Study on the feasibility of an education and training investment platform : final report.
Date: 2017-10-13
Institutions: Directorate-General for Education, Youth, Sport and Culture
Subjects: Germany, Portugal, Sweden, United Kingdom, education, education budget, education policy, feasibility study, fund (EU), investment, investment project, public-private partnership, vocational training

c 

Study on the feasibility of an 
education and training 
investment platform 
Final report 

 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

Directorate-General for Education and Culture 

Directorate A — Modernisation of Education I: Europe 2020, country analysis, Erasmus+ coordination  

EUROPEAN COMMISSION 

Directorate-General for Education, Youth, Sport and Culture 
Directorate A — Policy Strategy and Evaluation 
Unit A.1 — Strategy and Investments 

Contact: Paolo Battaglia 

E-mail:  paolo.battaglia@ec.europa.eu   
eac-unite-a1@ec.europa.eu 

European Commission 
B-1049 Brussels 

2 

2017 

 
 
 
 
EUROPEAN COMMISSION 

Study on the feasibility of an 
education and training 
investment platform 
Final report 

Edited by 

ICF Consulting Services Limited  

in association with  

FiBS  

Directorate-General for Education, Youth, Sport and Culture 

2017 

EN 

 
 
 
 
 
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Reproduction is authorised provided the source is acknowledged. 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Study on the feasibility of an education and training  
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Table of Contents 

Glossary ............................................................................................................ i 
Introduction to the study .............................................................................. 1 
1 

1.1 
1.2 
1.3 

This report ........................................................................................... 1 
Purpose of the study .............................................................................. 1 
Structure of the report ........................................................................... 2 

2 

Investment needs ........................................................................................ 3 

2.1 
2.2 
2.3 
2.4 

The rationale for investment ................................................................... 3 
Investment need that might be funded by EFSI ......................................... 3 
Types of intervention ............................................................................. 4 
Use of EFSI .......................................................................................... 5 

3  The funding context relating to the provision of education and training services 
and the possible use of EFSI ............................................................................... 6 

3.1 
3.2 
3.3 

Introduction.......................................................................................... 6 
The need for common terminology .......................................................... 6 
The development of alternative sources of finance for education and training 8 

4  Summary of case studies of (social / private) investment in education and training 

13 

4.1 
Education Results Company/Education Investment Fund (Social Impact 
Facility) (Germany) ........................................................................................13 
Adult Learning Loan (Germany) .............................................................15 
4.2 
Energy saving and school rehabilitation (Germany) ..................................17 
4.3 
Education Infrastructure Company (EIC) (Germany) .................................19 
4.4 
Social Innovation Fund (SIF) - (Portugal) ................................................21 
4.5 
4.6 
Social Impact Bond (SIB) - (Portugal) .....................................................24 
4.7  Guarantee scheme for student loans (Portugal) ........................................27 
Investment in Higher Vocational Education (Sweden)................................30 
4.8 
Social Impact Bond (SIB) interventions in education & training (UK) ...........33 
4.9 
4.10  Provision of small-scale finance to social sector organisations focusing on 
education & training services (UK) ...................................................................36 

5  Additional Research .....................................................................................39 

5.1  Other national experience of using social / private investment for education 
and training ..................................................................................................39 
Role of the Structural Funds and Managing Authorities ..............................43 
5.2 

6  Conclusions - Lessons from case studies and other Member State research ........46 

Summary of the range of interventions ...................................................46 
6.1 
6.2 
Future plans / scope for replication .........................................................48 
6.3  Overall conclusions on project feasibility .................................................48 
6.4  Overall conclusions on the feasibility of establishing investment platforms ...49 

7  Recommendations to support EFSI investment in Education and Training ...........51 

Limitations on the use of EFSI for Education and Training ..........................51 
The case for a National Social Impact Fund (SIF) for education and training 52 
Actions to improve the financial performance of payments by results 

7.1 
7.2 
7.3 
interventions and returns from the SIF .............................................................54 
Towards a governance structure for the EFSI / SIF co-investment ..............55 
7.4 
Investment risks and risk management ...................................................58 
7.5 
Next steps in pursuing social investment for education and training ............61 
7.6 

 
 
 
 
 
Study on the feasibility of an education and training  
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Table of tables 

Table 1  An overview of the number of SIBs introduced globally .............................12 

Table 2 Funding sources of the guarantee scheme for student loans (according to ex-
ante assessment) .............................................................................................28 

Table of figures 

Figure 1 Overview of third party finance and a ‘payments by results’ operational model
 ......................................................................................................................10 

Figure 2 Governance and funding model for the Education Results Company ............14 

Figure 3 Funding model for energy saving ...........................................................18 

Figure 4 Governance and funding model for the Education Infrastructure Company ..20 

Figure 5 Funding model for the Social Innovation Fund ..........................................22 

Figure 6 Delivery framework – Portuguese SIB outcome fund (Social Innovation 
Initiative) ........................................................................................................25 

Figure 7 Delivery framework for the Guarantee Scheme for Student Loans ..............28 

Figure 8 Delivery framework I – The agency as a borrower ....................................31 

Figure 9 Delivery framework II – using a dedicated lending platform .......................31 

Figure 10 Delivery framework ............................................................................34 

Figure 11 Delivery framework ............................................................................38 

Figure 12 An overview of a suggested co-investment structure for education and 
training investment ...........................................................................................57 

 
  
 
 
 
 
 
Study on the feasibility of an education and training  
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Glossary 

Assets (tangible 
and intangible) 

An asset is a resource with economic value that an individual, 
corporation or government owns or controls with the expectation that it 
will provide future benefit.  

A tangible asset is a physical asset such as land, vehicles, equipment, 
machinery, furniture, inventory, stock, bonds and cash. As a result, 
investment can be secured against the asset.  

An intangible asset is non-physical, such as patents, trademarks, 
franchises, goodwill and copyrights.  

Social outcomes are a form of intangible asset (such as skills and 
qualifications, or new organisations that support social outcomes). 
Social outcomes are often described as building human and social 
‘capital’, but this form of ‘capital’, although capable of providing future 
returns, is intangible.   

In the context of a Payment by Results (PbR) intervention, a provider 
is commissioned and contracted to deliver a specified set of results in 
return for payment. The Commissioner is the government department 
or agency, acting as counterparty to the contract, that is willing to pay 
for the contract.  

Commissioners 

Fiscal benefits of 
social 
investment 

The provision of social outcomes has the potential, over time, to 
influence the future levels of public expenditure and tax revenues and, 
particularly, to reduce future spending and/or increase future 
revenues. The scale of these future benefits is uncertain, but provides 
a justification for social investment 

Funding 

Funders 

The provision of financial resources, including grants and various forms 
of investment, in support of interventions 

Funders are legal entities and comprise a potentially wide range of 
organisations with an interest in the outcomes of the interventions. 
These include government, private financial institutions and social 
investors 

Financial 
guarantee 

An undertaking by a legal entity to cover a specified share of losses 
incurred by investors, including the risk to lenders of a failure to 
recover loans, or losses incurred by shareholders. 

A “guarantee” would seek to underpin the funding and financial returns 
of the Intervention, which thereby would appear as a liability in the 
guarantor’s balance sheet. A “guarantee” of the performance or 
delivery of a Service committed by a Provider under such a contract is 
a commercial, as opposed to financial, undertaking, and, hence, carries 
different and less onerous, financial obligations.  

Intermediaries / 
Financial 
intermediaries 

Organisations that facilitate and broker the development of investment 
opportunities, but are not necessarily funders. Intermediaries will assist 
in designing interventions, establishing tariffs for payments by results, 
and support the undertaking of due diligence.  

In contrast, Financial intermediaries, for the purposes of this study, are 
the organisations contracted by the EIB to facilitate the take-up of EIB 
funds. These organisations are typically national banks, who have the 
capacity to appraise and take investment decisions, and are willing to 
contribute their own funding.  

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Intervention 

Investment 

Payment by 
Results (“PbR”) 

An activity undertaken in the market by government in pursuit of public 
policy goals. The activity may be the provision of incentives / penalties or 
direct action. The social welfare benefits (social outcomes) of the 
intervention are expected to outweigh the costs of the intervention. In 
the context of this study interventions that rely exclusively on grant 
funding would be excluded. In addition, the study assesses the market for 
investment and excludes interventions that involve only Commissioners 
and Providers. All interventions must have an element of third party 
investment.  

Investment is the purchase of assets (comprising goods (tangibles) and 
services (intangibles)) that are not consumed today, but are expected to 
generate future benefits. Investment of resources (money, time) is 
undertaken in return for capital gains and/or income. In the context of 
this study, the return is partly in the form of enhanced human and social 
capital, as well as comprising a financial return – the ‘blended’ return. 

An intervention in which a service Provider receives a (usually, lump-
sum) payment on the achievement of pre-agreed outputs/outcomes, paid 
by the Commissioner (usually, government) under contractual terms, 
which set out the required social outputs/outcomes. The payment may 
include a small premium, if the benchmarks are achieved in full. 

Results 

A collective term for the provision of social outputs and outcomes 

Social 
intervention 

An intervention where the public policy goals relate to specific social 
policies. These policies, in the context of this study, relate to the 
improvement of the education and training of citizens 

Social 
investment / 
Social Investor 

The provision of loans, purchase of shares, or provision of guarantees in 
return for social impact (the asset) and (perhaps, nominal) financial 
return. The two main ways of funding asset investment are “loan” or 
“debt”, and “equity” 

Social ‘debt’ 
investment 

Social ‘equity’ 
investment 

An investment can be described as a “loan” or “debt” when the Funder 
(lender) will require repayment of the loan against an agreed schedule, 
and charge an agreed (perhaps, nominal) rate of interest. Lenders may 
take additional control of the Service delivery by imposing covenants and 
demanding the right to intervene in the delivery of the Service should 
performance fall below expectations and before default on the loan arises. 

An investment can be described as “equity” investment when funders 
take a shareholding in the recipient organisations, and receives its return 
solely through dividends or financial outcomes. The equity investor also 
carries the delivery and full financial risks of the investment, and is 
subordinate to lenders in the event of failure.  It is probable that an 
“equity” Funder will wish to exercise a degree of control and management 
over the delivery of the Service 

Social enterprise  An organisation engaged in continuous activity of production and/or 

exchange of goods and/or services, but which has as its primary objective 
the achievement of a social impact. This does not exclude the possibility 
of producing a profit. It is expected profits are mainly reinvested in the 
enterprise 

Social 
entrepreneurs 

Individuals who seek to invest in and / or to establish and / or manage 
social enterprise and the achievement of social impact 

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Social Impact 
Bond (SIB) 

An intervention where the service Provider contracts with a lender to 
borrow and repay funds to finance the provision of defined social 
outputs/outcomes. The bond is the contract held by the lender, signed by 
the borrower, defining the funds to be repaid and under what terms. A 
Social Impact Bond (SIBs) is a mechanism by which to shift financial risk 
from service Providers to investors, with investors underwriting service 
Providers based on their ability to deliver agreed social outcomes in 
return for a social and financial returns 

Social Impact Bonds are not bonds in the conventional sense. While such 
Bonds apply over a fixed period, they do not offer a fixed rate of return. 
Repayment to investors is contingent upon specified social outcomes 
being achieved. Therefore, in terms of investment risk, Social Impact 
Bonds are more akin to an equity investment. 

Social Impact 
Fund 

A fund paid into by social investors (and possibly government) to finance 
Interventions providing social outputs/outcomes 

Social output 

The direct consequence of the activity undertaken in the Intervention, 
determined only by the results arising from the Intervention (for 
example, the provision of pre-school or training places, or the finance for 
a student loan fund). The ability to deliver social outputs, rather than 
social outcomes (see below), is more deterministic. 

Social outcome  A consequence of the intervention, resulting from the take-up of social 

Special Purpose 
Vehicles (SPVs) 

outputs, but also determined by the behaviour of stakeholders, depending 
on their interest and the incentives offered (for example, the take-up of 
places and resulting effects on skills/qualifications; the engagement and 
participation of young adults in employment; the scale of student 
borrowing.). There is more uncertainty over the scope to deliver 
outcomes than social outputs, because other factors can also influence 
the response to the intervention (e.g. additional policy measures, or 
changes in economic and social circumstances) 

A common approach in the delivery of Social Impact Bonds is the 
establishment, for the duration of an intervention, of a separate legal 
entity, described as a Special Purpose Vehicle (SPV), charged with the 
sole purpose and responsibility for delivering the intervention. The SPV 
enables the Provider and investor to contract with the Commissioner and 
is the recipient of the funds needed to undertake the Intervention. The 
SPV ring fences the assets and liabilities of the Provider and funding. It 
also enables the investor (or lender) to exercise some oversight and 
control of the intervention. The SPV therefore enables an element of 
performance management and governance to be exercised, and provides 
an early warning to investors of difficulties with delivering the 
intervention 

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1 

Introduction to the study 

1.1  This report 

This is the Final Report of a study commissioned by DG EAC and conducted by ICF 
Consulting and FiBS to assess the feasibility of an education and training 
investment platform, supported by investment from the European Fund for 
Strategic Investment (EFSI). 

Education and training in this study includes, pre-school/early childhood education and 
care, primary, secondary, vocational education and training1 and higher education2, 
plus adult learning. 

This Report is the final deliverable of the study. It sets out the findings from ten 
Member State case studies, including Germany, Portugal, Sweden and the UK. 
Conclusions and recommendations are provided 

1.2  Purpose of the study 

1.2.1  The need for additional investment in education and training 

The pressure to control public expenditure since the Financial Crisis has affected 
spending on education and training, with real terms cuts in some Member States. This 
has exacerbated any pre-existing investment gaps, leading to the 2015 Joint Report3 
to identify the existence of investment gaps and potential sources of investment, 
including the Investment Plan for Europe (IPE)4 and, under the new Priority 6, to 
promote funding models to attract private and other capital. 

As a public benefit, education and training services are largely funded by government 
spending, especially formal education provision. But where specific revenue streams 
can be identified (funded by government, households, or industry), there is the 
potential to attract private and/or social investment, in the form of loans from banks / 
social investors, and/or equity investment in the new services / assets / institutions. 

