2015/6/19

CONTENTS

Important or Just Trendy?
The New World of Education Financing

1.

Review of Last Seminar

2.

Innovative Financing

3.

Results-Based Financing

2-1 Development Impact Bonds (DIB)
2-2 Loan Buydowns
3-1 Program for Results (PforR)

SEMINAR II:
PROMISING NEW TYPES OF
FINANCING FOR EDUCATION

3.2 Output-Based Aid (OBA)

4.

Some Issues
4.1 Defining Results
4.2 Monitoring Results
4.3 Safeguards

NICK BURNETT

4.4 Financing Supply
4.5 Sustainability

18/12/2014
CICE SEMINAR, HIROSHIMA UNIVERSITY

5.

Conclusions

6.

Preview Next Seminar: 22 January 2015

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1. REVIEW

1. REVIEW New players: Growth of Non-State Service Delivery


Huge expansion of NGOs, domestic and international: BRAC, Save the Children,
Camfed etc.



Expansion of low-cost private schools in India, Pakistan, Kenya, Ghana, Nigeria.

 New Players: Sources of Education FinanceTraditional: governments, households, DAC donors



New


Philanthropy (including NGOs $2.6-5.2 bn)



Non-DAC donors
Impact investorsParental dissatisfaction with public schools.

Corporate – directExpansion of private corporate sector and educational markets



Corporate – CSR

Non-traditional sources $50 bn compared to ODA $120 bn

Growth of PPPs in education

Donor involvement



Institutional investors, especially domestic. Pension funds, insurance funds etc $6 trillion
growing at 15% per year



DFID Girls Education Challenge – all non-stateSovereign wealth funds: Norway, Gulf

IFC investments – mainly higher education – private for-profitRemittances $300 bn pa +World Bank/CfBT policy guidelines and policy mapping (SABER)Fragmented; potential for economies of scaleCenter for Education Innovations (CEI) documenting and analyzing:www.educationinnovations.org







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Potential

New actors bring new emphases


Results

Metrics

Keep in perspective: on the rise but most still small.


Philanthropy plus CSR only $700 million (GMR 2012)



Exceptions are domestic institutional investor potential (huge) and remittances

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1. REVIEW

1. REVIEW

 Innovative and Alternative Financing in Education Sector

 Education Task Force Innovative Finance Ideas
Type

Three Main Strands
StrandBroad Taxes
Corporate Social
Responsibility
Innovative Financing
Task Force Ideas

Aims
Raising Resources

Raising Resources
Raising Resources
Achieving Results

Description/Examples

Bonds• Indian Cess• Philippines ECD• Training Levies

Details••••

Debt/Lending

Education very prominent,
especially where CSR compulsory(e.g. India, South Africa)

Impact Investing

Discussed in next slides

PPPs in Education

Voluntary Contributions•

Local currency/education bonds
Debt conversion development bonds(idea developed by UNESCO)
Diaspora bonds
Debt for education swaps(e.g. Argentina/Spain, Indonesia/Germany)
Buying down official loans for education(e.g. current GPE/IsDB pilot)••

AcumenEducation Venture Fund•••

Social/Development Impact Bonds(e.g. CIFF/UBS Rajasthan)
MSPEs (multi stakeholder partnership in ed)
Pakistan/Trusts••

From migrants
From bank transactions

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1. REVIEW

1. REVIEW

 Result-Based Financing: Main RBF Models and Sub-Categories

 The Universe of Results-Based Financing

Multiple acronyms and abbreviations describe RBF programs – terms are often synonymous, while some describe asubset of programs. The main models are defined below:
Type

Application

Pay for Performance(P4P), PerformanceBased Incentives (PBI)

Synonyms for RBF

Performance-Based
Financing (PBF), including
World Bank Program for
Results (PforR)

Form of RBF distinguished by three conditions: (i) incentives directed purely at providers (notbeneficiaries); (ii) awards generally purely financial; (iii) and payment depends explicitly degree towhich services meet pre-determined quality criteria

Performance-BasedContracting (PBC)

Form of RBF which is different as sets a fixed price for a desired output but can also reduce
payment for poor performance or increase for good performance. Usually applied to NGOs.
PBC can be termed "contracting out" as opposed to PBF, which is "contracting in"

Output-Based Aid(OBA)

Subset of RBF, Distinguishing feature is the principal is an aid donor; and agent usually a recipient
government or public agency, but not always

Cash on Delivery (COD)

Subset of RBF similar to OBA except that delivery may refer to outcomes rather than justoutputs – so the agent has maximum autonomy to decide how to produce/deliver results, theprincipal does not supervised delivery methods

Conditional CashTransfer (CCT)

Demand-side programs where incentives apply exclusively or primarily to beneficiaries (notdelivery agents). Results defined by the enrollment of beneficiaries in the program and theircompliance with required behaviors such as consuming specific services. For CCT to be RBF there
must be a financial payment to the beneficiaries for compliance

Source: Musgrove, P. 2011. “Financial and Other Rewards for Good Performance or Results: A Guided Tour of Concepts and Terms and a Short Glossary.” World Bank, Washington,
DC. http://www.rbfh ealth.org/system/fi les/RBF%20glossary%20 long%20revised.pdf.

