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© 2023 Opportunity International Education Finance functions under its US and UK affiliates. Opportunity International United Kingdom is registered as a charity in England and Wales (1107713) and in Scotland (SCO39692). Opportunity International United Statesis a 501(c)3 nonprofit.

The Case for Increasing Access to Finance for the Non-State School Sector

By Catherine O’Shea and Maham Khuhro

Two school girls 

According to UNESCO Institute of Statistics (UIS), the non-state education market share increased from 23.1 percent to 25.8 percent between 2005 and 2020 across low- and middle-income countries. If this continues, the non-state school sector will grow its share of the education market to 27.2 percent by 2025. 

The increase in demand for affordable non-state schools means that there will be an additional 56 million new seats for children required through 2025 in low- and middle-income countries.

Given the context of the growing, unmet demand for education and capacity-constrained public management, states are being encouraged to recognize the value that non-governmental actors bring to education. However, while the non-state school sector’s role in delivering education services has been growing, its full potential is limited by financing constraints.

Opportunity EduFinance, given its unique position in the non-state education market, leveraged its expertise and experience to conduct a sizing analysis of the non-state education market in low- and middle-income countries, updating previous estimates from 2019. EduFinance found that there is an estimated US$36 billion market for EduFinance flagship products worldwide:

  • $10.4 billion for School Improvement Loans
  • $26.1 billion for School Fee Loans

Findings from this updated analysis are presented in the 4th edition of Opportunity EduFinance’s ‘The State of the Affordable Non-State School Sector Report.’ We interviewed Scott Sheridan, Operations Director, on the research and new findings.

Why did EduFinance first publish this report on the non-state school sector?

The report is EduFinance’s attempt to quantify and highlight the scale of the challenge of increasing access to quality education – Sustainable Development Goal 4 (SDG4) - for the world’s children living in low- and middle-income countries. There are currently 256 million out-of-school children, and so many more that are still not learning. The report shows that the lack of learning and the children out of school do not just represent a problem for governments.  Governments cannot close the gap alone and we need to all work together to close it, including the private sector.

What are the challenges and opportunities facing education that the report reveals?

There are millions of children that currently don’t have access to education. Even with the best intentions, it is difficult for lower and middle-income governments to spend enough on education infrastructure and training to bridge the gap on their own. Pupil teacher ratios are the highest in Africa, which we know can impact the quality of education children are receiving, despite teachers’ best efforts.

Schools need finance to expand and make infrastructural improvements. The report demonstrates schools can and do pay back well-designed loans, so financial institutions have a large market opportunity that they may not even recognize. Over 25% of the education sector globally is non-state (private). If financial institutions consider the proportion of the economy that the education sector makes up, and the number of out-of-school children globally, they will see a huge financial opportunity to grow their EduFinance loan portfolios sustainably. Using data from our 120+ financial institution partners, we have tracked over 15,000 schools that have taken out school improvement loans and over 135,000 parents that have taken school fee loans.

There is also pressure to build a growing, qualified workforce of trained teachers. Fertility rates are also high, so population growth is going to be a much bigger challenge in the coming years in many countries. There is a lot of pressure on infrastructure in making sure there is space for children to learn – the report highlights that roughly 56 million seats would need to be created in the next 5 years to keep up with the growing need for quality education.


What are the key data points that inform this analysis?

The report presents the outcomes of our data as a dollar figure – we ask ourselves ‘how big is the market for the non-state school sector and why does it matter?’ The data we collect to do that is based on the number of pupils enrolled, the number in state & non-state education, the number of children out of school, pupil-teacher ratios, fertility rates, population growth rates, government spending on education, to name the most important. We then use these trends to generate a forecast and estimate the market size – basically the value of loans demanded by non-state schools and parents for school fees if financing was available to them.

How does the report show the benefits of education?

We know that every year in education results in greater lifetime earnings for children. This report shows the outcomes of what schools use financing for, and how it is correlated towards improved access and learning outcomes for children. Ultimately, the end goal is that students can earn more income at the end of their educational careers, but there are a lot of intermediate steps along the way, which we have been able to identify.

For example, 70% of schools use school improvement loans to build extra classrooms. This adds more seats to enroll more students and can keep pupil-teacher ratios lower. Students in a quality learning environment are more likely to stay in school, and staying in school longer increases the chance of a higher income in the future. We can see a direct correlation between the work we do to support financial institutions to lend to local schools, and greater lifetime earnings for the children those schools educate.

What were some of the updated findings in this edition of the report?

We have started tracking school completion rates which are linked to the SDGs. This shows, for example, that only 1 in 3 children in low-income countries are completing lower secondary school and 3 in 4 in middle-income countries. We also factored in a lot of post-Covid outcomes and incorporated some data from institutions like the IMF and the World Bank to update our forecast. Specifically, we highlighted that sub-Saharan Africa and South Asia are expected to spend less on public education after Covid. Given the strong population growth rates in these regions, this means that children will become even more reliant on the non-state sector for education access.

There is also a new section where we highlight that the US and Europe responded to Covid by providing a massive amount of support to their economy; governments in advanced economies spent over 23.1% of GDP on Covid response (guarantees, foregone revenue, spending), compared to 4.1% for low-income countries.

At the same time, during the pandemic the vast majority of schools globally were ordered to temporarily close. In many low-income countries, remote learning was not possible – either because it was not affordable or too challenging to implement. We know learning outcomes have and will continue to suffer in the coming years. Partly this is because governments did not have the capacity to spend more on education, as they could barely fund their Covid response.

What impact do you hope this report has on readers and the broader sector?

We hope that this report will increase awareness of both barriers and opportunities that the world faces in addressing the worldwide education gap. It is one thing to know what the problem is, but we hope that this report can equip our readers – both funders and financial institutions - with knowledge on how they can work to address these challenges and effectively integrate education finance into their business cases.

Read the full State of the Non-State School Sector Report – 4th edition, or download the Report Brief and Data Set here.

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