1.2.2  The feasibility of using EFSI to leverage additional investment 

The purpose of this study is to examine the possibility of exploiting the financial 
resources available from the European Fund for Strategic Investment (EFSI) to 
provide additional educational and training outcomes. Funds are typically made 
available through the establishment of an ‘investment platform’ established by a 
National Promotional Agency5 dedicated to supporting, in this study context, education 
and training projects that complement the formal provision of education and training 
in the Member State. In some cases funds may be made available through financial 
intermediaries contracted by EIB.  

The European Investment Fund (EIF) responsible on behalf of EIB for the management 
of EFSI have been developing new investment ‘sub-windows’ through which 
investment might be made available. Within EFSI's initial ‘SME’ window, a new 
‘Expansion and Growth’ sub-window has been established to target social investment, 

1 Includes courses provided at ISCED level 4 and some short-cycle courses at ISCED 5 
depending on national classifications.  
2 ISCED levels 5 to 8. Note that distinction of post-secondary VET and higher education can be 
sometimes relatively blurred at national level.   
3 Draft 2015 Joint Report of the Council and the Commission on the implementation of the 
Strategic framework for European cooperation in education and training (ET2020): New 
priorities for European cooperation in education and training; {SWD(2015) 161 final} 
4 Investment Plan for Europe: Communication Brussels, 26.11.2014; COM(2014) 903 final. See 
Annex 2 for further details 
5 National Promotional Agencies include National Promotional Banks 

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and to support social enterprise. EIF have also launched requests for expressions of 
interest from financial intermediaries to help deliver EFSI in this area.   

This resource in turn necessitates an assessment of the scope and opportunities to 
attract private and / or social investment into the provision of education and training 
services at sub-national, national and (possibly) international scales.  

The leverage of private and social capital with the aid of financial instruments set out 
in support of the IPE requires that the initial capital invested is paid back and there 
are opportunities for returns to that investment (which may be nominal for not-for-
profit institutions). This in turn requires the identification of revenue streams that 
might be tapped to facilitate investment. 

The study aims to identify current examples, or to propose potential examples, of 
interventions that seek to bring additional investment to the provision of education 
and training outcomes and to examine the nature of the funding models and the scope 
for replication and expansion using EFSI funds.  

1.3  Structure of the report 

The report comprises the following sections: 

  Section 2: Summarises investment needs; 

  Section 3: Sets out the general funding context and possible options;  

  Section 4: Summarises the results of research into case studies of interventions 
seeking to provide education and training outcomes, mainly adjacent to or 
outside of the formal publicly funded education and training systems; 

  Section 5: Summarises the results of research in other Member States that 
provide further context and evidence related to the feasibility assessment; 

  Section 6: Concludes on the feasibility of using alternative funding sources, to 
provide additional education and training outcomes, and the feasibility of new 
investment platforms; 

  Section 7: Recommends possible options to make the use of alternative funding 
sources more attractive and to improve the feasibility of investment platforms. 

Supporting annexes provide additional information. In addition we have provided the 
ten detailed case studies in a companion volume to this Final Report. 

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2 

Investment needs 

2.1  The rationale for investment 

EU Member States spend some 800 billion euro a year on education and training (see 
Annex 3 for details). Limits and cuts in public expenditure on education in several 
countries have increased the need for additional sources of investment.  

Cuts in public spending in the sector now has the potential to create future increased 
costs for public services and lower tax revenues as a result of, inter alia, lower 
educational attainment and participation, increased rates of delinquency and rates of 
offending, and long-term reductions in labour market productivity. We summarise 
some identified needs below. 

This in turn means that there are fiscal benefits to Member States as well as social 
benefits that support selective investment in education and training interventions, in 
different educational and training sectors. However, to the extent that this investment 
is supported by government, it implies the adoption of an ‘invest to save’ culture 
which recognises the longer term effects of investment made in the sector now. 

The scale of investment need is difficult to quantify, but is likely to substantially 
exceed the level of private and social investment that might be available for 
disbursement in this area. The issue then becomes a matter of defining those areas of 
education and training and the types of interventions that can generate a blend of 
financial and social returns and of creating investment vehicles that are attractive to 
investors / lenders; as co-investors with EFSI.  

2.2  Investment need that might be funded by EFSI 

Desk and case study research has indicated that there are a number of important 
investment needs. These needs tend not to relate to the statutory provision of 
education per se (the supply of education services), but to particular gaps in non-
statutory provision, where the limitations on public sector spending give rise to needs 
that might be addressed through additional funding sources. The importance and 
weight given to these needs varies between Member States depending on the overlap 
with statutory provision and with existing policy responses.  

Four particular gaps / needs for investment have been identified: 

  Pre-school provision (ECEC) – covering both services and infrastructure 

(buildings). Different Member States have different provisions for pre-school 
years, with varying levels of support, often depending on particular age ranges 
and associated government funding and for private services, on the income of 
parents/guardians. Responding to the needs of low income households, where 
additional pre-school education is required to offset the deficit in educational 
attainment by school starting age is of particular interest to social investors, 
although fiscal returns maybe very long-term; 

  School buildings – in most cases there continues to be a shortfall of 

investment in the maintenance and replacement of the stock of schools and 
colleges to modernise and renew and to keep pace with deterioration and 
depreciation. This investment gap is already addressed in part by the attraction 
of private sector investment through the use of public private partnerships 
(PPP) (see Annex 4 for a fuller description of the nature and use of PPP). Scope 
for extending the use of PPP might be justified in cases where other 
infrastructure issues can be addressed, especially energy efficiency of the 
education building stock;  

  Vocational Education and Training (VET) and Adult Training – the need 
for trained and skilled labour continues to be underfunded due to market 

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failures, (especially ‘free-riding’ where employers rely on other employers to 
meet the costs of training), leading to shortages of supply. There are various 
Member State policy responses including the use of government funding 
together with the use of employer levies to help address this demand. However, 
levies are not popular because of mismatches between levies paid and the 
benefits individual employers receive. Customised responses funded by 
employers to meet the particular needs of groups of employers could respond 
to this, including funding for student and adult  learners; 

  Disadvantaged groups – the work has identified various groups of children 
and students that have particular needs which are not fully met by statutory 
provision and ad hoc policy responses. These groups include, pupils with 
particular learning needs, pupils requiring after school support, young 
offenders, pupils at risk of early school leaving and groups not included in 
statutory provision such as refugees or certain classes of migrant populations. 
These groups tend to have inherently higher unit costs of education and hence 
in times of funding constraints are subject to greater impacts from funding cuts. 
Responses are likely to have to rely on a mix of funding sources depending on 
the particular groups targeted:  

-  School drop-out / NEET prevention programmes – school drop-out is a 
serious concern across Europe, with concerns over lengthening periods of 
youth unemployment and lack of participation in education or training. 
However, while figures are smaller than they were a few years ago, progress 
might be considered small. In general, repayment of the (private) 
investment would be via fiscal returns, e.g. future tax revenues, savings in 
social welfare spending etc. 

-  Support for children with educational disadvantages – investment 

needs to support children at school that are disabled, disadvantaged, and 
those with educational difficulties, e.g. dyslexia; dyspraxia, Asperger 
syndrome, etc. reflect shortfalls in government resources to adequately 
tackle such problems. There are a sizeable number of such students possibly 
up to 10% of the total. These students are often highly motivated and 
capable of significant achievement with the appropriate support. There are 
three facets:- a) Investment in the ‘fixed assets’ needed: conventional 
private capital may be attracted to this sector, as for conventional education 
buildings, not least because of its ‘community’ component; b) Teaching and 
management of students: possibly, this is best left to national government 
institutions, as it may be closely identified with the health service sector; 
and c) Identification of the students’ condition in the first place: as for b), 
but it might also be possible to harness sector-specific philanthropic 
resources as additional financial support.     

2.3  Types of intervention 

The case study research has identified three broad types of intervention that could 
form the basis of new investment opportunities: 

  Payment by results for educational and training outcomes, paid for by 

Government as commissioners, justified on the basis of the fiscal benefits that 
are considered to accrue;  

  Loan funds to students and adult learners to increase participation and skill 

level; 

  More conventional public-private partnerships (PPP) to leverage investment into 

the supply and refurbishment of education buildings. 

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The second two types of intervention (Loans and PPP) are reasonably well understood, 
although innovation may be required to address previously observed difficulties. 
Payments by results projects and the wider use of social investment to deliver 
education and training results is new and experience is limited. We discuss the nature 
of this intervention in the next section. 

2.4  Use of EFSI 

In addition to the infrastructure and SME windows, EFSI has made available an equity 
instrument that is able to invest through financial intermediaries / fund of funds in 
social organisations, as part of the expansion and growth window. It is not clear to 
what extent the investments can make use of Investment Platforms, as opposed to 
contracting with an individual financial intermediary. Further discussion is planned. 

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3 

The funding context relating to the provision of education 
and training services and the possible use of EFSI 

3.1  Introduction 

This section provides a basic description of the funding options and related 
stakeholders and seeks to clarify the use of specific terminology. This understanding 
underpins the rest of the Report. 

In many countries, education is perceived as mainly, or even solely, a public 
responsibility, where funding has been almost exclusively from public expenditure. 
However, this general approach has been supplemented or replaced by alternative 
approaches to funding and delivery, depending on the country and sector/segment of 
education. For example, adult education may be paid by participants and employers, 
whereas early childhood education is often co-financed by parents.  Likewise, higher 
education may be paid by students and their parents via tuition fees, etc.  

In many European countries public funding and spending for education has come 
under greater public scrutiny and accountability, and is no longer increasing as it did 
in previous times.  Indeed, public funds for education are even decreasing in several 
countries (Eurydice 2014, EUA 2015, 2016), albeit exceptions exist. 

The Study is therefore concerned with the pursuit of education and training-related 
outputs/outcomes through new Interventions, using funding models other than the 
conventional, fully-funded provision of services through government expenditure, and 
which might offer an opportunity for the deployment of EFSI funds.  

This necessarily broadens the scope of relevant stakeholders with a potential interest 
to include not just government (and taxpayers) but a range of: 

  private ‘for profit’ financial institutions interested in offering a range of loans, 

investments and guarantees; 

  social investment actors interested in education and training outcomes 

(including philanthropic capital, charities and third sector organisations more 
generally), seeking to operate as ‘not for profit’ funders and seeking a ‘blended 
return’ of social impact and repayment;  

  social investment intermediaries, seeking to broker, but not fund directly, social 

investment; and 

  service providers delivering specific (and contracted) educational and training 

outcomes.  

This broad perspective of potential stakeholders is important, because the study has 
identified a variety of possible ‘Interventions’, which comprise a range of different 
funding models and associated stakeholders, seeking to deliver a range of different 
education / training outcomes. 

3.2  The need for common terminology 

A challenge with regards to terminology is that it varies depending on the target 
audiences and several audiences are addressed through this Report. Among the key 
audiences are:- 

 

the formal education sector, comprising of public and private providers and 
education ministries; 

  social innovation, or social investment, practitioners, i.e. (a) those providing 
funds for improved social outcomes; (b) providers delivering the education 
processes leading to enhanced social outputs/outcomes; and (c) the ministries, 

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responsible for paying the agreed payment in case that the outputs are 
achieved, 

  banks, especially the National Promotional Banks (NPBs); 

  National Promotional Agencies (often, but not only banks); and 

  private / third sector financial, or philanthropic, investors and lenders providing 

the funds for the intervention; and 

  various groups of payees (those charged for receiving services) including 

employers, households, students and adult learners.  

All such stakeholders have their own approach to education, in general, but also in 
relation to engagement in, and financing of, education.  

3.2.1  Key terms 

This Report covers the interest and early examples of expressed demand for the 
funding of education and training beyond that provided through general government 
expenditure, from a range of stakeholders pursuing possible Interventions. These 
interventions may, in turn, offer scope for the use of EFSI funds to further support 
opportunities for the enhancement of education and training services throughout 
Member States. 

The first term that needs definition is the ‘intervention’. This is a generic term taken to 
cover all types of approaches and funding models designed to leverage private funding 
in pursuit of education and training outputs and outcomes. For funders it would 
constitute the ‘project’. However, to be clear, the study is concerned with the possible 
use and catalytic impact of investment funds provided by EFSI. As such the 
interventions of interest in this study, by definition, exclude interventions that are 
exclusively grant funded, and focus on those which require third party finance. 

The second term is ‘education and training outcomes’. This somewhat cumbersome 
phrase describes the range of potential socially valuable consequences of the 
intervention. The study has considered opportunities across the full range of education 
and training services from pre-school, through primary, secondary and tertiary, and 
including vocational education and training, and lifelong learning. Outputs are the 
direct activity-based consequences of an intervention, e.g. number of places provided 
and outcomes are the intended socially valuable consequences e.g. number of people 
with new skills)6. Outcomes, on the other hand, include the longer term and wider 
impacts on the economy.  We use ‘results’ as a convenient short-hand. 

In describing such Interventions, care has been taken, to the extent possible, to 
describe the proposed funding models such that no ambiguity arises as to the 
character and anticipated performance of such funding support.  

Thirdly, given the socio-economic nature of the Interventions, the terms “investor”, 
“lender”, “guarantor” and “investment” are only used in this Report in the context of 
an Intervention where there is an investment in social impact (as the invested asset). 
Investment implies that a direct financial return is anticipated, either through the 
payment of a shareholder dividend, or the generation of a capital gain, or both, or in 
the case of debt, interest (potentially at nominal rates) and repayment. A social 

6 These terms are conventionally used in the context of ‘an intervention logic’ describing the 
process of funding and undertaking some activity, producing the intended outputs and leading 
to policy relevant outcomes. The outcomes and related wider impacts that result can be 
attributed to the intervention, recognising that there are potentially also other influences 
affecting the level of outcomes and impacts 

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impact bond (a loan agreement between provider and funder) would be considered an 
investment.  

A detailed glossary is provided at the beginning for the clarification of key terms. 

