Important or Just Trendy?
The New World of Education Financing
SEMINAR 1:
DO WE NEED NEW FORMS AND SOURCES OF
FINANCING FOR EDUCATION?
NICK BURNETT
23/10/2014
CICE SEMINAR, HIROSHIMA UNIVERSITY

1

CONTENTS
1.
2.
3.
4.
5.

About R4D
Introduction: Persistent Education Issues
Financing Overview
New Players
Innovative and Alternative Financing




6.

Results-based Financing




7.
8.

GeneralHealth Sector
Education Sector
GeneralHealth Sector
Education Sector

Conclusion
Preview Next Seminar: 18 December21. About R4D: Results for Development Institute
What is R4D?
 Results for Development Institute(R4D) is a Washington-DC based
non-profit organization.

R4D targets four areas in
the fight against global
poverty: R4D works with leaders, globallyand at the country level, to provide
analysis and design and test
solutions to some of the worldʼsbiggest development challenges

Marketdynamics

 Major supporters include Rockefeller
Foundation, Gates, DFID, Hewlett,and USAID

GlobalHeath

MarketDynamics

Global
Education

Governance

R4D.org

1. Results for Development InstituteR4D’s education portfolio at a glance

INNOVATIONS INEDUCATIONSKILLS FOREMPLOYABILITY

EARLY
LEARNING

OUT-OF-SCHOOLCHILDRENINNOVATIVEFINANCING| R4D.org

2. INTRODUCTION Enrollment Rate
Primary Level

110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

World

Low Income

Lower Middle
Income1999

Upper Middle
IncomeHigh Income

0

Secondary LevelWorld

Low Income

Lower Middle
Income1999

2011
Source: UNESCO GMR2013/14

Upper Middle
IncomeHigh Income

2011

5

2. INTRODUCTION
 Out of School Children
Number of out-of-school children ofprimary school age by region and sex, 2000-2012

Number of out-of-school adolescents oflower secondary school age by region and sex, 2000-2012

Source: UNESCO GMR Policy Paper No. 14, 20146

2. INTRODUCTION Learning (e.g. UWEZO in East Africa)
Test pass rates for children enrolled in Standard 3

Test pass rates for children enrolled in Standard 7

Notes: “combined” refers to passes on both numeracy test and at least one of the literacy test in the survey

Source: UWEZO, 20147

2. INTRODUCTION Learning Crisis

Source: GMR 20138

2. INTRODUCTION Global Youth Unemployment

 12.6% global youth

unemployment rate, compared
to 4.5% for adults.
 The ILO projects that the youth

rate of unemployment will
increase if current trends
persist.
Source: ILO 20139

2. INTRODUCTION
 MDG/EFA Financing Gap
Current GMR estimate: $54 billion per yearGovernments have largely done the necessary (on averageincreased by fully 1% of GDP this century)

Aid for education and for basic education increased initially,
then stagnated, now decliningGlobal spending on education about $2.5 trillion, of which
about 25% is private (mainly tutoring)On average 4% GDP public; 1% private; total 5%

Aid is only 0.5% of all education spending10

3. FINANCING OVERVIEW Domestic Financing
Public expenditure on education as percentage of GNP(Low and middle income countries, 1999 and 2011)

Increased of 1 % point or more

Decrease of 1 %point or more

Change of less than 1 % point

Source: UNESCO GMR2013/14

11

3. FINANCING OVERVIEW Domestic Financing
Public expenditure on education as percentage of government expenditure(Low and middle income countries, 1999 and 2011)

Increased of 5 % points or more

Decrease of 5 %points or more

Change of less than 5 % points

Source: UNESCO GMR2013/14

12

3. FINANCING OVERVIEW Private Tutoring
Proportions of Children Aged 3-16 Receiving Private Tutoring by Income Quintile
Rural India (2007/08)

Rural Pakistan (2010)

Proportion

Rupees

35

100
90

30

80

25

70
60

20

50
15

40
30

10

Proportion

Rupees

35

400

30

350
300

25

250

20

200
15

150

10

100

20

5
0
1
(poorest)

2

3

Income Quintile

4

5(richest)

10

5

0

0

50
0
1
(poorst)2

3
Income Quintile

4

5(richest)

Propotion of Children Receiving Tutoring

Propotion of Children Receiving Tutoring

Expenditure on Tutoring per Child (Indian ruppes per month)

Expenditure on Tutoring per Child (Pakistani rupees per month)

Source: Bray & Lykins., 2012.