RBF schemes
incentivizing
national
governments

 Cash on Delivery (COD) World Bank PforR
 Debt-swaps
 Loan/debt buy-downs

RBF schemes
targeting service
providers Output-Based Aid (OBA)
 Advanced Market Commitments (AMCs)
 Development Impact Bonds (DIBs) – subset ofSocial Impact Bonds (SIBs)

RBF schemes
targeting students/
households

7 Conditional Cash Transfers (CCTs) Performance-based scholarships or loans (education)
 Vouchers

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2. 1 DEVELOPMENT IMPACT BONDS (DIBs)

1. REVIEW

 Definition

 Results-based Financing: Experience of Education

1. Very little experience compared to health DIBs involve cooperation between public, private and

2. Emphasis mainly on

 Private Investors provide funding to implement and•Raising funds•

Achieving results

nonprofit sectors
scale up programs through non-profit Service
Providers, managed by an Intermediary, which alsocollects data and monitors progress.
 If progress is shown, Outcome Payers pay investors

3. Experience so far only concerned with educationback with return dependent on the level of successprograms, none with education products like books
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2. 1 DEVELOPMENT IMPACT BONDS (DIBs)

2. 1 DEVELOPMENT IMPACT BONDS (DIBs) Example

 Structure of the Rajasthan DIB

 DIB launched focusing on education in Rajasthan, India in June

2014
•

•

•

‘Educate Girls’ (service provider) runs programs with the goal ofincreasing student academic performance as well as increasing attendanceof female students
Upfront investment is provided by the ‘UBS Optimus
Foundation (investor)’. If ‘Educate Girls’ demonstrates
success, the ‘Children’s Investment Fund Foundation(outcome payer)’ will repay investors, with repayment
rates higher the greater the success.
The setup is being managed by an intermediary, Instiglio.
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2. 1 DEVELOPMENT IMPACT BONDS (DIBs)

2. 1 DEVELOPMENT IMPACT BONDS (DIBs) Differentiating Characteristics



Major advantages


Investor involvement is a clear advantage for service providers

 Primary differentiating factor is that investors provide funds

DIBs funding is available from donors, CSOs, and private philanthropies

to allow the service provider to pre-finance the programGreat focus on rigorous measurement and efficiency

 DIBs is the only mechanism that addresses this issue directly



Risks


Very complex, time-consuming, and costly to set up and run, due to theinvolvement of large number of actors



Difficult to find outcome payers

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2. 1 DEVELOPMENT IMPACT BONDS (DIBs)

2. 2 LOAN BUYDOWNS Definition

 Application to dateA buy-down is an arrangement whereby a third party buys down all orpart of either the interest or the principal of a loan, or both

13 education-related DIBs have been implemented in the US and UK Countries could be induced to borrow for social sectors against

12 focus on vocational education

monitorable reforms.
 Crowd in extra resources

UK:10 implemented by the Department of Work and Pensions to reduce Grant aid is declining, in general and for education.

unemployment among young people Huge unmet need for basic education in creditworthy countries.

USA: 2, one each in Massachusetts and New York, to improve employment

 Keep education “competitive” with other sectors to adapt to harder aid

outcomes among those who were formerly in prison.


environment.

USA: one also focuses on preschool education in Utah


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 Recent initiative: GPE approached by the Islamic Development Bank

Several other US states looking into it for preschool education

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2. 2 LOAN BUYDOWNS

2. 2 LOAN BUYDOWNS Illustration

 Previous loan buy-downs (only one in Education)

What if a $100 million loan with 2% interest were bought down to a $50
million loan with 0% interest? Below is the total stream of payments over 5
years, paying back both interest and principal, with and without a buy-down.

