Important or Just Trendy?
The New World of Education Financing

SEMINAR III:POSSIBILITIES FOR JAPANNICK BURNETT
22/01/2015
CICE SEMINAR, HIROSHIMA UNIVERSITY

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Contents
I. Review of previous seminars
II. One More Instrument: Debt Conversion Development Bonds (DCDBs)
III. Japan Context
IV. Possibilities for Japana) Working with non-state education in developing countriesb) Lending for educationc) Development Impact Bonds?
d) Loan Buydowns?
e) P for R in Education ODA?
f) Output-Based Aidg) DCDBs?
V. Conclusions

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I.REVIEW: SEMINAR I
 Persistent challenges require financing yet ODA declining New Players: Growth of Non-State Delivery in Developing Countries
 New Sources of Education Finance: foundations, private etc

 Shift Towards Outcomes and Results
 Still little experience in Education compared to Health Education emphasis so far mainly on: Raising funds
 Achieving results
 Experience so far only concerned with education programs,

none with education products like books

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I.REVIEW: SEMINAR II

Four Promising New Instruments
1. Development Impact Bonds (DIB)
2. Loan Buydowns
3. Program for Results (PforR) - World Bank
4. Output-Based Aid (OBA)

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I.REVIEW: SEMINAR II
1. Development Impact Bonds (DIB) Example: Rajasthan Girls Education
 Differentiating Characteristics
Primary differentiating factor is that investors provide funds to allow the service
provider to pre-finance the program

DIB is the only mechanism that addresses this issue directly
Major advantages








Investor involvement is a clear advantage for service providers



DIB funding is available from donors, CSOs, and private philanthropies

Great focus on rigorous measurement and efficiency

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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I .REVIEW : SEMINAR II
2. Loan Buydowns
 Example: GPE and Islamic Development Bank Differentiating Characteristics
 Combines loans and grants to soften terms of lending Advantages•

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

Loans encourage more attention to sectoral performance.

 Risks•

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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I. REVIEW : SEMINAR II
3. Program for Results (PforR)
 Example: World Bank Differentiating Characteristics
 Relevant governing ministry or branch is primary actor, responsible for accepting funds anddemonstrating results
Donor involvement in system improvement, while still focused on results/outputs

Intended for large-scale use, though capped at 5% of WB total lending
Major advantages








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 particular expenditure programLonger term operations

Allow great consistency of donor funding by targeting government sub-sectors rather thancentral governments or macro level

Risks


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

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I. REVIEW : SEMINAR II
4. Output-Based Aid (OBA) Example: Vietnam Girls Secondary Education
 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 provision

Explicit focus on increasing the engagement of private sector capital and expertise

Major advantages


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

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-up8

I. REVIEW : SEMINAR II

 CONCLUSIONS OF SEMINAR IIImportant to move towards outcomes and results

Easiest for non-state service providers

How to do it for public sector providers and the public sector ingeneral?



Can it be done without aid?



Possibilities for combining some of these instruments?

Issues of Defining Results, Who Will Monitor Them, andSustainability
9II. ONE MORE INSTRUMENT:
DEBT CONVERSION DEVELOPMENT BONDS (DCDBS)
 Recipient (indebted) government issues domestic bonds
 Future bond debt service payments matched by fiscal space createdby creditors forgoing future international debt service payments(all or some).
 Concept developed by Daniel Bond for UNESCO Advisory Panelof Experts on Debt Swaps & Innovative Approaches to Education
Funding and funded by the Open Society Foundations

10II. ONE MORE INSTRUMENT:
DEBT CONVERSION DEVELOPMENT BONDS (DCDBS)
DCDBs Major Advantages


Recipient GovernmentAllows it to issue domestic bonds



Avoids foreign exchange debt service payments

Donor/CreditorCan mobilize substantial development funding todayBut spread the budgetary impact over a number of future years(as bond debt service comes due)11II. ONE MORE INSTRUMENT:
DEBT CONVERSION DEVELOPMENT BONDS (DCDBS)
DCDBs Potential Uses
 Donor funding large social and economic infrastructure projects(schools, universities) that may be difficult to fit into aid budgets
otherwise.
 A means of responding to large-scale emergency funding needs?
 Has not yet been tried (but some discussions about Zambia,

Bangladesh and Jordan) Issue: not too much debt among low income countries – more

relevant for LMICs?