13

3. FINANCING OVERVIEW Aid
Total aid to education disbursement, 2002-2012

Source: UNESCO GMR Policy Paper13, 201414

3. FINANCING OVERVIEW Aid
Share of education in total, 2002-2012

Aid to basic education, top 15 donors
in 2012, relative to 2010

Notes: Total aid exclude debt relief

Source: UNESCO GMR Policy Paper13, 201415

3. FINANCING OVERVIEW Absence of Global Aid Architecture for Education
 EFA 2000 promise of financing all countries never realized No special arrangements for education coordination
 Increased country focus by bilaterals has led to reduced number ofrecipient countriesAustralia, Canada, Netherlands, Sweden, United Kingdom. Has Japan also cut
back?



Burkina Faso and Cambodia have each suffered withdrawal of 5 donors frombasic education

 Only one attempt to establish new mechanism: FTI/GPE Particular problem of aid for education: low country programmableamount (68%) compared to water/sanitation (96%), health (86%).
Dubious use of higher education in ODA (France, Germany, Japan)
16

3. FINANCING OVERVIEW Global Partnership for Education
formerly EFA Fast Track Initiative

 Several promising shifts:
Focus on low income countries (since beginning)

Focus on fragile states (since 2011) New allocation criteria are needs-based
 New funding formula

70% inputs



30% results

 But remains relatively small


13% education disbursements to LICs and 7% to fragile statesDisappointing pledges at June 2014 replenishment conference173. FINANCING OVERVIEW All Sources
Share of total education expenditure borne by government, donors and households(selected countries, 2007-2011)

Source: UNESCO GMR2013/14

18

4. NEW PLAYERS
 Growth of Non-State Service Delivery
 Huge expansion of NGOs, domestic and international: BRAC, Save theChildren, Camfed etc.

 Expansion of low-cost private schools in India, Pakistan, Kenya,

Ghana, Nigeria.

 Parental dissatisfaction with public schools.
 Expansion of private corporate sector and educational markets
 Growth of PPPs in education
 Donor involvement


DFID Girls Education Challenge – all non-state

IFC investments – mainly higher education – private for-profit

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

19

4. 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Corporate – direct

Corporate – CSR

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

PotentialInstitutional investors, especially domestic. Pension funds, insurance funds etc $6
trillion growing at 15% per yearSovereign wealth funds: Norway, Gulf

Remittances $300 bn pa +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

20

5. INNOVATIVE AND ALTERNATIVE FINANCING
 Defining Innovative Financing
The Leading Group1 identifies three key features of innovative financing for development:

1. Linked to global public goods
2. Complementary and additional to traditional ODA
3. More stable and predictable
Reflects view that ODA from traditional sources will not be sufficient to meet
concessional finance needs of low income countries.
We follow this but go further to include2:

4. Domestic finance, complementary to public spending
5. The way the finance is both raised & spent is important – money & results.
1.
2.

www.leadinggroup.org
2012 Report of Leading Group Task Force on Innovative Financing in Education21

5. INNOVATIVE AND ALTERNATIVE FINANCING
 Key Actors in Innovative Financing
 France, especially under Foreign Minister Kuchner (ex-MSF)
and AFD under Severino: Leading Group, AFD/Gates prizes
 Gordon Brown UK Chancellor/Prime Minister and health:Brown/Zoellick task force Gates Foundation health FTI/GPE reform UNESCO debt for education swaps (Argentina pressure)22

5. INNOVATIVE AND ALTERNATIVE FINANCING
Health Sector

Several examples of health “problems” and their respective finance mechanism “solutions” emerge
Area

Problem

Solution

ExamplePublic sector
demandMany small purchasers
 higher prices

Create purchasing power todrive competition, create
demand, & lower prices

Global Fund VPP, UNICEF
Supply Division

Programcoherence

Many uncoordinated donors
 inefficient use of donor assistanceAn alliance to coordinate
donors’ roles

GAVI,
Global FundPrivatedemandPrivate sector market failures low access

Improve access by subsidizing
through private sector
channels

AMFm (Affordable
Medicines Facility formalaria)

