators. Enter a microfinance actor, and the ability of a school to appropriately respond within this framework of accountability only increases through access to financing. And we see on a daily basis how microfinance loans to affordable private schools create virtuous cycles, in which schools offer more and better education, attracting more children with each improvement, and responding to ever more of parents’ demands for educational improvement. The parents of these children pay fees, which enable the schools to repay the loans and to operate sustainably.

Repayment rates for both school improvement loans and school fee loans are 99 percent or more, showing how microfinance can help fill important gaps in education finance when implemented effectively in response to local economies.

We recognise that some people are uncomfortable with the idea of private schooling, however affordable. Our singular objective is to facilitate a quality education for more children by improving accountability within the sector, enabling people to lift themselves out of poverty and disadvantage. This begins by funding institutions that are naturally and directly accountable to the recipients of the education that they provide (meaning that fees match market demand, as well), as well as to government regulators that oversee the criteria under which such institutions are able to operate.

The idea of having developing-world governments fund the entire need for both access to and quality of education for their full populations remains just an idea at present, with the average African government contributing more than 18% of national public expenditure to the education sector – higher than any other region of the world – yet still not able to stem high dropout rates with better quality education, pay all relevant costs for those enrolled, or universalize secondary education.

Schools must be accountable for the quality of education that they provide – not just for keeping kids in seats. Direct accountability between schools and parents certainly helps. Though the private sector is often seen as the “profit centre” of education, applying private sector supply-demand dynamics in education can greatly assist a virtuous cycle between parents and providers. While government-sector school heads are not accountable to parents directly, a private school head must meetparents’ desire for quality or risk losing their patronage.

This is just as true for a private school that charges $5 per month versus one that charges $1,000. If parents are paying a private-sector head for their children to be educated, they are unlikely to accept a school that is not teaching their children to read and write, and will opt for a public-sector placement or alternative private option where available. Affordable private schools are incentivised to improve their quality – however defined – if it brings more students to school. The existence and support of affordable private education through microfinance grows parents’ options, and options do nothing if not allow parents to demand accountability from providers.