Buy-down
China

Loan Repayment with
Buy-down

Year

Year

 1: $ 21.6 million 1: $ 10 million

 2: $ 21.2 million

 2: $ 10 million

 3: $ 20.8 million

 3: $ 10 million 4: $ 20.4 million 4: $ 10 million 5: $ 20.0 million 5: $ 10 million

Cost of buying down interest$4 million

Cost of buying down principal$40 million

Total Cost of buy-down$44 million

AgencyIBRD

Education

Loan Repayment without
Buy-down

Financing

Pakistan Polio

IDA

External donor

DFID
Gates

Loan/Credit(US$ million)
100.0

138.3

StatusBuy-down

Closed$34.5 million

Ongoing

Term shift
IBRD fixed toapprox. 2%

NPV of Credit.

Credit to grantFees and mark-up of

Repayment ofPakistan Polio

IsDB

Gates

227.0

Ongoing$3.6m p.a.

principal only

Nigeria Polio

IDA

Gates

138.7

Ongoing

NPV of Credit.

Credit to grant

Botswana HIV

IBRD

EC

50.0

Ongoing

Euro14.0 million

Loan to credit

China TB

IBRD

DFID

104.0

Closed$37.0 million

IBRD

DFID

100.0

Closed$32.4 million

ADF

AusAid26.6

Ongoing$4.0 million

China Rural
Development
Samoa Power

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IBRD fixed toapprox. 2%
IBRD fixed toapprox. 2%
Softening of loan
terms

Triggers

No
Independent
results audit

Past performance
Independent
results audit
Achieved
NoNo
No

2. 2 LOAN BUYDOWNS

2. 2 LOAN BUYDOWNS Lessons from previous buy-downs

 Which countries could education buy-downs be piloted in?

 Limited experience to date.
 Only one buy-down in education between DFID and China.

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1.

Low-income countries that are unable to borrow for education on hard terms.

2.

Low- and middle-income countries that could absorb more debt on softer
terms.

 Buy-downs provided by bilateral agencies with multilateral banks as lenders,

all on new lending.

3.

 Buy-downs can encourage borrowing for education and health from

Middle-income IBRD borrowers who are reluctant to borrow for basic
education on market terms.

otherwise reluctant countries.

IDA Category 2 or 3 blend countries.
IDA members that will or have recently graduated to IBRD.

 Can stimulate specific results if triggers are appropriately specified
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2. 2 LOAN BUYDOWNS

2. 2 LOAN BUYDOWNS Which countries could buy-downs be piloted in?

 Advantages and Risks
 Advantages

Low income GPE
members withmoderate‐highdebt levels•

Loans, non-concessional or not, are more likely to be scrutinized by financeministries than grants•

Loans encourage more attention to sectoral performance.
• Context of GPE’s new M&E strategy

Low‐income
GPE membersthat canabsorb moredebt

 Risks

Blend IDA
countries that are
anticipated tograduate from IDA
soon•

Will quality of IsDB loans being bought down be kept to GPE standards?

•

Risk that the triggers will not be met and the buy-down will not take place• Reduces incentive for countries to borrow for education.
• Risk increasing a country’s indebtedness.

•

Who interprets if and when the triggers have been met?

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3. 1 PROGRAM FOR RESULTS (PforR)

3. 1 PROGRAM FOR RESULTS (PforR)
 Examples in Education

 Definition
 World Bank’s previous two main investment instruments•

Investment loans(ILs) - projects•

Development policy loans (DPLs) – policy reform22

Morocco National Initiative for Human Development Phase II•• PforR bridges gap between these by focusing on service

delivery and on systems improvement, using
Disbursement-Linked Outcome Indicators (DLIs).

 PforR is a new instrument, approved in 2012, to address

Source: R4D 2014•23

Education component: percentage of girls residing in school dormitories who graduatedto the next grade was a disbursed-linked indicator (DLI) (linked to $40m in payments)

Pakistan Sindh Education Sector Project•projects not covered by above two, but limited so far to
5% of total lending

Improve access to and quality of local governance, infrastructure, social service, andeconomic opportunities

Improve medium-term education sector budgeting, strengthen school management
committee (SMC) participation and capacity for supporting school management, etc.
Has total of 10 DLI indicators, such as education budget executed in alignment with
MTBF, at least 70% of SMCs activated, expenditure validated by third party, etc.