Supply andinnovation

Lack of incentives to develop new,lifesaving products

Encourage late stage R&D andbringing products through tothe market

Pneumococcal AMC

Financing

Shortage of resources  valuable
goods & services not reaching people

Mobilize additional resources,
partly through innovative
financing mechanisms

IFFIm,
Global Fund

Many of these examples also provide some sort of regulatory solution(pre‐approval mechanisms, list of approved products, etc.)23

5. INNOVATIVE AND ALTERNATIVE FINANCING
Health Sector

 Mobilizing additional resources, including through innovative

finance
The Problem: There is an overall lack of resources to purchase and distribute existing healthcommodities to the populations that need them
The Solution: Innovative financing is one way to raise additional funding for a particularcommodity. Large alliances or funds can also have greater leverage in raising funds fromdonors.
The Example of IFFIm: the International Finance Facility for Immunization
IFFIm uses long‐term pledges
from donor governments to sell“vaccine bonds”, making funds
available for GAVI programs

Diagram Source: IFFIm website (http://www.iffim.org/About/Overview/)24

5. INNOVATIVE AND ALTERNATIVE FINANCING
Health Sector

 Summary of lessons learned from Health sector
1.

Mechanisms need to be tailored to the problem to besolved2.

There are multiple proven tools and institutions toaddress these problems

3.

Most health mechanisms are oriented around results25

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector

 Brief History
Three Main Strands
StrandAims

Description/Examples

Raising Resources• Indian Cess• Philippines ECD• Training Levies

Corporate Social
Responsibility

Raising Resources

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

Innovative Financing
Task Force Ideas

Raising Resources
Achieving Results

Discussed in next slides

Broad Taxes

26

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector

 Ideas and Possibilities: Broad Taxes

Financial transactions tax*
Now enacted in many countries



Development purpose seems largely lost in current fiscal climate

Even within development purpose, never any debate on sectoral shares. One key objective of
2+3=8 was to make the case for education

Extractive Industry Taxes: same issue of education’s sharePakistanGhana oil

Not universally applicableSpecific Education Taxes (not really innovative financing but rather earmarked financing)Indian cessTraining levies (50 countries)

Philippines ECDThailand (Sin Tax)27

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector

 Mandatory Corporate Social Responsibility

South Africa: Req. 1% Net Profit After Tax
 2001-13 :Doubled to reach $7.8

billion Rand(>$700 million)*
 >40% of $ to Education & incl. in

90% of CSR portfolios
 Largest source of income for






India
Beginning in April, req. 2% Avg. Net
Profits from major companies.
Est. could be up to 150 billion
Rupees, ($2 billion)
Education a high priority area
BUT: skepticism on implementationand impact

South African NGOs.
*CSR to NPOs constitutes just under 50% of total

Sources: Trialogue (2013); BSR (2013)28

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector

 Corporate Social Responsibility: US Fortune 500 Companies

Total value of US corporate contributions to education (million dollars)Countries with the highest percentage of companies contribution to education

Source: Center for Universal Education, 201129

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector

 Innovative Financing Task Force Report
Type
Bonds

Details••••

Debt/Lending

Impact Investing

PPPs in Education

Voluntary Contributions
Profile‐raising Sports Levy•

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 transactions30

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector
 Education Examples

Development Impact Bond ‐Rajasthan

GPE Loan Buydowns

Private Investor: provides
working capital to NGO provider
to achieve specified results

Financing Agency (e.g. Islamic
Development Bank) has non‐concessional funding available tolend

Independent Evaluator: verifies
results

Low‐Income Countries unable(creditworthiness) or unwilling(risk appetite) to borrow for
education on non‐concessional
terms

Outcome Payer (Gov’t orFoundation): pays Investor once
results achieved

GPE funds used to soften terms of
non‐concessional loans so
attractive to low‐income countries
but lending& buy‐down bothconditioned heavily on results

31

5. INNOVATIVE AND ALTERNATIVE FINANCING
Education Sector
 Impact Investing Potential

Source: D. Capital Partners. Impact Investing in Education: An Overview of the Current Landscape (2014)

32

6. RESULTS-BASED FINANCING
 What is RBF?
RBF refers to group of approaches which involve the “transfer of money or material goods
conditional on taking a measurable action or achieving a predetermined performancetarget”Emphasis on incentives (generally financial) to reward attainment of positive results – mostly in healthsector, but also others



Pays for outputs - recipients (patients, service providers, governments) receive payments only if specified
results are achieved.