3.3  The development of alternative sources of finance for education 

and training 

The study is focused on the opportunities to use alternative sources of funding to 
public spending to deliver education and training services, ideally with a specific 
outcome. For the Commissioner (government), the funding opportunities should lead 
to services that are either less costly and/or of higher output quality, leading to 
greater outcomes. These funding sources are the private finance sector and the social 
investment sector (or some combination).  

3.3.1  Use of private finance 

In recent years, some new forms of private financing have been promoted. As a first 
and relatively conventional form, so-called Public-Private-Partnerships (“PPP”) were 
established, through which public entities entered into “seemingly” new forms of 
contractual relationships with private companies, operating under licence or as a 
concession.  Whereas conventionally the State has paid immediately for the 
construction of roads, schools or buildings on the basis of a pay for (built asset) 
delivery, the State now under a PPP enters into a contract, a “concession”, where the 
private company is responsible for the financing of the construction works (roads, 
schools) and for delivery of the service with the assets so built, and the State pays a 
rent or concession fee on a long-term contractual basis.  

The major distinction to conventional funding is that the State is no longer the 
principal owner of the assets and responsible for service delivery, so long as the 
contract is in operation, whereas the private company is. Prior to the use of such a 
funding mechanism, the State had its own departments that were responsible for the 
preparatory works (planning etc.), which then led to a tendering process through 
which the construction company was selected and then paid on delivery of the assets 
built. The State thereby owned roads, schools and buildings, and was responsible for 
all issues, apart from the construction works itself. It had to bear also the costs for 
maintenance etc.  

In PPPs the process is different. Even though the planning process remains similar, the 
private company is responsible for the process of construction, incl. all details, 
including the upfront and full costs of construction. The private company is also 
responsible for maintenance of the assets after completion, and the risk of mis-
management, failure etc. Private investors and the State sign a long-term contract ex-
ante, specifying the asset to be built and regulating the use of the building as a 
school, plus the rent to be paid to the investors, e.g. an “availability payment”, which 
covers the ongoing operational costs, maintenance and financing costs of the school.  

Despite some differences between PPP and conventional contracts between public and 
private entities, PPP’s seem less innovative than they appear, if one follows the 
political and other discussions on this issue. We will come back to the merits and 
limitations of PPPs in later sections of the study. 

3.3.2  Use of social finance 

3.3.2.1  Basic approach 

A more recent approach to funding interventions in support of public policy goals 
(sometimes called ‘social infrastructure’) is social investment or social finance.  
Financiers provide funds for better social outputs and outcomes, usually but not 

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always on a ‘not for profit’ basis7. While the background and culture of social finance 
may vary across countries, they share a common interest in addressing some 
weakness in the current system of public sector provision (for example, the lack of 
(high quality) services for vulnerable groups) through social finance of interventions 
that aim to provide additional and/or improved results than the formal public system. 
The use of social finance is a relatively recent development8. EIF have recently 
published9 a Working Paper outlining the need for social investment and promoting the 
use of the Employment and Social Innovation EaSI Programme with support from EIF 
in response. EFSI has also specified a window for social investment.  

One of the key features of recent interventions pursuing socially valuable outcomes 
and supported at least in part by social finance, is that the public purse pays only if 
the expected and contractually specified outputs/outcomes are fully delivered by the 
intervention, whereas the funders / providers bear the full risk of non-performance of 
the intervention. Funders with limited resources to evaluate and monitor specific 
opportunities might be expected to invest in these interventions as part of a wider 
portfolio of social and non-social investments to reduce the risk of individual 
interventions10. Considerable due diligence is undertaken for each intervention to 
identify and manage project risks. 

This approach has various names, in some countries it is called “Social Impact Bonds”, 
in others “Payment by Results” (PbR) or “Pay for success” in the US. In some 
countries the notional terminology is even linked to loans or credits (for example, in 
Germany11). Assuming that established performance benchmarks are met, the 
Provider (or increasingly, a Special Purpose Vehicle (SPV), a legal entity for the 
purposes of the intervention representing the Provider and funder) receives a payment 
to reimburse the costs of delivery, including the costs of any loan (Interest) or 
investment (dividends), sometimes complemented with a small top-up in the form of a 
“premium”.   

However, it should be clear that Social Impact Bonds feature contractual 
arrangements, which must include a “payment by results” approach. But there can be 
“payments by results” Interventions that do not feature a bond. For the purpose of the 
study, we use ‘payments by results’ to describe the general case, but qualified that 
such arrangement includes the use of third party finance.    

The basic funding model comprises three actors: 

7 ‘Not for profit’ means that the aim is to make a financial return but that this is reinvested 
rather than taken out by the funder as profit. Social investors have a responsibility to fund 
holders to make a financial return, even if the primary interest is in the social impact  
8 Although funding for social enterprises  such as foundations and associations in some Member 
States has longer history (see the study: A map of social enterprises and their eco-systems in 
Europe, ICF Consulting for DG Employment, 2015): 
http://ec.europa.eu/social/main.jsp?advSearchKey=A+map+of+social+enterprises+and+their+
eco-
systems+in+Europe&mode=advancedSubmit&catId=22&policyArea=0&policyAreaSub=0&count
ry=0&year=0  
9 Guaranteeing Social Enterprises – The EaSI way, February 2017, EIF Working Paper 2017/39: 
http://www.eif.org/news_centre/publications/EIF_Working_Paper_2017_39.htm  
10 Economically, such a portfolio only makes sense if the premium of these interventions is high 
enough to fully compensate the loss in some of the interventions, otherwise it reduces only the 
size of the loss. In the context of socially funded intervention, depending in the interests of the 
funders, financial loss (or lower levels of financial return) may be acceptable in exchange for the 
social outcomes 
11 According to a number of studies, the instrument, described is called a „Sozialer 
Wirkungskredit“ (alike “Social Effect/Impact Credit“). 

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  The Commissioners (government departments / agencies) – specifying the 
number and type of required output/outcomes (results) and the payments 
available in the event of delivery. This will be based in part on the results of 
evaluations of past interventions. A commercial contract between the 
Commissioner and Provider, or an SPV led by Funders with Providers, will be 
offered; 

  The service Providers (of varying legal status, including arms-length 

government units, private companies, social enterprises, charities), willing to 
contract to deliver a specified set of outputs/outcomes for a given fee. This is 
often conducted through the SPV. Providers should also be responsible for 
ensuring that there is adequate independent monitoring and reporting of the 
achievement of agreed results, including interim achievements as the basis of 
billing, and as the basis of the final payment for results; 

  The Funders (including social investors, but also private banks), willing to 
finance (in part or wholly) via loans/equity/guarantees the delivery of the 
service. A contract to cover the terms of the funding will be agreed with 
Providers as part of the terms of the SPV. The role of Funders is to ensure 
adequate cash-flow and/or to take some or all of the risk that contracted 
deliverables fail to be provided. 

  There is also a fourth set of actors – social finance intermediaries. 

Intermediaries, which tend to be specialist experts or organisations, act to bring 
Funders and Providers together and broker partnerships, establish metrics for 
use as the basis of PbR and undertake due diligence. Their activity promotes 
access to investment opportunities from third sector Providers and Funders, and 
informs the design of individual interventions. Note this use of the term 
‘intermediary’ should not be confused with the use of “intermediaries” by EIB / 
EIF to appraise investment opportunities and act as a conduit for EIB funds. 
These ‘financial intermediaries’ are typically investment banks.  

Figure 1 describes the basic operational payment by results model. 

Figure 1 Overview of third party finance and a ‘payments by results’ operational model 

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3.3.2.2  Incentives and risks of the payment by results model 

The actual contracting between actors is heavily case dependent. Typically, 
Commissioners will contract with a Provider / SPV to provide payment in exchange for 
specified outputs/outcomes.  Providers will contract with Funders (as part of an SPV). 
In very simple and smaller projects the Provider might self-fund, and even in larger 
projects will only need to finance part of the cash-flow of the project. However, scaling 
up of the number and size of Interventions will require additional government 
spending and associated funding of projects. 

The commercial performance contract will define the results to be delivered, details of 
the target group (size, traits of the group etc.) and the benchmarks of success in 
relation to certain output or outcome criteria, e.g. the share of participants graduating 
from lower secondary education, or entering into an employment contract (and the 
minimum duration the employee has to remain within the company). Specifying the 
outcome variables, the payment tariffs and expected levels of achievement correctly is 
clearly of critical importance, and requires detailed financial and social modelling 
based in part on evaluation evidence.  

This contract will also include a payment schedule to allow the costs of the Provider 
and associated cash-flow to be covered. The actual performance contract is often 
made between the Commissioner and a Special Purpose Vehicle (SPV) operating on 
behalf of the Provider and Funder for the purposes of a specific intervention. 

The Provider may only receive the amount that covers the cost of service delivery. 
They may also receive a bonus if benchmarks are met / exceeded. A penalty or 
reduced payment would result in the event of failure to deliver some or all of the 
agreed results. Payments can be structured depending on the set tariffs and outcomes 
achieved and sometimes the use of ceilings to interim payments, to help providers to 
manage cash-flow. In other cases contracts foresee lump-sum payments topped-up by 
a very modest fixed premia. Furthermore, it seems that the lump-sum payment is 
often independent of the precise level of performance, i.e. payment is not sensitive to 
whether there is marginal over or under performance. 

The core principle is that the Commissioner will pay the agreed amount of money only 
if the established benchmarks are met. In the event that the benchmark is not met, 
no payment or a reduced payment will be paid, commonly not even covering the costs 
of provision. The commercial performance contract represents a contingent liability for 
the Commissioner after signature and before the contract is discharged. 

The Provider, depending on funding needs and project risk, enters into a separate 
contract with a Funder. This may only be for the duration of the specific intervention 
or a group of interventions. The Funder may provide loans and/or take an equity 
stake, and bears at least some of the financial, risk of non-performance, e.g. final 
payment risk. The core element of this contract is the cost of the intervention and the 
funding conditions. In particular, the volume of funds should ensure that the Provider 
can deliver the services agreed in the contract with the Commissioner.  

Such framework condition highlight some issues:  

 

 

2017 

the model is biased – the Provider/Funder bears all the risk, the public purse 
may even benefit if the benchmarks are not fully met (unless the success rate 
is lower than in other, already established settings). It is this allocation of risk 
that makes the intervention value for money for government. However, 
government should also recognise that interventions with too much risk will not 
be funded, and that there is a requirement for “sensible commissioning”; 

the weight of risk provides a strong incentive to providers to ‘cherry pick’ sub-
groups within the target group that are deemed most likely to respond to the 
intervention and deliver outcomes at a lower cost. Contracts need to anticipate 

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this response by recognising the sub-groups and introducing quotas across sub-
groups;  

  such conditions attract either entities who are for whatever reason absolutely 
convinced that their intervention will be successful and/or can bear the risk of 
total loss of the funds provided for the intervention. From an economic 
perspective, this is a bet – nothing else.  

In contrast, the public purse can only be a winner, unless the transaction costs of 
establishing the intervention (which can be significant and which demand a minimums 
scale) and the outcome payments (when benchmarks are met), are higher than the 
fiscal benefit, which from an economic perspective would mean that it is a “mis-
investment”: the costs of Intervention are higher than the (fiscal) benefits. 
Establishing this balance between Commissioner and Provider requires experience and 
review. 

If this is correct, it seems unlikely that a (large) market for this kind of social 
investment can be established, as it attracts only providers/funders that can afford to 
lose or benefit already from the engagement. It is definitely not a market for 
private/social investment that aims to generate solely positive financial returns, 
whether small or substantial. 

This finding calls for adjustments in order to surmount the limitations on social 
investment and to more fully address the market failure associated with the current 
levels of investment in education and training. 

3.3.2.3  Overview of the current use of Social Impact Bonds 

As noted, Social Impact Bonds (SIBs) are a particular type of a ‘payments by results’ 
(PbR) intervention, albeit the most common. The introduction of SIBS in recent years 
has been tracked by a UK publication12 (Table 1). Some 40 SIBs have now been 
introduced globally with a total value of some $216m, with the UK the leading user of 
SIBs by number, but not by funding level. UK and other EU SIBs are on average 
considerably smaller than those funded outside the EU, and especially the US. 

Table 1  An overview of the number of SIBs introduced globally 

Indicator 

Number of SIBs 

Total value of SIBs ($m) 

UK 

14 

57 

Average value of SIB ($m) 

2.6 

Maximum value of a SIB ($m)  7.7 

Location 

Other 
EU 

11 

12 

1.1 

3.3 

US 

10 

121 

12.1 

30.0 

Other 
Countries  Total 

8 

25 

3.2 

9.3 

43 

216 

5.0 

30.0 

Source: Social Impact Bonds: The Early Years; Social Finance, July 2016, Annex 1 

A brief review of the titles of individual SIBs listed suggest that in the UK / EU the 
predominant focus has been on providing support to the young unemployed to enter 
the workforce.  

12 Social Impact Bonds: The Early Years; Social Finance, July 2016, Annex 1 

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4 

Summary of case studies of (social / private) investment in 
education and training 

4.1  Education Results Company/Education Investment Fund (Social 

Impact Facility) (Germany) 

4.1.1  Context and rationale for the intervention 

4.1.1.1  Context and market failure 

As in many other countries, Germany faces the problem of a large number of low 
qualified and functionally illiterate people, whose needs are not fully addressed 
through available education services. However, rates of fiscal return to investment in 
the training of these people could be quite substantial (above 10%, sometimes even 
20%) but these returns are spread commonly across different government layers as 
well as the social insurance system, where no layer itself has a return which is high 
enough to satisfy the return expectations of even social investors, unless almost all 
fiscal returns are appropriated by the investor.  

Furthermore, the funding volumes for each single intervention are rather small, 
because the political and financial responsibility lies with the municipalities and 
because interventions are very specific. This leads to limited funding needs for each 
single case. 

So far, there is limited experience with this kind of “Social Impact Bonds/Funds” that 
could be used to frame the investment in training outcomes. 