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III. JAPAN CONTEXTa) Education Cooperation Policy 2011 - 2015
• Education an essential component for promoting human security• Share Japan’s experience in education• Contribute to the MDGs and the EFA goals• Respond to various needs of partner countries• Provide US$3.5 billion 2011-15• Help create a quality educational environment for at least 7 million children(a cumulative total of approximately 25 million children)• Focus in developing countries on:• Basic education• Upper secondary education• Vocational training• Higher education• Focus in Japan on:• Receiving overseas student to promote human resource development

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III. JAPAN CONTEXTa) Education Cooperation Policy 2011 - 2015
Education for Human Security – An Integrated Approach for Ensuring Human
Rights, Achieving Sustainable Development and Fostering World Peace

Source: Japan’s Education Cooperation Policy 2011-201514

III. JAPAN CONTEXTa) Education Cooperation Policy 2011 - 2015
 Guiding Principles of Japan’s Education Cooperation Policy(1) Supporting self-help efforts and sustainable development
Strong political commitment from governments of partner countries is essential
and Japan’s support must respect and foster their ownership(2) Meeting the needs of marginalized populations
Those deprived of opportunities to receive quality education due to various factors
associated with poverty, gender inequality, disability, HIV/AIDS, place ofresidence, conflict, ethnicities and languages.
(3) Respecting cultural diversity and promoting mutual understanding

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III. JAPAN CONTEXTa) Education Cooperation Policy 2011 - 2015
Approaches to Maximizing Effectiveness of Japan’s Assistance(1) Maximizing Japan’s Comparative Advantages on the Ground(2) Participating in the Policy-making Process and Providing Medium Long-term Support(3) Ensuring Strategic Application of Aid Resources in Response to Countries’ Needs(4) Strengthening Partnerships with the International Community(5) Linking Education with Other Development Sectors(6) Promoting a South-South Cooperation and Triangular Cooperation Approach• Example‘Promote Kenya’s model to Africa’ Strengthening of Mathematics and Science
Education – Western, Eastern, Central and Southern Africa (SMASE-WECSA)(7) Strengthening a Result-oriented Approach(8) Forging Partnership with Actors in Japan16

III. JAPAN CONTEXTJapan’s Total ODA(Oku-Yen)

Proj. Budget

16000

Gen.A/c

14000
12000
10000
8000
6000
4000
2000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: MOFA ODA White Paper various years.

17III. JAPAN CONTEXT
Figure 3. Japan's Education Aid by Type CY2001-2012(Commitment, Calendar Year, Current US$ million)
1369.0

1400
1200
1000

14.0%
12.0%

1010.4 1068.8
874.4

904.1

800

957.5
771.1

846.5

843.8

871.1

10.0%

925.9
797.2

8.0%

600

6.0%

400

4.0%

200

2.0%

0

2001 2002 2003 2004 2005
Loan Aid
115 245 242 318 165
Tech Coop 625 605 694 823 597
Grant Aid
134 160 134 228 142
Ed/Total Bi
7.3% 10.6% 7.0% 10.4% 5.1%
(right scale)2006 2007 2008 2009 2010 2011 2012236 91 141
61
0
86
0
603 551 560 585 643 542 468
119 129 145 198 228 297 329

0.0%

7.0% 5.9% 4.6% 5.7% 4.8% 5.8% 4.6%

Source: MOFA various years.
Note: Figures include aid for Eastern Europe and graduated countries.