Idea is to promote hard work, innovation, and results

Differs from traditional aid which pays for inputs (equipment, training, fixed salaried staff, drugs).

Designed to ensure existing funds are spent more effectively and efficiently
Payers(Donors, Government, NGOs, Health
Programs, Insurers, Communities)

Money, Goods,
Rewards

Results

Recipients(Households, Services providers facilities, health workers, Local &National Govt)
Source: Eichler, Rena and Susna De., (2011), ‘Paying for Performance in Health: A Guide to Developing the Blueprint’, Version 2 Bethesda, MD: Health Systems 20/20, Abt Associates Inc.

33

6. RESULTS-BASED FINANCING

Private Sector?

 Changing Aid Modalities in Education (Source: Prof Yoshida)

Global Fund??

Harmonized & Aligned+
Results-Based

Program-based, SWAps  GBS-SBS/FTI-GPE
Pool Fund

Structural Adj. Lending

DLI/PforR

Dev. Policy Lending
Emerging donors

CoordinatedStand-alone(SIL)

Project-type

1960s
Independence
Growth

1970s

1980s
Crisis, Adjustment
Lost Decade

Aid being recontextualized

Rome⇒Paris⇒Accra ⇒Busan

1990s

2000s

Post Cold War
Recovery

2010s

34

MDGs
Post 2015
Recessed-N & Lively-S Paradigm

6. RESULTS-BASED FINANCING
 Main RBF Models and Sub-Categories
Multiple acronyms and abbreviations describe RBF programs – terms are often synonymous, while somedescribe a subset of programs. The main models are defined below:
Type

Application

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

Synonyms for RBF

Performance-Based
Financing (PBF)

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.

35

6. RESULTS-BASED FINANCING
 The universe of results-based financing

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)
 Social impact bonds (SIBs) and development impact
bonds (DIBs)

RBF schemes
targeting students/
households

 Conditional Cash Transfers (CCTs) Performance-based scholarships or loans (education)
 Vouchers36

6. RESULTS-BASED FINANCING
 Who Bears the Risk?
•

Risk allocation is a key differentiating factor between RBF and traditional financing•

RBF instruments vary depending on who bears the risk – the donor; Government, service provider, or investors (in thecase of Social Impact Bonds / Development Impact Bonds)

37

6. RESULTS-BASED FINANCING
 RBF Trends – Application & Donor SpendingPerformance-based financing (PBF) is emerging as the most common RBF
approach being tested in low and middle income countries. Common features are:

Supply-side approach - performance-based incentives earned by service providers;

Payments targeted at individual health facilities and administrations, often with trickledown to health workers;Payments linked to outputs, modified by quality indicators.

Major convening was held in Oslo in Dec. 2013 - ‘Scaling up RBF for Faster
Progress towards the Health MDGs’:

RBF recognized as key mechanism to accelerate progress towards the MDGs, but needfor greater evaluation and shared learning

RBF needs to be anchored in broader/longer term agendas – e.g. health systems
strengthening and universal health coverageRequires large-scale collaboration, but while donors/agencies showed some commitment
they also like to support their own schemes

Consensus that need domestic financing – or at least co-financing –to expand andsustain RBF, especially in non-fragile countries.

Source: O’Brien, T, Kanbur, R. and the World Bank, (2013) ‘The Operational Dimensions of Results-Based Financing’, Cornell University. Found at:
http://www.aem.cornell.edu/research/researchpdf/wp/2013/Cornell-Dyson-wp1315.pdf
World Bank, HRITF, (2013), ‘Using Results-based Financing to Achieve Maternal & Child Health, Progress report’Witter, S., et al. (2013), ‘Performance-based financing as a health system reform: mapping the key dimensions for monitoring and evaluation’, MC Health Services
Research 2013, 13:367

38

6. RESULTS-BASED FINANCING
Health Sector
 RBF at the World Bank – HRITF History

Health Results Innovations Trust Fund (HRITF) is a World Bank-managed multi-donor
platform formed in 2007 to test ‘pure’ RBF projects – supported Norway and the UK
Total commitment of US$535 million equivalent
Currently supports 36 RBF programs in 31 countries
Focus on MDGs 1c (nutrition), 4 (child mortality), and 5 (maternal health)

HRITF allocations by region

Specific objectives:
1.
2.
3.
4.