4.1.1.2  Objectives and target results 

To resolve this mix of challenges, a “Social Investment” Platform is suggested as an 
umbrella to pilot Social Impact investing in Germany. The objective of this platform is 
to aggregate funding levels, which enable the pooling of projects in order to diversify 
the risks. It would also allow the trial of different forms of social interventions, to 
provide empirical evidence that this approach works for both sides involved at this 
level, i.e. the social investors and the public entities, and that it has a positive impact 
on the lives of socially disadvantaged groups. 

A possible target is that 20-25 projects could be established. 

4.1.1.3  Partners 

KfW could be a key partner for such a platform, in particular as sponsor. Other 
partners could be social investors, foundations and the responsible ministries. 

4.1.2  Operation of the intervention 

4.1.2.1  Scale and funding sources 

The investment size of any single intervention is commonly several hundred thousand 
to 1 or 2m Euro. Funding will come from a joint effort of social investors, foundations, 
and, possibly, other investors, e.g. private persons. The establishment of a platform 
would allow an aggregation of investment funds and to diversify the risk portfolio. 

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4.1.2.2  Governance and funding model 

Figure 2 Governance and funding model for the Education Results Company 

4.1.2.3  Project suitability for EFSI funding 

For the time being, no platform or overall umbrella for social impact investing is 
available in Germany, which is one factor hampering the extension and scaling-up of 
such models. Another limitation is the low attractiveness for private investors and the 
limited possibility to diversify funds, in order to reduce the overall risk exposure. The 
revenue stream in general is based on the appropriation of fiscal returns by the public 
purse or a fair premium in case of a payment by results-model. The latter is a pre-
condition for any pilot. 

At the moment, this model would not be bankable, as the risk exposure is quite 
substantial for all stakeholders involved, therefore, EIF/EFSI support would be 
required.  

4.1.3  Future plans / scope for replication of the intervention 

4.1.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

The “Education Results Company” in itself is an approach to scale-up and generate 
experience with this model and to provide evidence that it is feasible. The ERC is a 
national-level scheme. 

4.1.3.2  Potential role for EFSI 

EFSI involvement could be in the form of co-funding or guarantee.  

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Funding of InterventionsProject  PoolPay for SuccessCooperationCooperationThe Education ResultsCompany‘ERC’FINANCING STRUCTUREOPERATIONSEquityInvestorsFoundations (MRI)EIBImpact InvestorsDebtInvestorsSocial BanksInsurance SectorPension FundsPhaseIPiloting of3  ProjectsPhaseIIScaleSocial Impact BondsRegular CouponsIrregular DividendsSharesPhase IThree Pilot InterventionsPhase IIScaleEU/EIBMunicipalitySchool Drop OutsOperator 1Voc. Training Drop OutsOperator 2Long Term UnemployedOperator3EU/EIBCorporatesEU/EIBFederal Govt.Agreement of desired Results, Timelines, Payment Conditions, Reporting, etcCooperation  
 
 
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4.2  Adult Learning Loan (Germany) 

4.2.1  Context and rationale for the intervention 

4.2.1.1  Context and market failure 

Although adult learning/further education is not linked to very high individual costs, in 
most cases, professional further education programmes, (whether re- or upgrading as 
well as specialised training, particularly if directed towards a qualification or certificate, 
recognised by professional organisations/bodies), request substantial fees. In addition, 
costs of living and opportunity costs may add up, if the programme is full-time, 
because of a reduction in working time. 

So far, no adult learning loan has been implemented because of limited information on 
the rates of return, the heterogeneous nature of further education, the high 
transaction costs etc. Banks are risk averse and offer conventional consumption 
credits, providing reasonable interest rates for those in employment, higher income 
etc., i.e. those often not in need of a learning loan. In economic terms, adverse 
selection of borrowers applies. Public/state-owned banks have not stepped in, because 
of high transaction costs in relation to state subsidies and the already low market 
rates. 

4.2.1.2  Objectives and target results 

The objective is to enable adult learners to attend the programmes they want by 
providing them with the liquidity to cover tuition fees, additional costs of learning and 
the costs of living, if applicable, at modest interest rates and in particular for those, 
who would otherwise not get a loan contract at reasonable rates.  

The target is a certain number of learners (e.g. 100 or 1,000), who would otherwise 
not have been able to participate, entering into a learning programme, graduating 
successfully and entering into an employment contract with a higher salary than 
without the programme. 

4.2.1.3  Partners   

We expect some (federal and/or state) government to partner on this scheme; KfW 
might be the sponsor. We assume that some private investors, some of which are 
social investors (e.g. foundations), would join in as well.  

4.2.2  Operation of the intervention 

4.2.2.1  Scale and funding sources 

The investment size is likely to be between 100 and 150m Euro, depending on the 
concrete target groups and the regional/national coverage. Interest has been 
announced by a state ministry to establish a loan scheme for university-based adult 
learning and mentioned that a volume of 50m Euro might be realistic. A feasibility 
study for non-university adult learning estimated a market potential of about 100m 
Euro, for those in employment. Those who are not in employment and intend to enter 
into a learning programme and take up a loan may add another 10 to 20m Euro. 

Sources of funding are state and private funds. With a view to establishing a better 
understanding of risks to government on the one hand and to reduce the repayment 
level for the individuals, particularly those with limited education, the feasibility of 
using social impact bonds should be piloted and tested, e.g. through the involvement 
of the Federal Employment Agency.  

4.2.2.2  Governance and funding model 

The Adult Learning Loan would be run by a management team with experiences from 
the banking and education sector; incl. Fintech-background. The supervisory board 

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would consist of representatives from ministries involved, banking sector and social 
investors. 

4.2.2.3  Project suitability for EFSI funding 

The project is fundable, based on a combination of public and private funds, it is 
economically viable as the repayment rates are sufficient to recover the basic funds 
and the interest rate covers additional costs (return to investors, transaction costs 
etc.) The interest rate is partially to provide an incentive to potential investors. It 
would aim at 50% crowding in rate of private capital. 

Education is a sector which is eligible, the project is in line with EU policy in relation to 
adult learning and the qualification of disadvantaged groups. It aims to crowd in 
private funding sources and is complementary to existing programmes, as no loan 
scheme for adult learning is in place in Germany (apart from KfW student loan which 
provides funding for the costs of living, by and large, for those entering a public or 
publicly accredited university). 

4.2.3  Future plans / scope for replication of the intervention 

4.2.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

The concrete implementation depends on the partners and the political interest and 
the funds available; both depend on future discussions and negotiations. However, 
since the federal as well as state governments had plans already to implement a loan 
scheme for adult learning, but did not manage so far, it might even be possible to 
start a large-scale scheme, addressing the whole of Germany, at once, for the core 
model, which extends to specific target groups in certain states (e.g. university-based 
adult learning)  

4.2.3.2  Potential role for EFSI 

EFSI support would be needed as a complementary co-investor, in order to keep 
interest rates at reasonable levels, which requires some limitation of the risk of default 
to private investors. So far, experience with deferment and default rates of adult 
learning loans is almost non-existent. EFSI funds could serve to increase the 
endowment of the Adult Learning Loan in this case it would come in as equity. It could 
also serve as guarantee, in order to limit the risk of private investors.  

The management of the Adult Learning Loan will consist of experienced managers.  

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4.3  Energy saving and school rehabilitation (Germany) 

4.3.1  Context and rationale for the intervention 

4.3.1.1  Context and market failure 

School renovation is a serious challenge in Germany; according to a recent KfW 
report, 27bn Euro of investment is needed for school rehabilitation.  

Municipalities and states are challenged by the scale of rehabilitation investment, 
which is particularly an issue for already highly indebted municipalities. These 
municipalities have to serve their legal obligations first, while other existing needs 
cannot be addressed, as this would surpass the legally acceptable level of debt.  

Energy saving measures could reduce current spending on electricity almost 
immediately, and free up funds for school rehabilitation. Private investors could step in 
and help municipalities to keep their own funding requirements low, since the returns 
are sufficient to allow some of the return to be reinvested into school rehabilitation. 
However, procurement tendering regulations prevent investors supporting 
municipalities. 

4.3.1.2  Objectives and target results 

The core objective of the intervention is energy saving and to make use of the savings 
for school rehabilitation. The outcome is lower current spending for energy and better 
school facilities.  

4.3.1.3  Partners   

The partners would be private investors and reinsurers to guarantee cost reduction for 
schools, in case energy efficiency is not as effective as contracted. The municipality 
/school would benefit even if savings are less than expected.  

4.3.2  Operation of the intervention 

4.3.2.1  Scale and funding sources 

The costs per each single investment are limited to commonly some tens of thousands 
of Euro, with high transaction costs. Aggregation would help to generate economies of 
scale and reduce average transactions costs. 

Private investors would be capital investors, insurances etc.  

4.3.2.2  Governance and funding model 

Figure 3 outlines the funding model. Energy saving could reduce the present energy 
costs of an average school from € 42,525 to €31,040 per annum, which is a total 
difference of €11,485. As the upfront costs of energy saving are borne by the investor, 
he gets € 11,370 p.a. for about 15 years, while the rest remains with the school. Out 
of this amount, the investor covers operation and maintenance, insurance and other 
costs. After 15 years, the contract with the investor end and the full saving is for the 
school. In case the costs savings are lower, for whatever reason, reinsurers step into 
and pay the difference, i.e. they guarantee the financial reward.  

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Figure 3 Funding model for energy saving 

4.3.2.3  Project suitability for EFSI funding 

The project is economically and technically viable: the energy saving level and return 
calculations are based on empirical figures; and private funds for investment are 
available. The basic limitations are the need for empirical proof for public entities, and 
tendering regulations that prevent a scaling up of this initiative. Another challenge is 
to convince public construction entities that energy efficiency can be achieved in 
existing buildings, with some perception that such savings are only possible through 
new buildings.  

A number of energy efficiency/saving funding facilities exist already, which might be 
used to challenge the additionality of EFSI funding. In this case, it would have to be 
proven that these funds cover the combination of energy saving and investment in 
school rehabilitation.  

4.3.3  Future plans / scope for replication of the intervention 

4.3.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

Once the feasibility and economic benefits are proven, scaling-up is highly likely as it 
helps to reduce current spending for schools and private investors would also see that 
the model works and has a low risk profile.  

4.3.3.2  Potential role for EFSI 

EFSI could provide co-funds to help scale-up for a first implementation round. 

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€31,040Future Energy Cost p.a.*Guaranteed Savings, for example through partnership with:Year 15+x:€11,485full annual savings for School€42,525Current EnergyCost p.a.*€11,370 p.a.*Assignment to the Contractor for Energy Efficient Retrofit + General Improvements + Insurance + O&M from savings over time (€170,544  in 15yrs)Energy Cost•Source: co2online GmbH, Dr. Johannes Hengstenberg, 2016All described cost savings assume stable energy prices. Higher future energy prices will lead to increased savings, lower prices to decreased savings.Before / After  
 
 
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4.4  Education Infrastructure Company (EIC) (Germany) 

4.4.1  Context and rationale for the intervention 

4.4.1.1  Context and market failure 

In the German education system, a need for investment in new education buildings 
and rehabilitation of existing buildings is well documented13.   

Municipalities and states are struggling with the financing of these measures, because 
of the lack of funds; private investors have limited incentives for the time being as 
they expect a rate of return which is commonly above the levels which public agents 
might be able/willing to accept. The Courts of Audit has criticised repeatedly the 
commercial terms which are disadvantageous for the public authorities, and implies it 
would have been less costly to have invested themselves. However, this is not 
feasible, because of budget constraints and debt limit regulations. If the assessed risk 
could be reduced, e.g. through guarantees or by co-investment funding with lower 
rate of return expectations, this barrier could possibly be removed. 

It should be noted that the financial capacity of municipalities as well as states 
depends a lot on the socio-economic profile of its population. The higher the share of 
those socially worse-off, the lower the tax revenue of municipalities and the higher the 
need for social welfare spending, which often results in high debt levels, preventing or 
at least restricting spending for non-statutory provision. 

However, the later the school refurbishment takes place, the higher the costs of 
repair, which commonly increase disproportionately; so, there are (indirect) fiscal 
benefits from early action. 

4.4.1.2  Objectives and target results 

Establishing a bespoke Education Infrastructure Company (EIC), the intervention aims 
to address this investment need through a joint effort of institutions with either 
different rates of return or through guarantees in order to arrive at average interest 
rates that are economically acceptable for the Courts of Audit and at the same time 
attractive to private investors. For a first tranche, a volume of 50m Euro might be a 
realistic target. 

4.4.1.3  Partners   

A large number of private investors would be interested to invest, e.g. insurances, 
capital investors etc., if the rate of return is attractive enough. The common rate of 
return is approximately 7%, though in the light of the low interest rates, it might be 
possible to bring this rate down to 4-5%, if the risk exposure can be reduced. 
Alternatively, involving partners with different needs concerning their rates of return 
might be another option to arrive at, on average, acceptable/reasonable rates of 
return. 

4.4.2  Operation of the intervention 

4.4.2.1  Scale and funding sources 

The scale varies substantially from single investments of up to 50m or 100m Euro to 
large scale investments of several billion Euro.  

13 KfW has conducted interviews with municipalities, stating a need for investment in 
construction activities in schools of about 34bn Euro, (27bn Euro for rehabilitation; 7bn Euro for 
new construction). Investment need in higher education is about 40 to 50bn Euro. On March 24, 
2017 the Federal Ministry of Family Affairs announced the intention to provide co-funding for up 
to 100,000 new places. 

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4.4.2.2  Governance and funding model 

In phase I, equity investors provide the start-up funding for the EIC, which can be in-
cash or in-kind, e.g. through land, for example, and become shareholders of the 
company. With this funding, the EIC is in a position to cover the costs of the 
construction of education buildings, e.g. childcare centres. The buildings are 
rented/leased to operators, who run the childcare centres and pay a rent for this.    

Figure 4 Governance and funding model for the Education Infrastructure Company 

4.4.2.3  Project suitability for EFSI funding 

The projects do employ well established forms of funding, the only “innovative” 
ingredient is the intention to arrive at reasonable interest rates from the perspective 
of the public bodies and attractive rates of return for the investor, on average, at the 
same time. Balancing these two, seemingly, opposite targets is the challenge, which 
might be a matter of scale and of combination of investors. 