18III. JAPAN CONTEXTJapan’s Education ODA by sub-sector(Current US$ million, commitments)
1400
Unspecified

1200

Post-Secondary

Secondary

Basic

1000
800
600
400
200
0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(Source) By author based on OECD.StatExtracts

19III. JAPAN CONTEXTb) Attitudes and expectations
1. Education cooperation support should be for public sector
2. Increasing collaboration between JICA and Japanese private sector, but not muchfor private schools
3. In-person cooperation: e.g. science and mathematics teaching, hands-on school-

based management assistance
4. Some limited support for private schools e.g. science kits
5. Reluctance to lend for education, especially basic education
 Even lending for vocational and higher education is concessional and counts as

ODA
6. Not a lot of Japanese philanthropy (Japanese attitude to charity?)
7. Japanese education philanthropy mainly domestic
8. Japanese small investors interested in education

e.g. African Development Higher Education bonds
9. Japanese education businesses mainly domestically focused20III. JAPAN CONTEXTJapan's Bilateral Debt 2013

(Billion yen)
8000

7403.157000
6000

5897.95

5000
4000
3000
2000
928.12

1000
5.63

0

Asia (22)Source: JICA

109.83303.39Pacific (3) North&Latin Middle East Africa (10)America (6)(5)

158.23

Europe (5)Total (51)21

III. JAPAN CONTEXT

 Limited Japanese Foundation Aid to Developing Countries
Name

Detail

1 Bellmark Education Aid Foundation Send picture books to Myanmar refugee camps
2 Konicaminolta Foundation

Support educational material for children in China

3 The Nippon Foundation

Build schools in Myanmar

4

Akimoto Tatsunoko International
Scholarship Foundation

Scholarships for foreign students

5 KDDI Foundation

Assist education in Cambodia

6 Ito Foundation

Scholarships for foreign students

7 Panasonic Education Foundation

ICT education
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III. JAPAN CONTEXT Japan CSR for Education
Name

Detail1

Ricoh

India: Assistance to education

2

DaikinThailand: Learning and employment opportunities for students

3

KokuyoChina: Educational materials for children

4 Daiwa house Provide career education

5

Lotte

Myanmar: Support the education activities of the Bellmark Education Aid
Foundation
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III. JAPAN CONTEXT Japanese Small Investors Interested in Education and in Development?
 African Development Bank
 Education Support Bonds 2010, 2012,2013 – issued by Daiwa;

Japan Asia Securities; Okinawa Securities
 Small denominations so individuals could purchase Daiwa Microfinance Fund
 Other examples?

24III. JAPAN CONTEXT JAPANESE CORPORATIONS INVOLVED IN INTERNATIONAL EDUCATION
JAPANESE CORPORATIONS INVOLVED IN
 INTERNATIONAL
Vision: Wish all people in the world
will have the opportunity to learn with the Kumon Method, and
EDUCATION

Kumon

that each individual will be enthusiastically self-learning and making efforts towards realizing his or
her goals and dreams


Scope: 4.26 million enrolled in 48 countries outside Japan. Heavy focus on Japanese expatriates
and local elites.

Bennesse

Vision: Involved in “Education (Human Resource Development)” and “Solution for Society’s
Challenges” to become world No.1 company in the education field, supporting childcare, educationand human resource development globally

Scope:
 Products still mainly for Japanese.
 Correspondence course business mainly focused on preschool children in South Korea, China

and Taiwan


Chuo


Vision: Generate interest in learning through publishing educational material for children frompreschool to university



Scope: Textbooks still mainly for Japanese25

III. JAPAN CONTEXTc) Other Sector Experience DIBs: None
 Loan Buydowns: Health Gates Foundation bought down JICA polio lending in Nigeria and Pakistan
 PforR or similar:
 None as such
 Involved in PPPs for health (Benin, Lesotho) and Tourism (Lesotho)
 OBA:
 Microfinance (Philippines) Energy
 Water Some BOP programs
 DCDBs: None26

IV. Possibilities for Japan: non-state delivery in developing countries?
 Could expand collaboration to include non-state sector
 low cost private schools?
 NGO schools?
 Already works with BRAC on things like social enterprises but

apparently not in education?
 Break away from pure focus on public sector schools?

