Tackling the education crisis together: Partner Perspective from Kenya
Stanley Munyao, CEO of Musoni Microfinance Limited in Kenya
With 263 million children out of school globally, an estimated 800 schools per day would need to be built for the next five years to meet the minimum demand for seats.1 In many lower and middle-income countries (LMICs), the supply gaps in capacity-constrained public education systems are being filled by local low-fee – ‘affordable’ – private schools that are building new classrooms and adding more seats at a significant rate. These schools often end up costing similar amounts to public schools when accounting for informal fees.
On the demand side, parents’ ability to make educational choices for their children are often impacted by the household’s irregular cash flow, which may not align well with fees and school supply expenses at the beginning of each school term. Failure to cover these costs upfront can result in students being sent home, increasing absenteeism and leading to risk of drop out.
Education lending can address both supply side and demand side constraints that are limiting access to education. But financial institutions need to first understand the market opportunity and have confidence school improvement and school fee loans can be profitable and low risk. Opportunity EduFinance is working to unlock more capital for school entrepreneurs and parents by providing essential technical assistance to financial institutions, equipping them with the market information, strong product design and training their staff need to successfully offer EduFinance loan products.
Partner Spotlight: Musoni Microfinance Limited - Kenya
In early 2018, Opportunity EduFinance and Musoni Microfinance Limited, with headquarters in Nairobi, Kenya, launched a partnership to support Musoni’s strategic plan to grow its education finance portfolio. Musoni’s CEO, Stanley Munyao, played a key role in setting this strategic direction after experiencing education finance’s significant potential while working as Chief Relationship Officer for a microfinance institution in Tanzania.
Musoni’s operating model is unique – combining a technology driven approach with a mission to serve Kenya’s rural communities, which represent almost 80% of all Kenyans. Three years ago, when Stanley took on the role of CEO at Musoni, he quickly realised much of the working capital loans extended to rural clients for their small businesses and farms were being partially diverted to their children’s school fees when the seasonal incomes from harvesting fell short. Taking a client-centered product design approach, Musoni saw an opportunity to address parents’ needs by providing separate School Fee Loan products in addition to microbusiness and AgFinance loans.
Lending to parents quickly led to further recognition of the strong demand for financing by affordable private schools within the communities Musoni operated. In many cases these communities had limited access to quality, government schools without over-crowding. Stanley explains,
“When dealing with empowered parents with a desire for their children to go to good schools, we realised we needed to partner with existing schools to provide them with School Improvement Loans for additional infrastructure, such as laboratories, and equipment, such as computers.”
Since partnering with EduFinance nearly two years ago, Musoni’s education finance portfolio has rapidly grown. Their September 2019 portfolio shows a 33% year-over-year increase in school improvement loan disbursements, with 121 school owners currently borrowing, and 14% year-over-year increase in school fee loans, with over 8,000 parents currently borrowing. Stanley outlined three key drivers of this achievement:
- Strong institutional commitment to EduFinance products, from management to the Board. Stanley makes a clear business case for education finance. “Schools are less risky because they are permanent, with visible cash flows that are easy to monitor. School entrepreneurs are very serious clients since setting up a school is a massive investment.” As part of this institutional commitment, Musoni has appointed 20 dedicated EduFinance staff and intends to further grow this team, deploying regional staff in new markets to reach more schools.
- Strategic approach to prospective clients. Musoni has expanded from a primarily door-to-door marketing method to include a partnership with the Kenya Private Schools Association (KPSA). Musoni and KPSA now convene forums to market school improvement loans to the large database of KPSA partner schools.
- Musoni’s mission and vision to alleviate poverty. Educated communities are key to sustainably breaking the cycle of generational poverty. While focused on necessary profitability and risk metrics, Stanley clearly sees the link to broader social impact. “Empowered communities add value to society by becoming teachers, lecturers, doctors, contributing to holistic society improvement and better quality of livelihoods.”
Musoni’s Experience with EduFinance Technical Assistance
As part of the collaboration with Musoni, Opportunity EduFinance’s technical assistance team provides a range of services, including Market Research, Product Design, Staff Training and Education Quality programming. Stanley shared his experience with these technical assistance modules and how they related to Musoni’s strategic objectives.
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Market Research |
“It was not easy to convince my Board of the potential education finance has without providing market evidence. The highly detailed research report from EduFinance did exactly this. It was the initial step towards opening the portfolio within our institution.” |
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Product Design |
“It is much simpler to give small loans to small-scale entrepreneurs than a US$30,000 loan to a school where cash flows are completely different. There is a need for technical training to ensure the product is a success when deployed in the market. EduFinance helped develop the product and trained our loan officers and trainers – aligning the schools’ cash flows to prevent arrears.” |
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Staff Training |
“After a positive experience with the initial staff training, we insisted on a second staff training to improve staff performance, operations and processes for loan underwriting. After the training, we saw improved quality of underwriting, greater completeness of loan files and better decisions on funding amounts.” |
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EdPack Portfolio Analysis |
“We shared the EdPack Portfolio Analysis report from Opportunity EduFinance with our Board and they were very impressed with the analysis. There are currently plans to integrate a similar analysis dashboard across our entire product portfolio.” |
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Education Quality |
“Reaching out the end user is also fundamental. The EduQuality program is helping build capacity in the schools as professional businesses by training entrepreneur school leaders and teachers in financial, as well as employee, management where Musoni did not have this capacity. Many schools have been trained by EduFinance directly and now by our own trainers which were trained by EduFinance. We are hearing anecdotal stories of schools that have higher student populations, securing revenue generation and repayments. Our loans are therefore paid without challenges.” |
EduFinance on a Global Scale
Musoni is part of a broader informal network of 46 financial institutions in 20 countries partnering with Opportunity EduFinance to effectively deploy more capital to local school entrepreneurs and parents, increasing education access from both a supply and demand side in each local market. Recently Opportunity EduFinance had the privilege of bringing these partners together for the 2019 Global Education Finance Conference to participate in highly interactive sessions in which they shared their own institution’s experiences with education finance products and collaborated on best practices and solutions to key challenges. While Musoni’s experience and institutional commitment to EduFinance lending is both exemplary and compelling, it is by no means an anomaly. Stanley sums up well the potential for any financial institution considering entering the education lending market:
“The potential for any financial institution within the education sector is unlimited - it all depends on your willingness to deploy resources into the sector. The sector is one of the safest to invest in: in terms of both school fees and school improvement loans. You also have the right product-offering to make a real impact to communities and society. It therefore has the dual impact of addressing your financial institutions’ bottom-line needs and a social impact. While still growing your balance sheet, you can help many people out of poverty.”
2019 Global EduFinance Conference, Kampala, Uganda
1 https://edufinance.org/latest/blog/2019/10857/the-24-billion-opportunity
To learn more about our 2019 Global Education Finance Conference read our blog here!