4.4.2.4  Future plans / scope for replication and scope to scale-up through 

larger interventions and development of portfolio 

As already mentioned, scaling-up is not an issue of available funds, rather a political 
issue, in the light of high rates of returns to investors, as claimed by the Courts of 
Audit. The projects are not limited in terms of regional coverage; thus, the initiative 
could run at national level.  

4.4.2.5  Potential role for EFSI 

EFSI could play a key role in extending the total funding volume for investment as a 
partner, since the EIB requires a lower than average rate of return, helping to bring 
down the average rate of return, which would make the product attractive for both 
sides, the public entities, facing the problem of too high interest rates, and the private 
investors asking for competitive rates of return.  

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Service Agmt. Rental Agmt.Project  PoolOperator 1 Not for ProfitOperator 2For Profit Operator ‘n’ Not for ProfitMonthly Cash FlowsMonthly Cash FlowsMonthly Cash FlowsThe Education InfrastructureCompany‘EIC’FINANCING STRUCTUREOPERATIONSEquityInvestorsFoundations (MRI)EIB / Impact Invest.Local CorporatesMezzInvestorsFamily OfficesDFIsDebtInvestorsSocial BanksInsurance SectorPension FundsPhaseIPiloting of1-3  ProjectsPhaseIIScaleBondsCredit Rated IssueRisk BufferStart up FundingMezz. BondsShares(i.a. against in-kind contribution of land)Phase IAdditional FacilitiesPhase IIScaleParentsPublic SectorCorporatesParentsCorporatesParentsPublic SectorCorporatesEIB  
 
 
 
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4.5  Social Innovation Fund (SIF) - (Portugal) 

4.5.1  Context and rationale for the intervention 

4.5.1.1  Context and market failure 

An ex-ante evaluation of financial instruments in the Portuguese ESIF Operational 
Programme14 identified the following main market failures:15 

  Low capitalisation, high financing needs and growing demand for finance from 

social enterprises; 

  No appropriate products from financial institutions, such as commercial banks, 

for social enterprises, because of: 

-  Risk: perception of high risk and no collateral; 
-  Return: high transaction costs for expected below-market returns; and 

- 

Impact: positive externalities not recognised or taken into account as banks 
cannot monetise them 

  Maturity gap (no availability of credit for longer maturities); 

  Lack of intermediaries in social financing and social investment in Portugal; and 

  Reduced diversity of available financing options; There is high fragmentation 

and short-term drive of existing philanthropic financing. 

Overall, two segments and types of needs were observed:16 access to funding for 
social enterprises for organisational improvement and innovation; and social start-ups. 
The ex-ante assessment estimated the following financing gaps across a variety of 
fields (education, health, social protection, employment, and justice): 

  For investment in innovation by social economy entities: €281.2 million 

  For investment in social start-ups: €28.6 million 

Interviewees and the material reviewed did not provide any specific estimates 
covering education and training only. 

4.5.1.2  Objectives and target results 

The aim of the Social Innovation Fund (SIF) is to support social impact investment by 
mitigating difficulties of social enterprises to access finance in ‘regular’ financial and 
equity markets. It covers two separate financial instruments: loans to social enterprise 
and equity investment in start-ups. 

4.5.1.3  Partners 

The main partners of the SIF are: 

  The European Social Fund (ESF) managing authority: Operational Programme 

‘Social Inclusion and employment’, one of the thematic operational programmes 
under Portugal 2020. The ‘Mission Structure Portugal Social Innovation’ will act 
as intermediary body; 

14 Quaternaire Portugal (2015). Ex-ante evaluation of the financial tools of Portugal 2020 
programmes. 
15 Source: Portugal Social Innovation presentation: ‘Social Innovation Fund (SIF) – Background 
information’. Sent to ICF (not available online). 
16 Based on interview with representatives of the organisation in charge of managing the Social 
Innovation Fund (the mission structure) conducted by ICF on February 2017. 

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  Financial intermediaries: Portugal Social Innovation is currently negotiating with 

a number of commercial banks to act as financial intermediaries; 

  Fund of funds manager: PME Investments – Investment Society, which is a 

financial society under the supervision of the Bank of Portugal17;  

  Recipients of loans and equity: social enterprises. 

Payees are social enterprises who make use of the loan or equity instruments 
available through the SIF on the contractual basis that they repay loans and related 
interest payments / agreed dividends.  

  In the future, financial intermediaries could be asked to pay small fees into an 

EFSI platform, in return for accessing part of the SIF fund. 

4.5.2  Operation of the intervention 

4.5.2.1  Scale and funding sources 

At this stage, the SIF is supported by the Portuguese ESF operational programme (€95 
million) and a contribution from the Portuguese government (€17 million). Financial 
instruments in the SIF have been developed in cooperation with the European 
Investment Bank’s investment advisory hub.  

The use of EFSI funding to scale up the SIF budget envelope, and the involvement of 
private investors is under consideration. Income generation (interest payments and 
loan repayments) would come from social enterprises supported, with the government 
or the EIB providing a certain level of guarantees in case incomes don’t materialise. 

4.5.2.2  Governance and funding model 

The potential funding model is presented in the following diagram: 

Figure 5 Funding model for the Social Innovation Fund 

Source: Portugal Social Innovation presentation: ‘Social Innovation Fund (SIF) – Background 
information’.  

4.5.2.3  Project suitability for EFSI funding 

Overall, the project would be suitable for the use of EFSI funding if other social/ 
private co-investors can be found that suit the requirements of the programme. There 
is a clear preference on the side of the managing authority for the involvement of a 
single large social investor, rather than corporate investors strictly interested in 

17 Website: http://www.pmeinvestimentos.pt/en/ 

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financial returns. Furthermore, a SIF using EFSI would need to be set up in a 
complementary way to what is currently being offered.18 

4.5.3  Future plans / scope for replication of the intervention 

4.5.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

The investment opportunity consists of scaling up the Social Innovation Fund in 
Portugal to fill a financing gap of an estimated €197 million.19 Only part of the SIF will 
be targeted at education and training. 

4.5.3.2  Potential role for EFSI 

Interviews indicated that EFSI could support the current SIF and the fund manager by 
helping to:20 

  scale up activities; 
 
increase the stop value for guarantees offered to financial intermediaries; 
  allow support to enterprises based in regions currently not eligible for SIF 

support; 

  allow CAPEX investment, which are currently not possible under ESF rules. 

According to interviewees, financial intermediaries in Portugal would prefer SIF to be 
funded through EFSI rather than ESF as they perceive EFSI to have less constraints as 
regards the setup of individual instruments. 

18 Based on interview with representatives of the mission structure conducted by ICF on 
February 2017. 
19 Proportion of financing needs identified by ex ante assessment not covered by current SIF 
programme budget. 
20 Based on interview with representatives of the mission structure conducted by ICF on 
February 2017. 

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4.6  Social Impact Bond (SIB) - (Portugal) 

4.6.1  Context and rationale for the intervention 

4.6.1.1  Context and market failure 

An ex-ante evaluation of financial tools under the Portuguese Operational Programme 
for European Structural and Investment Funds reported the following financing gaps in 
the area of social innovation:21 

  €281 million for investment-innovation in social economy organisations 
  €28.6 million for innovative social entrepreneurship start-ups 

No breakdown is available to estimate the investments required for the area of 
education and training. According to the ex-ante evaluation, the Portuguese financial 
markets are not prepared to provide traditional financing in the field of social 
innovation and risk capital funds (in particular Business Angels) have not yet paid 
attention to the potential of this sector. 

4.6.1.2  Objectives and target results 

The main financial tool proposed to address the above mentioned needs is the Social 
Innovation Fund (see other project description for Portugal). A Social Impact Bond 
(SIB) call for proposals has been introduced as a way to showcase and test innovative 
financial instruments, and to complement the Social Innovation Fund. 

Both tools -the Social Innovation Fund and the SIBs- are being implemented by the 
Portugal Social Innovation initiative launched in December 2014, coordinated by the 
‘Mission Structure Portugal Social Innovation’ and co-funded by EU Structural Funds. 
Its tools focus on innovation and social entrepreneurship and cover all social areas 
including education and training. 

SIBs are directed to the delivery of services in the field of public policies. Their impact 
is measured against specific social results – e.g. revenue realised on the government 
side (tax income) or foregone government expenses (such as foregone unemployment 
benefits).22 

4.6.1.3  Partners 

The participants of the Portugal Social Innovation SIBs are partnerships composed 
of:23 

  One or more social investors 
  One or more public sector entities 

  One or more implementing entities (service providers), usually social 

entrepreneurs and social enterprises 

The payee is the Portuguese ESF Operational Programme ‘Social Inclusion and 
Employment’. The intermediary entity currently managing SIBs is the ‘Mission 
Structure Portugal Social Innovation’. This mission structure is a type of public legal 
entity with independent management and a limited lifetime (2014-2020). It manages 
part of the EU structural funds allocated to Portugal and was created with the aim of 

21 Quaternaire Portugal (2015). Ex-ante evaluation of the financial tools of Portugal 2020 
programmes. To estimate financing needs the report used estimates from a research project by 
the IES-Social Business School and the IPAV-Padre Antonio Vieira Institute. Funded by Calouste 
Gulbenkian Foundation, EDP Foundation, Operational Programme on Competitiveness. Website: 
http://www.mies.pt/index.php/en/  
22 Portugal Social Innovation Initiative, call 2016. 
23 Notice of the Operational Programme Social Inclusion and Employment (POISE-39-2016-07). 

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catalysing the slowly emerging market of social investment in Portugal. It reports 
directly to the Portuguese government.24 

Public sector entities with responsibilities in the public policies relevant to the funded 
initiatives commit to facilitating implementation but do not receive funds.25 

4.6.2  Operation of the intervention 

4.6.2.1  Scale and funding sources 

The overall investment need in the area of social innovation is estimated at €309.6 
million (see above).  

The 2016 SIBs call had a budget of €3.5 million to cover a variety of thematic areas 
(social protection, health, justice, employment and vocational education and training). 
The 2016 SIB call established that the needs for public funding of each project have to 
be above €50,000. This suggests that individual SIBs are expected to be relatively 
small-scale and a maximum of 60 projects can be supported per call. If the average 
project size is similar to the pilot ‘Junior Code Academy’, the SIB call would be able to 
support 25 projects each year with the current budget. Funding for the current setup 
of the SIB calls for proposals comes from the Portuguese ESF operational programme. 

4.6.2.2  Governance and funding model 

The current funding model is presented in the following diagram: 

Figure 6 Delivery framework – Portuguese SIB outcome fund (Social Innovation Initiative) 

Social investors 

Public sector 
entities 

Payment if 
results attained  
(Risk transfer) 

Outcome 
fund 
(Portugal 
Social 
Innovation) 

Service providers 

Result indicators 

Final beneficiaries / target group 

Independent 
evaluators 

Source: Portugal Social Innovation website 

4.6.2.3  Project suitability for EFSI funding 

Whilst there is currently no clear purpose for EFSI in the delivery model, EFSI support 
could be used to either scale up the outcome fund or offer more attractive outcome 
prices to potential social investors. 

24 Source: Resolution of the Portuguese Council of Ministers nbr 73 – A/2014. 
25 Notice of the Operational Programme Social Inclusion and Employment (POISE-39-2016-07). 

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4.6.3  Future plans / scope for replication of the intervention 

4.6.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

The results from the first call –not yet available- will help assess the interest in SIBs, 
the extent to which there exists unmet demand, and the potential for their expansion 
in terms of size and number. 

4.6.3.2  Potential role for EFSI 

As above, there are potential roles for EFSI support in the future which however will 
need to be further evaluated once demand for the first call for proposals can be 
assessed in detail. 

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4.7  Guarantee scheme for student loans (Portugal) 

4.7.1  Context and rationale for the intervention 

4.7.1.1  Context and market failure 

Based on a needs assessment conducted in 2014, there is currently a financing gap in 
the Portuguese market for student loans between €11 and 15 million each year. In the 
aftermath of the financial crisis, there was also a significant reduction in public student 
support and commercial products for student loans and tightened lending conditions.26 

After being put on hold due to shrinking public budgets, the former guarantee scheme 
for student loans is currently being reactivated. A new financial instrument with €10 
million of support from the European Social Fund (ESF) is being created with funds 
from the Human Capital Operational Programme. The mutual guarantee based on this 
new financial instrument is expected to be launched in 2017. 

The scheme concerns exclusively higher education including graduate and post-
graduate studies. Loans are also available for students that need financial support to 
participate in an Erasmus+ mobility. 

4.7.1.2  Objectives and target results 

The loan scheme with mutual guarantee for higher education students enables 
financial intermediaries to offer loans with low interest rates. Interest rates are further 
reduced for students with better academic results (students with an average annual 
grade of 16 or over out of 20 pay 80% of the interest).27 

Any higher education student can apply for a loan. In some cases loans are used to 
complement grants for people who face financial difficulties. The most frequent loan 
holders are students who applied for a grant and did not receive it but still have an 
economic situation that would prevent them from attending higher education without 
financial support.28 

4.7.1.3  Partners   

The loan scheme for higher education students, as in the past, will be implemented by 
financial intermediaries, in most cases commercial banks. The entity coordinating the 
guarantee fund is SPGM-Investment Society, a mutual guarantee society. ESF funds 
are used to provide a counter-guarantee against the prime guarantee fund. 

4.7.2  Operation of the intervention 

4.7.2.1  Scale and funding sources 

Currently €10 million of ESF funds and €1.8 million from the Portuguese government 
are foreseen to provide the counter-guarantee for the scheme (representing roughly 
10% of the expected lending until 2020). If as before, this amount covers 10% of the 
overall lending during the programme period 2014-2020, the overall value of loans 
provided would be at €118 million i.e. €17 million/year. €59 million are provided as 
guarantee fund by SPMG, covering around 50% of the expected overall lending to 
students until 2020. Whilst the scheme is being finalised and some details haven’t 
been confirmed, the previous setup guaranteed 100% of each loan with 'stop loss' of 
10% of the global portfolio of each bank.  