27IV. POSSIBILITIES FOR JAPAN: LENDING FOR EDUCATION
1. Consider concessional lending for basic education and expanding
lending for other levels of education
2. Pay more attention to country creditworthiness than to education
sector’s use of funds
3. Most other bilateral donors moving towards some forms of“returnable capital”.

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IV. POSSIBILITIES FOR JAPAN: DIBS?
1.

DIBs Outcome Payer?
a) Would Japanese government be willing to finance outcomes or would it
expect to also be involved on the supply side?
b) Would Japanese private philanthropy be willing to finance outcomes? In
this case, it could be an advantage that there is no need to be involved in
the supply, as it would not require many staff.

2.

DIBs Investora) Given that Japanese private investors are interested in bonds for African
education, is there a way that their small investment funds could bebundled to provide investment capital for DIBs?
b) Possibly could be combined with Japanese government role as Outcome
Payer?

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IV. POSSIBILITIES FOR JAPAN: LOAN BUYDOWNS?
1.

Other international donors are not likely to agree to buy down Japanese lending(Gates polio probably an exception). However, same effect could be achievedby somehow matching Japanese concessional lending with multilateral grant
funds (e.g. from GPE) and linking to results. For example, Japan could dedicate
some sum like $500million to GPE programs as concessional cofinancelending….

2.

This would require Japan to overcome its reluctance to lend for education.
Reluctance anyway makes no sense as lending should be based on country
creditworthiness not on a particular sector’s use of the funds in all cases where
the investment will not itself generate foreign exchange.

3.

Are there Japanese philanthropists who might be interested in buying down
Japanese government lending? That could be an interesting way for them to get
into the education development area.
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IV. POSSIBILITIES FOR JAPAN: P FOR R IN ODA?
1. Again raises the issue of whether Japanese government would be
willing to focus only on results or would want to be involved also
in supply of inputs.
2. Others are experimenting with combinations e.g. new GPE
funding model is 70% inputs and 30% results. Could some suchcombination be possible for Japan? Maybe also use concessionalloans for inputs and grants for results, combined in such a waythat the grants would essentially cover the interest payments on
the loans and so effectively convert even the loans into grants?

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IV. POSSIBILITIES FOR JAPAN: OBA
1. OBA may be particularly suitable for education areas of highpriority for Japan: upper secondary and vocational.
2. Combine with a focus on Out of School Children atsecondary level (most global attention still on OOSC at
primary level).
3. Could be some scope for experimenting with using OBA totarget involvement of poor and disadvantaged in addition to
input support to the systems as a whole32

IV. Possibilities for Japan: DCDBs
1.
2.

Significant overlap between countries identified for UNESCO as potential for
DCDBs and Japanese bilateral debt
Need to make the case for Education

Japanese Bilateral Debt
Country with Potential (end-2013)

Japan share of all Bilateral Debt
(comparing 2013 and 2010 hence
Yen billion US$million discrepancies)

ZambiaAngolaCote dÍvoire
Ghana
Nigeria
UgandaKenya
Bangladesh
Sri Lanka
VietnamJordan

9.83

23.48
170.2
383.74271.581622.45
121.06

93
0
0
0
0
223
1617
3646
2580
15413
1150

0.26

0.87
0.63
1.28
0.34
1.19
0.40
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V. Conclusions
1. Declining ODA + Need for Results to Justify ODA = Japan may wish to moveprogressively into RBF and Innovative Financing for Education
2. Will require attitude changes:a) Towards private sector deliveryb) Towards lending for educationc) Towards emphasis on inputs and supply side
3. Some unique possibilities:a) Japanese individual investor interest in educationb) Distribution of Japanese bilateral debtc) Japan’s focus on Secondary and Vocational education, where there is mostpotential for OBA
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Thank you very muchContact information: nburnett@r4d.org

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