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3. 1 PROGRAM FOR RESULTS (PforR)

3. 1 PROGRAM FOR RESULTS (PforR)

 Application to date

 Differentiating Characteristics
 Relevant governing ministry or branch is primary actor,

 11 programs approved

responsible for accepting funds and demonstrating results

4 are currently being implemented

 Donor involvement in system improvement, while still 17 under preparation

focused on results/outputs

 Of all 28, about 7% of funding is for education

 Intended for large-scale use, though capped at 5% of WB

total lending
Source: R4D 201425

3. 1 PROGRAM FOR RESULTS (PforR)

Incentivize specific project-level outputs or outcomesHas flexibility of being able to create effective system-level improvement

Not required macro analysis or conditionality, and limited to a particularexpenditure programLonger term operations Definition

Major advantages


A type of RBA pioneered by the World Bank in 2002
(1)

Funding to buy down the capital costs of investment required
to deliver a particular service (e.g. telecommunications)(2)

Allow great consistency of donor funding by targeting government subsectors rather than central governments or macro level

Funding in the form of a subsidy to close the gap between what
beneficiaries can pay for a social service and the costs incurredRisks

by the service provider.



Lack of independent social, environmental, and fiduciary safeguards - utilize existing
country safeguards

Limit use to projects that do not pose significant financial or social environmental risks

Source: R4D 201426

3. 2 OUTPUT-BASED AID (OBA)

 Advantages and Risks


Source: R4D 201427

Source: R4D 201428

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3. 2 OUTPUT-BASED AID (OBA)

3. 2 OUTPUT-BASED AID (OBA) Example 1

 Example 2
Bangladesh Female Secondary School Assistance Project (FSSAP) Vietnam Upper Secondary Education Enhancement Project•

Funded by GPOBA and launched in 2010 in partnership with East Meet WestFoundation••

Increase access to secondary education for poor and disadvantaged students•

Targeted students in selected districts received tuition reimbursements toattend a private or semi-private secondary school conditional upon maintaining
a set GPA, attendance record, and behavior standards.

••

Not purely OBA project, but rather includes specific and discrete
components that are OBA-based.
Increase the number and performance of female students attending
secondary school, by providing stipends and tuition for female students,
who attended school 75% of the year and who received a score of atleast 45% on annual exam
Performance-bonuses to schools are linked to female enrollment, among
other indicators

Schools took on performance risk by making the upfront tuition payment andreceiving reimbursement from GPOBA after student performance indicators
were verified.

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3. 2 OUTPUT-BASED AID (OBA)

3. 2 OUTPUT-BASED AID (OBA)
 Advantages and Risks

 Differentiating characteristics


Focus on service provision (access and quality)

Usually private sectorService provider bears performance risk

Funding is provided in the form of targeted subsidies for service



Major advantages


Encourage innovation and experimentation at the level of the service
provider relative to other forms of RBF

provision

30Explicit focus on increasing the engagement of private sector capitaland expertise

Private service provision is faster to adapt than public sector providersMore willing to accept results-based contracts

Risks


Weakening government systems by circumventing public systems



Not obtaining government buy-in from the start, which can limit
projects’ potential for scale-up

Source: R4D 2014

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3. 2 OUTPUT-BASED AID (OBA)

4. ISSUES Application to date

4.1 Defining Results

 200 projects have implemented worldwide

 How to define outcomes precisely?

(e.g.: transport, water and sanitation, energy, health, and ICT ) Especially in education, how to define outputs or Most are in infrastructure

outcomes that can be achieved in a reasonable 7 in education

period?
 What to do if only some results are achieved?
Source: R4D 2014

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4. ISSUES

4. ISSUES

4.3 Safeguards

4.2 Monitoring Results Major issue when aid is involved is how to meet

 Who is going to monitor results?

environmental, social and financial requirements or“safeguards” of donors

 Against what baseline?

 Almost impossible, which means relying on country Who will pay for this?

systems – some sort of precertification needed?
 Does this limit use in low income countries?

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4. ISSUES

4. ISSUES

4.4 Financing Supply

4.5 Sustainability

 If financing is only for results, how will service providers

 So far donors and philanthropies have funded(NGOs or governments) finance services initially?

 Even so, huge issue of finding outcome payers

 Huge issue of working capital for NGOs and other innovators
 Only DIB explicitly addresses thiswith DIBs Can governments adopt such financing?
 Is it compatible with being politically responsive? With the Could one consider combining instruments?

need to finance supply?

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6. PREVIEW NEXT SEMINAR: 22 JANUARY 2015

5. CONCLUSIONS
 Important to move towards outcomes and results

 Further examination of these issues

 Easiest for non-state service providers

 A look at one other instrument: debt conversion bonds

 How to do it for public sector providers and the public

 Specific possibilities for Japanese aid

sector in general?
 Other bilateral donors?

 Can it be done without aid?

 Multilateral donors?

 Possibilities for combining some of these instruments?

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Thank you very much

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