26 Based on an interview with a representative of the Human Capital Operational Programme 
conducted by ICF. 
27 Based on an interview with a representative of the Human Capital Operational Programme 
conducted by ICF. 
28 Based on an interview with a representative of the Human Capital Operational Programme 
conducted by ICF. 

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Table 2 Funding sources of the guarantee scheme for student loans (according to ex-ante 
assessment) 

ESF funds  

Portuguese government  

Sub-total public funds 

Potential bank financing (with an estimated 'stop loss' of 
10%) 

Amount 

€ 10,000,000 

€ 1,765,000 

€ 11,765,000 

€ 117,650,000 

Of which, contribution of SPGM entities 

€ 58,825,000 

4.7.3  Project Delivery Framework 

Figure 7 assumes a total lending volume of €117,650,000, based on the ex-ante 
assessment. The 10% risk coverage is provided by the OP Human Capital and the 
State (€11,765,000). The mutual guarantee societies would cover 50% of the bank 
lending, with a stop value of 15%. 

Figure 7 Delivery framework for the Guarantee Scheme for Student Loans 

SPGM (coordinator) 

Commercial 
banks 

Final 
beneficiaries 
(students) 

OP Human 
Capital 

(85%) 

€10 million 

State (15%) 

€1,765,000 

Counter-
Guarantee 

€12 
million 

Mutual 
Guarantee 
provided 
by SPMG 

€59 
million 

(50% of 
overall 
lending) 

Bank 
1 

Bank 
2 

Bank 
X 

Students 

Students 

Students 

Source: based on ex-ante assessment. 

4.7.3.1  Project suitability for EFSI funding 

The guarantee fund would be suitable for EFSI support, however there are careful 
considerations which would have to be made about the added value and displacement 
effects. 

4.7.4  Future plans / scope for replication of the intervention 

There are a number of ways in which EFSI might be used to scale up and increase the 
reach of the guarantee scheme. 

  First, EFSI could help to increase the counter guarantee and address concerns 

by financial intermediaries that the stop value of 10% is insufficient; 

  Secondly, EFSI could help to increase the overall size of the guarantee, if the 
current estimates of the financing gap are exceeded by actual demand; and 

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  Thirdly, the scheme might be expanded to cover international students on top 

of Portuguese students. Currently, close to 10% of the students in the 
Portuguese higher education system are foreigners; however, a large share 
come from non-EU countries, most significantly from Brazil and Angola.29 Thus, 
an expansion of the scheme to cover other EU nationals is not likely to bring a 
significant increase in the number of loan holders, but an expansion to cover 
other international students might be considered.30 

29 In 2014/2015 there were 33,148 foreign students out of a total of 343,612 students in higher 
education (including students participating in international mobility). The most frequent 
countries of origin were Brazil (8,486), Angola (3,631), Spain (2,918), Cape Vert (2,458) and 
Italy (2,034). Source: Directorate-General of Statistics of Education and Science. Student Profile 
2014/2015. 
30 It should also be considered that there are alternatives for supporting separate financial 
instruments covering EU nationals, such as the Student Loan Guarantee Facility (SLGF) 
established by the EIF and financed by Erasmus+ to support EU students doing a Master's in 
another EU country. There is therefore a certain degree of complementarity between a potential 
use of EFSI and the EIF’s SLGF scheme. 

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4.8  Investment in Higher Vocational Education (Sweden) 

4.8.1  Context and rationale for the intervention 

4.8.1.1  Context and market failure 

In the market of accredited Higher Vocational Education (HVE) in Sweden, the national 
agency for higher vocational education (MYH) turns down around 400 to 500 
educational programmes which apply for accreditation – and the related grants – 
every year due to budget constraints.31 At the same time, there has been a noticeable 
growth in demand for HVE in Sweden, with applications from prospective students 
growing by 35 per cent between 2012 and 2015. The research conducted by the study 
team further suggests that on average, attending a HVE programme increases the 
graduates’ chances of employment, as well as the average annual income of those 
who find employment. 

4.8.1.2  Objectives and target results 

The purpose of the intervention would be to satisfy currently unmet demand for HVE 
programme funding. Unmet demand is particularly high in thematic areas of finance 
and administration; computing/IT; technology and manufacturing; care and nursing as 
well as infrastructure planning. These are also the areas where MYH receives the 
largest number of applications from education providers, and by implication labour 
market demand is highest. 

The target outcome of the intervention would be to fund 400 high-quality HVE 
programmes in the areas above, supporting between 10,800 to 13,500 additional 
students willing to pay tuition fees to obtain a HVE diploma. 

Furthermore, Swedish students are entitled to access a student loan scheme run by 
the government, therefore any increase in student numbers might result in further 
resource needs to support a corresponding extension of the government’s student loan 
scheme. 32 

4.8.1.3  Partners 

Likely partners of the intervention would involve the MYH, as accreditation body for 
additional HVE programmes to be provided and supported by the intervention, the 
ESIF managing authority, and education providers applying for support and 
accreditation.  

4.8.2  Operation of the intervention 

4.8.2.1  Scale and funding sources 

Research conducted suggests that it would be possible to double the volume of HVE 
programmes currently supported by MYH, whilst preserving quality and avoiding 
cross-funding. This would translate into possible investment volume of 210 million 
Euro per year. Current unmet demand would allow investments between 65 to 85 
million Euro (6,000 Euro per student). Sources of funding would be EFSI, combined 
with additional investment by corporate investors (e.g. companies interested in 

31 The national agency for higher vocational education allocates government grants only to 
certified/accredited programmes. 
32 Nation-wide study-aid in Sweden is managed by the national board for student aid (Centrala 
Studiestödsnämnden, CSN). So there might be further resources necessary if the overall 
number of HVE students is increased through further HVE programmes, and this does not result 
in a decrease of student numbers for other type of higher education. In 2017, the overall annual 
study aid offered by the agency for full time students amounted to 50,080 SEK (around 5,300 
EUR), out of which 14,240 SEK (around 1,500 EUR) are provided as grant, and the remainder 
as repayable loan. 

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employing HVE graduates) or institutional investors, and some element of tuition fees 
paid by students. 

4.8.2.2  Governance and funding model 

There are two delivery frameworks which could help meet currently unmet demand 
and make use of EFSI support. 

In a first setup, EFSI together with a private co-investor would provide direct lending 
to the agency. This delivery framework is presented below in Figure 8Error! 
Reference source not found.. 

Figure 8 Delivery framework I – The agency as a borrower 

A second delivery framework would involve the setup of an investment platform for 
HVE, which would offer attractive loans exclusively to programmes which have been 
vetted by the agency but could not be funded through government grants. The MYH 
will still accredit those programmes. This delivery framework is presented in Figure 9 
below. This would necessitate a platform sponsor, unlikely to be the national agency 
itself. 

Figure 9 Delivery framework II – using a dedicated lending platform 

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4.8.2.3  Project suitability for EFSI funding 

In principle the project is considered suitable for EFSI funding. However a number of 
key assumptions have been made. First, for any of the above propositions to work 
there needs to be no institutional or legal barriers for the agency to receive loans. 
Furthermore, the legal and political framework would need to allow the setup of a 
platform in the case of option II sketched out above. 

Another assumption is that educational providers who are not funded through 
government grants currently are ready to borrow and are able to pay the cost of 
capital on it. 

The large amount of unmet demand for HVE programmes in Sweden suggests that 
investments in HVE programmes are bankable and can generate sufficiently attractive 
revenue, with only moderate risks. 

The main challenge remaining is to offer a suitably attractive revenue for investors. An 
income stream from student tuition fees might not generate enough returns to render 
the project attractive for private investors, and margins on potential student loan 
products might be capped by the very favourable conditions offered by government 
loans offered to students. Therefore, alternative revenue options such as reversed 
funds should be considered. 

4.8.3  Future plans / scope for replication of the intervention 

4.8.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

On the national level, the intervention might be scaled up depending on future 
demand for HVE programmes. Given different legal and political frameworks, it seems 
unlikely that an expansion beyond Sweden would be feasible, given the large costs in 
platform management this would incur. 

4.8.3.2  Potential role for EFSI 

There is a clear role for EFSI involvement as described above. Risks are limited, given 
the proven private and social returns to HVE graduation. However a change of the 
political or legal framework would severely reduce the investability of the proposed 
intervention.  

As outlined above, funding at the project level is currently limited, and stakeholders as 
well as desk research have confirmed that there is scope and space for scaling up 
current levels of accredited HVE provision across Sweden. 

In terms of governance, there is currently no structure in place that could take over 
management of an investment platform. However, certain experience with financial 
instruments, as well as ongoing cooperation with the European Investment Bank, exist 
within the Swedish managing authority for European Structural and Investment Funds 
(ESIF). 

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4.9  Social Impact Bond (SIB) interventions in education & training 

(UK) 

4.9.1  Context and rationale for the intervention 

4.9.1.1  Context and market failure 

There is a number of SIBs in the UK focusing on additional support services for young 
people. These SIBs do not focus exclusively on education, but educational 
achievement is usually one of the key SIB outcomes paid for by the commissioners.  

Further investment in SIBs could help to address the following issues in UK education: 

  There is a substantial gap in attainment for pupils with special needs, 

suggesting their needs are inadequately met by existing provision (Big Society 
Capital 2015); 

  The proportion of NEETs in total population aged 16 to 24 is still substantial, 

reaching more than 12% in 2015;33 and  

  Current demand for child care cannot be met in a number of localities in the 

UK.34  

4.9.1.2  Objectives and target results 

The main purpose of the intervention is to expand the use of SIBs to improve:  

  Transition of students from difficult social backgrounds from secondary 

education to employment or further education;  

  Transition of students aged 16 to 18 with special educational needs and 

disabilities from secondary education to employment or further education; and 

  Provision of pre-primary education to children from low-income families who 
are at-risk of requiring additional educational support in primary education.  

For the first two types of interventions, the ultimate SIB outcomes are typically 
qualification achievement and/or progression into employment. For the last type of 
intervention, the ultimate SIB outcome could be reduced use of additional support 
services in primary education by targeted children.  

4.9.1.3  Partners   

The intervention would require involvement of the following actors:  

  Commissioners who pay for the SIB outcomes upon their achievement. In the 

UK context, this is usually central/local government.  

  Social investors who value SIB outcomes to be achieved per se, and are 

therefore ready to invest into SIBs despite modest investment return coupled 
with high intervention risk. 

  Service providers such as charities or social enterprises that are responsible for 

the delivery of the SIBs on the ground.  

4.9.2  Operation of the intervention 

4.9.2.1  Scale and funding sources 

Based on rough estimates made by interviewees, the demand for finance to deliver 
SIB interventions in education & training could range from £20m up to £120 million in 

33http://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/bulletin
s/youngpeoplenotineducationemploymentortrainingneet/2015-08-20 
34 Children and Young People Now 19 (August 2014) 

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the next 5-10 years. The scale of the intervention crucially depends on the willingness 
of central/local government to commission SIBs and pay for their outcomes. 

Qualitative research indicated that the demand for finance can largely be covered by 
national social investors. However, there was interest in the use of EU grant finance, 
which could be used to co-fund SIB outcomes alongside local/central government.  

4.9.2.2  Governance and funding model 

The scale of the intervention could provide scope to set up a national investment 
platform. The platform would receive ‘wholesale’ funds from social investors for 
subsequent allocation to a range of individual SIBs. It would likely be a fund-of-funds 
that would co-invest alongside local investors into relevant SIB opportunities. It could 
do so through a number of individual sub-funds targeting specific types of education 
and training interventions.   

The commissioners would pay for achieved SIB outcomes to service providers, who 
would in turn distribute returns to funders. These transactions may be exercised 
through an SPV.   

Figure 10 Delivery framework 

4.9.2.3  Project suitability for EFSI funding 

SIBs could be suitable for EFSI funding, but there are a few issues that complicate this 
assessment:  

  The research on additionality of SIB interventions is very limited. It indicates 
that SIBS could lead to substantial government savings, but so far it does not 
provide conclusive evidence of SIB effectiveness compared to other type of 
government interventions.  

  A diverse range of (often relatively small-scale) SIBs would have to be 

aggregated into a single investment opportunity to allow for EFSI funding. This 
can be difficult because identifying suitable SIBs often requires considerable 
experience with investing into services to be delivered and knowledge of local 
partners who could deliver them.  

  The economic viability of the projects is less of an issue – average return across 
UK SIBs was estimated to be between 3 to 10%, so there could potentially be 
sufficient returns on investment to attract EFSI funding.  

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4.9.3  Future plans / scope for replication of the intervention 

4.9.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

The potential to scale up the intervention to national level crucially depends on the 
willingness of commissioners to fund further SIBs. The key factors constraining the 
SIB commissioning are perceived to be:  

  up until recently, the lack of activity of the UK Department for Education in this 

area.  

 

the progressive de-centralisation of UK educational policy – local authorities 
often don’t have enough time, budget and expertise to commission SIBs.  

The qualitative research indicated some potential to replicate this intervention in other 
EU Member States that are currently experimenting with SIBs.  

4.9.3.2  Potential role for EFSI 

There is little perceived need for EFSI funding to expand the use of SIBs at current 
levels of activity. There is a range of UK social investors who are willing to fund 
additional SIBs.  EFSI funding would, to a large extent, lead to crowding out of 
available national funding rather than setting up of new SIBs if not accompanied by 
government commitment to a much greater scale of use of SIBs to address education 
and training needs. 

However, this may be a specific situation to the UK, where there is a relatively well 
developed social investment market and high investor willingness to fund SIBs. In 
other EU Member States the situation may be very different, and where the constraint 
is less government spending and rather the lack of social investment sources. 

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4.10  Provision of small-scale finance to social sector organisations 

focusing on education & training services (UK) 

4.10.1 Context and rationale for the intervention 

4.10.1.1  Context and market failure 

There is a well-documented gap in access of social sector organisations to small-scale 
debt finance (Social Enterprise UK, 2013, Cabinet Office, 2013). This limits the 
number and size of social sector interventions to address some key issues in the UK 
educational system (Big Society Capital 2015):  

  GCSE exam results shows a substantial underperformance of pupils from low 

income compared to their peers; 

  Young people with low levels of educational attainment are at a much greater 
risk of becoming ‘NEET’ (Not in Education, Employment or Training) than their 
peers;  

  There remains a substantial gap in attainment for pupils with special needs 

compared to their peers; and 

  Current demand for child care cannot be met in a number of localities in the 

UK.  