Attract additional financing to thehealth sector
Develop and disseminate the evidencebase for RBF mechanisms
Build countries’ institutional capacity
to scale up/sustain RBF
Support the design, implementation,and evaluation of RBF

13%

Africa2%
5%

East Asia & The
Pacific

4%

East & Central
Asia

1%
75%

Latin America &Caribbean
Middle East & N
AfricaSouth Asia

Source: O’Brien, T, Kanbur, R. and the World Bank, (2013) ‘The Operational Dimensions of Results-Based Financing’, Cornell University. Found at:
http://www.aem.cornell.edu/research/researchpdf/wp/2013/Cornell-Dyson-wp1315.pdf
World Bank, HRITF, (2013), ‘Using Results-based Financing to Achieve Maternal & Child health, Progress report’39

6. RESULTS-BASED FINANCING
Health Sector
 Evaluations of RBF/HRITF – Mixed Results
RBF evaluation space is in an early stage – existing studies show mixed results and say it’s too
early to draw conclusions.


Evaluations emphasize importance of context and the use of RBF in conjunction with other policy
interventions/factors.



Norad independent evaluation of HRITF’s first four years was lukewarm
Said HRITF increased awareness and activity about/in RBF globally, but results/success were mixed, and heavily dependent
on specific country and health sector context.

Others call HRITF slow (it took 6 years to launch 20 pilots)Also question focus on supply-side performance-based payments – e.g. paying providers basedon the number of visits not necessarily ensure impact or quality.

But, strong donor support:

2013, World Bank President said early findings show “RBF can get 20 percent more health carefor the same amount of money with a higher quality of care.”

RBF hailed as promising approach to improving provision/quality of health care by African leadersduring the 2013 WB Spring Meetings.

Source: Basinga P, et al.. (2011), ‘Effect on maternal and child health services in Rwanda of payment to primary health-care providers for performance: an impact evaluation’, Lancet. 2011;377:1421–8
Martinez, J. (et al. (2012), ‘Evaluation of the Health Results Innovation Trust Fund’, Norad, Norway
Fan, V., (2013), ‘From Audits to Results: A Needed Paradigm Shift in Health Aid’, Global Health Blog: Center for Global Development.
Glassman, A. (2012), ‘Who Will Spend the New Money for Family Planning?’, Global Health Blog: Center for Global Development.

40

6. RESULTS-BASED FINANCING
Education Sector

 Norway entering partnership with World Bank around RBF in education,

trying to replicate HRITF.

 Five World Bank projects (Brazil, Indonesia, Jamaica, Pakistan(2))
 DFID Ethiopia and Rwanda COD
 New GPE funding model A very few examples of OBA e.g. Vietnam secondary school enrollment

and learning Quite a few CCTs e.g. Mexico, Brazil, Bangladesh secondary education –often multisector e.g. Bolsa familial in Brazil

 CIFF/UBSOF Rajasthan girls education DIB

41

6. RESULTS-BASED FINANCING
Education Sector

 Experience of Education

1. Very little experience compared to health
2. Emphasis mainly on•

Raising funds•

Achieving results

3. All concerned with education programs, none

with education products like books42

7. CONCLUSION

1.
2.
3.
4.
5.
6.

Both Innovative and Results‐based Financing are ImportantInnovative Financing ideally should not substitute forgovernment spending or aid
Can be combined
Innovative financing most applicable to privately delivered
subsectors: ECD, vocational, training, etc??
RBF major issue is the definition of the result, who does themonitoring, and the financing of the supply.
May it have more applicability to some subsectors of education?

43

8. PREVIEW NEXT SEMINAR: 18 DECEMBER
 Will review some of the more promising instruments in detail Tentative list – what do you think?
 Innovative Financing: Development Impact Bonds
 Debt‐Conversion Development Bonds
 Loan Buydowns
 PPPs in Education

 RBF
 PfR at World Bank
 New GPE funding model
 OBA

 Issues with each Sustainability issues: what will be future role of the government?
44

Thank you very much45