4.10.1.2  Objectives and target results 

The main purpose of the intervention is to provide small-scale unsecured debt finance 
(up to £150,000) to social sector projects aiming to:  

  Increase/improve provision of pre-primary education;   

  Improve support for pupils with special educational needs or disabilities (SEND) 

by selling specialist services to schools;   

  Increase educational attainment and employability of disengaged youth by 

providing out-of-school activities; 

  Increase educational attainment and employability of disengaged youth through 

provision of vocational education; and 

  Improve key employability skills of adults, such as literacy and numeracy.    

While the objectives of this intervention are similar to the SIB intervention described 
in section 4.9, the means of support are different:  

  This intervention focuses on provision of small-scale debt finance (up to 

£150,000) to organisations delivering the funded projects, who then need to 
repay these loans based on their income from various sources.  

  Funders in SIB interventions can potentially provide much larger sums to 
organisations delivering SIBs and their repayment will depend solely on 
achievements of specific SIB outcomes to be paid for by local/central 
government. Funders can provide this finance through other means than 
unsecured loans (i.e. equity) and can have more control over the delivery of the 
intervention, for example when they set up an SPV together with organisations 
responsible for intervention delivery.    

4.10.1.3  Partners   

The intervention would require involvement of the following actors:  

  Social investors willing to provide small-scale unsecured debt finance to often 

high risk projects; 

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  Funders to provide grant finance to support realisation of the intervention;  

  Central and local fund managers to disburse small scale finance to social sector 

organisations; and  

  Social sector organisations to deliver projects aimed at improvements in the 

educational system.  

4.10.2  Operation of the intervention 

4.10.2.1  Scale and funding sources 

Qualitative research suggests the demand for finance across all UK social sector 
organisations delivering education & training interventions could be around £40 
million, potentially even higher. However, there is no quantitative evidence available 
to corroborate this number.   

Currently, some of the social sector demand for small-scale debt finance is covered by 
the Access Growth Fund.35 This fund aims to provide a total of £45 million to social 
sector organisations through financial products that blend small unsecured loans with 
grants.  

4.10.2.2  Governance and funding model 

There is some interest in setting up an investment platform to provide small-scale 
debt finance to social sector organisations. This platform would most likely need to be 
set up at national level and invest into a broad range of education & training projects. 
The platform would likely be a fund-of-funds, which would set up multiple smaller 
funds in partnership with local/specialist fund managers. These local fund managers 
would then provide small-scale debt finance (up to £150,000) to fund project delivery.  

The platform would likely have two investment layers:  

  First layer would consist of grant providers and impact investors willing to 

accept zero or very low return on their investment. This layer would cover the 
expected first loss on investment, creating safer and potentially more profitable 
investment opportunities for the second layer of investors. 

  The second layer would consist of social investors (and potentially some high 
net worth individuals) who require relatively modest rates of return on their 
investment. The rate of return could be somewhere around 5%.  

The revenue sources include payments from a range of actors typically involved in 
payment for education services.  

35 https://access-socialinvestment.org.uk/growth-fund/ 

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Figure 11 Delivery framework 

4.10.2.3  Project suitability for EFSI funding 

EFSI funding could be suitable for this intervention, but there are important 
challenges:  

  Low returns on investment. The expected first loss on investment is high 

(between 10 to 30%). It could be partially covered by grant finance, but the 
return on EFSI funding would still most likely be lower than 5%.    

  Aggregation of a large number of diverse small-scale projects into a single 

investment opportunity large enough to warrant EFSI investment. Identifying 
credit-worthy social sector organisations requires considerable experience with 
investing into services to be delivered and good knowledge of the local social 
sector.  

4.10.3 Future plans / scope for replication of the intervention 

4.10.3.1  Scope to scale-up through larger interventions and development of 

portfolio 

  A national investment platform could be set up to provide debt finance to 

education & training projects, providing a total funding of around £40 million. A 
broad range of education & training interventions would need to be covered to 
ensure sufficient number of projects can be funded. Assuming an average loan 
size of £75,000, there would need to be an annual demand for loans from over 
500 credit-worthy social sector organisations providing education & training 
services.    

4.10.3.2  Potential role for EFSI 

There is some scope for EFSI investment into this opportunity. For example, EFSI 
could provide funding of about £20 million to be matched by national investors at a 
one-to-one ratio. This would lead to a total investment supply of about €40 million, 
potentially covering the investment needs of social sector organisations delivering 
education & training services. 

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5 

Additional Research 

5.1  Other national experience of using social / private investment 

for education and training 

5.1.1  Belgium 

Belgium has seen a number of EIB loans in school refurbishment and construction, 
totalling EUR 300 million in lending between 2012 – 2016.36 

As regards private investments in intangible assets in education, there is little 
comprehensive research. The overall demand for impact investing, and the readiness 
of Belgian investors to support social investments have not been reviewed in detail to 
date. However, there seems to be an increasing awareness in the investment world, 
but for the time being they remain a specialist subject pursued by a small group of 
private investors and some commercial banks such as Degroof.37 

Following a feasibility study38 and a two-year preparation period, Belgium’s first social 
impact bond was launched in January 2014: Garantie financière pour l’innovation 
sociale en matière d’insertion professionnelle des jeunes en Région de Bruxelles 
Capitale. 39 The purpose of the SIB is to reduce unemployment among young migrants 
in Brussels by matching them with local retirees to connect migrants with existing 
employment networks and to increase their professional opportunities and well as to 
create intergenerational and intercultural links. The idea was born from the current 
situation in Brussels where migrants are faced with several barriers to productive 
employment, which besides potential educational and linguistic obstacles involve the 
lack of access to employment networks.  

The stakeholders involved include the Brussels-based non-government organisation 
“Duo for a Job”, Kois Invest acting as intermediary, and l’Observatoire de l’Emplois 
bruxellois (Brussels Observatory of Employment) acting as independent evaluator. The 
intervention focuses on 18-30-year-old migrants who are non-EU, US, or Canadian 
nationals who speak either English, French, or Dutch, legally residing in Brussels and 
registered at Actiris, the government employment agency. The intervention scheme 
involves individualised follow-up of the participants’ job-searching activities.  

The SIB is funded through investments totalling EUR 234,000 from several investors, 
which makes it a smaller SIB than most that are currently in operation globally. This is 
due to it being intended as a pilot project to first test the mechanism in Belgium. The 
project aims to help 35% of the cohort find employment who would otherwise have 
remained unemployed. As an evaluation metric, the employment rate of the project 
participants will be measured: if the project is deemed successful, investors will see 
returns of up to 6%. On the other hand, they will lose money if the participants’ 
employment rate increases at a slower rate than that of a control group. Overall, the 
state will save an estimated EUR 35,000 per employment reinsertion. Hence, if one 
third of the participants find employment who would otherwise have remained 
unemployed, the state saves roughly EUR 2 million – a figure eight times higher than 
the initial cost of the intervention.  

36 http://www.eib.org/infocentre/press/releases/all/2013/2013-206-belgique-financement-
europeen-pour-les-ecoles-francophones-belges  
37 See e.g. Denoël, Nicolas (2014), Developing Social Impact Bonds in Belgium, Master thesis at 
Louvain School of Management under the supervision of Prof. Mikael Petitjean. 
38 Dermine, Thomas (2014), Establishing Social Impact Bonds in Continental Europe, M-RCBG 
Associate Working Paper Series No. 26 (online: 
https://www.hks.harvard.edu/centers/mrcbg/publications/awp/awp26 ). 
39 https://data.gov.uk/sib_knowledge_box/brussels-migrant-uemployment  

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The cohort size is 180 migrants participating over a period of 3 years. As the 
estimated number of Brussels residents that fit the criteria selection amounts to 
6,200, the SIB only treats 3% of these people which leaves considerable potential for 
expansion of the scheme if deemed successful. The contract spans a period of 2 years, 
and repayments to the principal investors will be made per semester, with final 
payments due by October 2017. 

5.1.2  Netherlands 

In the Netherlands, the system of lump sum funding does not offer much incentive to 
look for alternative finance for those education providers who are accredited by the 
central government (i.e. eligible for lump sum funding). The introduction of further 
performance based government funding could potentially change this overall picture, 
and offer cases for EFSI funding in the future. 

A clear case for further private sector involvement can be seen in the area of 
vocational education and life long learning, however these are largely met by bilateral 
cooperations or short term, non formal courses offered by so-called ‘company 
schools’. Government is keen to incentivise companies to support more formal, long 
duration courses, but no candidate projects for EFSI which would lend themselves to 
aggregation and are sufficiently attractive for larger private investors were identified. 

In the area of social investments, demand for impact investment exceeds supply. An 
interviewee from the Society Impact agency which matches entrepreneurs and 
business ideas with investors, suggested that there is large potential particularly for 
further social impact bonds. 

The core impediment of the sector currently is the lack of a large scale outcome 
funder, such as a specific government commitment or a dedicated fund. Other issues 
might be that social entrepreneurs often lack a strong business model, and a rather 
small average size of project which makes investments unattractive due to high 
overheads, and a lack of long term balance sheet funding. 

Challenges of the social investment market are seen by some stakeholders to be 
further impeded by the lack of direct government policies. Whilst there is generally a 
preference for keeping the sector strongly market driven, stakeholders in one study 
have argued for the state to guarantee impact investments and associated loans made 
by way of a unified guarantee model.40 

Without a clear commitment of the central government or a managing authority it is 
difficult to see how EFSI could support e.g. an outcome fund for SIBs in the 
Netherlands (see section 5.2.1 below). 

As regards the use of EIB support in the education sector, two EIB loans have been 
signed in the Dutch university sector. The first project in 2013 marked the first EIB 
engagement with an education institution in the Netherlands and provided €230 
million to the Vrije Universiteit Amsterdam, contributing to the redevelopment of the 
Zuidas campus.41  The second EIB loan in the area of education and research has been 
agreed with Delft University of Technology, Erasmus University Medical Centre 
Rotterdam and Leiden University Medical Centre, and provides €90 million for the 
setup of a new research facility.42  

40 https://www.tno.nl/downloads/Rapport%20sociale%20ondernemingen2.pdf  
41 http://www.eib.org/infocentre/press/releases/all/2013/2013-141-eib-supports-vrije-
universiteit-amsterdam-campus-development.htm [accessed 31st October 2016]. 
42 http://www.eib.org/projects/pipelines/pipeline/20120328?f=search&media=search 

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5.1.3  Spain 

No potential areas for EFSI intervention were identified in Spain. Whilst the share of 
private investment in Spanish education institutions in 2013 was 12% in primary and 
secondary education, and 31% in tertiary education, most private expenditure comes 
from households.43 The most common type of collaboration between public and private 
sectors in education is publicly-funded private schools. There is demand from families 
and new schools continue to open. These schools are mainly owned by not-for-profit 
religious or civil society organisations, and supported by the government. The same 
can be said of other programmes for students who have not finished lower secondary 
education, or students with disadvantages. 

These schools are frequently owned by non-for-profit private entities, and therefore 
don’t lend themselves to EFSI intervention. No examples of social investments in the 
education and training sector were identified. 

Private funding is more welcomed in projects involving transversal areas such as ICT. 
There are already schemes in place promoted by foundations sponsored by private 
companies. These promoters do not expect to receive any direct financial returns to 
their investment, which can therefore be considered a grant. It is difficult to envisage 
any EFSI involvement in this part of the Spanish education and training sector. 

Some large private companies offer traineeships or grants for higher education 
students. The type of action varies depending on the company, and can target 
university and/or higher VET students. For instance, Repsol offers traineeships to 
Bachelor and post-graduate university students, as well as higher VET students on an 
array of fields relevant to their business (engineering, quality, security and 
environment, marketing, etc.).44 Iberdrola has an international grant programme open 
to university graduate students for post-graduate studies in the energy sector.45 The 
returns in this case seem to be related to the opportunity to create a pool of potential 
future employees already known to the company and trained by it, therefore these 
programmes are set up on an individual firm level, depending on specific recruitment 
needs. 

The EIB has supported a large number of projects in Spain, and according to the EIB 
website 74 contracts have been signed so far in the education sector.46 These include 
a EUR 180 million loan in the education sector as part of the “plan Navarra 2012”, 
which was mainly invested in infrastructure and equipment in primary and secondary 
schools as well as universities and vocational training.47 A number of further schemes 
are currently under review, such as support for a loan programme as part of the ESIF 
operational programme of Andalucia 2014-2020.48 There has also been notable EIB 
support to student loan schemes, totalling at EUR 222.5 million over the last years.4950  

43 OECD (2016). Education at a glance 2016: OECD indicators. Indicator B3. 
44 https://www.repsol.com/es_es/corporacion/empleo/te-buscamos/estudiantes/ 
45 
https://www.fundacioniberdrolaespana.org/webfund/corporativa/iberdrola?IDPAG=ESFUNAREFE
IPOST 
46 
http://www.eib.org/projects/loan/list/index.htm?from=&region=1&sector=5001&to=&country=
ES  
47 http://www.eib.org/infocentre/stories/all/2015-april-01/education-and-health-in-navarre-get-
a-boost.htm  
48 http://www.eib.org/projects/pipelines/pipeline/20140504  
49 http://www.eib.org/infocentre/press/releases/all/2013/2013-172-el-bei-y-santander-firman-
tres-acuerdos-para-facilitar-el-acceso-al-credito-a-pymes-y-jovenes-y-realizar-inversiones-en-
infraestructura  

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5.1.4  Poland - Bank Gospodarstwa Krajowego (BGK) 

BGK investment in education sector 

Since 2010, BGK has financed around 70 projects with the total financing envelope of 
around PLN 450 million (circa EUR 100 million) which gives an average funding of PLN 
6.4 million (EUR 1,6 million) per project. Typically, projects have been financed from 
three sources:  

  EIB loans: 29 projects;  
  EU structural funds [ESIF] financial instruments under JESSICA 2007-2013 

initiative: 19 projects;  

  Own bank's resources provided to municipalities: 23 projects.  

Projects cover all educational levels, from pre-schools establishments to universities. 
In the case of pre-school education organisations, the bank has financed mostly the 
construction of new buildings and expansion/ adaptation of existing infrastructure. At 
the primary and high school level, projects typically focused on modernisation, 
expansion or financing of construction of new sport facilities (sport halls, sport pitches 
etc.). Under JESSICA, the bank has also financed revitalisation of some cultural 
heritage buildings that have been occupied by schools/universities as well as some 
projects that envisaged an increase in energy efficiency. 

With a few exceptions, virtually all beneficiary projects involved public/ municipal 
entities. In some specific areas where private entities play a meaningful role (i.e. 
tertiary education), student population decline has been a major drag on investment. 
The number of projects that generate or have potential to generate stable revenue 
streams is perceived by BGK as limited51.   

BGK organisational approach 

BGK responsibilities for investment in education projects are spread across the 
organisation. There is no single department nor individual with responsibility for the 
sector, nor any dedicated investment programmes / instruments that target the 
sector. In contrast, the bank has for instance a designated team managing investment 
in the health care sector.  

The lack of a targeted internal structure does not mean that the bank deliberately 
prioritises other sectors. It is rather seen as a function of several factors including, 
inter alia, the banks’ focus on larger projects, which are comparatively less numerous 
in the educational sector than in other sectors. For similar reasons, the bank has not 
pursued any in-depth assessment of the market potential in the educational sector in 
Poland. 

Social investment 

BGK supports investment in the social economy via the National Fund of Social 
Investment that offers preferential loans and guarantees.52 The fund draws also on the 
financing available from EU structural funds.  

50 http://www.eib.org/infocentre/press/releases/all/2016/2016-038-eib-and-microbank-
announce-agreement-to-facilitate-access-to-finance-for-masters-students-in-european-
universities  
51 View expressed by the BGK during the consultations 
52 BKH, 2017. Wsparcie podmiotow ekonomiii spolecznej. Available at: 
https://www.bgk.pl/fundusze-i-programy/wsparcie-podmiotow-ekonomii-spolecznej-w-latach-
2014-2020/  

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EFSI 

BGK has an interest in promoting EFSI-supported projects and has been discussing 
potential new projects with their promoters and the EIB. None of these projects are 
from the educational sector.  

The bank considers that in the case of the educational sector the greatest challenge is 
the relatively small size of projects which are not considered suitable for EIB funding. 

5.2  Role of the Structural Funds and Managing Authorities 

The study has examined the possible use of ESIF (and especially the European Social 
Fund (ESF)) to leverage Member State interest in the use of EFSI and the 
development of Investment Platforms.  

Interim findings suggested that there was some difficulty across the Member States 
examined, in establishing the identity of potential platform sponsors to take forward 
the development and management of an Investment Platform for education and 
training. The platform's focus on intangible assets means that commercial banks and, 
as far as we can establish, National Promotional Banks have only limited interest. 

The potential of social investors to take on the role is constrained to some degree by 
their lack of familiarity with such instruments, and operate at a scale that would mean 
the funding risks and transaction costs of developing project pipelines would be too 
high. 

One possible solution suggested was to use the institutional capacity of the European 
Social Fund (ESF) Managing Authorities and Operational Programmes to take forward 
the responsibilities for the Platform. The feedback from Member States was not 
encouraging. Whilst acknowledging that legally such a role could be taken on with the 
approval of Member State ministries, there was only very limited awareness of the 
potential role or interest in the role of EFSI in the area of education and training. 
There was no real interest either of providing management time or contributing 
Platform funding through financial instruments.  

The one exception was in Portugal (see the case study above) where the ESF has been 
used to create a financial instrument in support of social investment, but not just 
targeted at education and training. Such an instrument is seen as providing the basis 
for future co-investment with EFSI, with a social investor as intermediary and Platform 
Sponsor. 

A summary of the feedback is given below. 

5.2.1  Views of selected Member States 

Lithuania 

There is no awareness of the possible availability of EFSI in the ESF Agency work so 
far; and has not been used by Lithuanian authorities in social and employment policy 
fields. However, there are two EFSI projects approved in Lithuania for energy and 
transport in late 2016. 

In principle, the ESF Agency works on the basis of current legal acts which entrust the 
Agency certain Tasks, such as administering ESF projects. They also coordinate with 
other bodies administering EU programmes such as Leonardo, Erasmus, Marie Curie 
and others to ensure that the same projects are not double-funded.  

The ministries of employment and education are overseeing the ESF Agency and are 
its main policy making bodies. So if a new task to act as a Platform Sponsor for EFSI 
would need to be at the initiative of the ministries. In principle, the legal basis does 
not need to be amended, as there is scope for the Agency to take new tasks in the 
current mandate.  

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However, there is no appreciation of the scope to use EFSI in the area of social and 
employment policies generally; and there would need to be considerable learning and 
examination before the feasibility of sponsorship could be considered.  

Germany 

The possible use of EFSI has not been discussed with the German ESF authorities. The 
German authorities perceive the Juncker’s Fund as a fund for infrastructure projects, 
but not for social policy or labour market policy related subjects.  

There is scope for credit-based financial instruments available in the ESF, but so far 
German authorities have not been interested in this link and they do not see the 
obvious link to the ESF.  

In Germany, they have some experience of using a loan approach in the ESF. In the 
national Operational Programme, they have a micro credit fund to support recent 
start-ups. A similar approach was also implemented in the 2007-2013 period.  

In theory, it is legally possible that the ESF MA in Germany could get involved in EFSI. 
They have experience of using loans in the ESF and could be willing to try out and find 
creative solutions. However, the overall administration culture is for only limited risk-
taking so there would need to be very clear guidance on how the Juncker’s fund would 
work in the area of social policy in practice, clarity on for example the rules on 
national co-financing. 

Netherlands 

In the Netherlands there have been no joint ESF/ESFI discussions. The current ESF 
regulation already offers the option of using financial instruments, which are 
considered a similar approach to the EFSI.  

However, authorities in the Netherlands have expressed no interest in any credit 
related financing from EU sources; with the minimisation of financial risk and 
avoidance of liabilities informing their approach. The strategy is to use ESF to fund 
simpler projects and to fund more complex projects through national programmes. 
The same logic would apply to EFSI and hence no interest in EFSI in the Netherlands.  

Education and training activities which might command a charge are considered to be 
well provided such as training activities for schools, VET and training for employed 
people. 

The education and training system in the Netherlands is considered to be in excellent 
condition; the funding is adequate and facilities are excellent, so there is no real 
demand for additional resources.  

MAs could legally act as a Platform Sponsor for the EFSI (the Agency Agentschap SZW 
is the official MA). The Agency manages not only the ESF, but also the European 
Migration Fund, some social assistance functions. In principle, the ministries delegate 
the management tasks to the Agency and it is paid for undertaking these tasks. Any 
new responsibilities would need to be defined and funded. 

Spain  

The use of EFSI has not been discussed in relation to the ESF and ESF authorities in 
Spain, although there is some limited experience of working with EIB in the context of 
ESF programmes. For example, in Madrid there is a new micro credit financing 
instrument for newly established self-employed managed by the EIB, but this is a 
small activity, 25 million euros. There was also some discussion with EIB/EIF over the 
possibility of pilot initiatives to fund financial instruments in support of increasing 
training in SMEs, but implementation was not agreed.  

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ESF Operational Programmes have been adopted in Spain in December 2015, and it 
was decided that long-term investment is less important than immediate, direct 
investment in social and employment services to help prevent unemployment 
becoming entrenched. This means that EFSI which is considered a source for longer-
term investment is not so relevant for ESF programmes in Spain.  

So far Spain authorities have shown no interest in EFSI. Due to Spain’s regional 
structure, there are 23 regional OPs. The costs of engaging with EIF and examining 
the investment opportunity are considered too high in terms of the complexity and 
hence requirement for the administrative capacity needed.  

Legally, the National Ministry of Employment is the Managing Authority. In principle, it 
could also manage the EFSI. At the regional level, ESF management arrangements 
vary, and the feasibility to manage EFSI would need to be tested, but in principle, 
authorities can be given additional tasks. However, given the burdens n Managing 
Authorities additional grant funding would probably be required. 

UK 

As in other countries, the ESF MA in the UK could in principle take on the legal 
possibility to act as a Platform Sponsor. However funding for the additional capacity 
would need to be found.  

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6 

Conclusions - Lessons from case studies and other Member 
State research 

There are investment opportunities, especially for social investors backed by the EFSI 
guarantee, to invest in interventions which generate a combination of social and 
financial returns (the ‘blended’ return). These investment opportunities arise where 
there are recognised positive externalities to be achieved from the intervention.   

Opportunities for the funding of interventions that monetise and reduce the negative 
externalities associated with under-investment by government tend to lie outside, or 
adjacent to, the formal education and training systems, and include for example: (a) 
the need for investment in special needs of pupils/students; (b) the education deficit 
of pre-school children associated with low household incomes; and (c) the training 
needs of the young unemployed (especially recent school leavers without 
qualifications).  

In all these cases, the longer-term fiscal benefits for government can be expected to 
exceed payments for additional education and training services. 

Other, more commercial, opportunities also exist, including the development of new 
loan products for students/ adult learners, and the generation of cost savings (e.g. 
from energy efficiency initiatives in schools), which can then be recycled into 
education and training.  

6.1  Summary of the range of interventions 

6.1.1  Types of intervention 

The case study research has identified a range of potentially fundable interventions 
(i.e. investment opportunities), covering both the provision of tangible assets (mainly 
related to buildings) and intangible assets (a range of services leading to social 
impacts) in the education and training sector. 

In the case of investment in tangible assets, conventional public-private partnerships 
might be used, with the risk for EFSI that such opportunities are not sufficiently 
innovative to be considered ‘additional’. However, the case studies demonstrate 
innovative ideas which should be of interest. 

In the case of intangible assets, the opportunities and associated risks may satisfy 
‘additionality’ concerns, but the level of return may be too low to support EFSI 
involvement, as discussed below. The range of opportunities for social investment 
reflect the wide range and variety of target social outcomes, including additional pre-
school / early childhood education provision (especially targeting low income 
households), special educational needs, youth unemployment/NEETs, and adult / 
vocational learning. 

6.1.2  Scale of investment opportunities and returns in the education and 

training sector 

6.1.2.1  Scale of investment opportunities 

The case study research and review of social investment markets suggest that the 
scale of investment required for individual interventions varies by application. A 
payment by results (PbR) project with an outlay in the order of, say, €1 million is 
typical for local, municipal scale interventions in education and training opportunities.  

Further, across a region or country, there may be a significant number of like 
opportunities, which, when aggregated, amount to €50-100m overall. However, 
assembling the projects into a portfolio / platform, to which many investors could 
confer resources, is likely to be a major undertaking, requiring considerable up-front 
funding and patience. 

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In the case of state and national student loan fund proposals, these represent a 
different scale of opportunity, with a possible state/regional fund starting at, say, €50 
million, but which could be two or three times larger at national level.  

Investment opportunities based on tangible assets, especially educational buildings, 
represents a bigger opportunity in value; potentially into € billions depending on the 
scope and willingness of Member States to adopt PPP-type models. However, we note 
that there is increasing reluctance by Member States (for example the UK and the 
Netherlands) to use PPP for the supply/refurbishment of education buildings, on the 
basis of the higher costs and the classification of such projects as being on the 
government balance sheet. There is also a continuing use of conventional EIB loan 
finance in this area, especially in higher educational buildings. 

6.1.2.2  Possible investment returns 

Establishing the possible range of investment return for different investment 
opportunities is difficult given the embryonic nature of projects and their diversity. In 
the case of social investment, the return depends heavily on the government view as 
to the value of a given social impact, in part informed by estimates of future cost 
savings (from avoiding social problems) and tax receipts from higher earnings. 
Experience of UK SIBs is that returns in the range of 4-7% may be possible over the 
contract period (typically 3 years). 

For loan funds, higher returns of, say, 10% per annum may be viable. For PPPs 
returns may be compromised by government concerns over being seen to pay more 
than the costs of funding it themselves. In the case of an energy efficiency-based 
interventions returns of over 10% p.a. may be possible. 

6.1.3  Governance and funding models 

The case studies suggest that the development and design of interventions to deliver 
education and training outcomes using social or private finance is still highly 
immature, with the exception of PPPs for school buildings. This means that each 
intervention follows a bespoke governance and funding model; and that the variability 
in the type of intervention is reflected in the use of different governance and funding 
models for each individual intervention. In the case of SIBs, however, there is now 
enough experience in non-education contexts to define the general model as described 
in Section 3. 

The ESF-backed Social Innovation Fund in Portugal is the only case study of a portfolio 
approach with the potential to deliver (some) education and training outcomes, with 
loan funding across a range of social enterprises. The other cases have bespoke 
arrangements at the level of the individual intervention. 

Even in the UK, where arguably the social investment market is most developed, there 
is limited experience of developing a fund of funds approach for SIBs, although 
attempts are being made to develop ‘wholesale funds’ for social investment53. Instead, 
each intervention has its own special purpose vehicle. Even where a number of (non-
education) SIBs are being commissioned at the same time in different locations (for 
example, around tackling problems of young ‘NEET’ adults or homelessness) each 
individual intervention is commissioned, funded and managed separately.  

The UK examples reported above represent the ‘state of play’ in the interest and 
current planning for the use of portfolio approaches, using a fund of funds model.  

53 For example the UK Growth Fund has piloted the use of a wholesale fund for disbursement 
across community development finance institutions 

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For larger interventions such as adult loan funds or school refurbishment, bespoke 
governance and funding arrangements would be normal and taken forward by large 
individual investors.  

This overall level of immaturity has implications for the capacity to design Investment 
Platforms, with the identification of potential sponsors especially difficult given the 
early stage in the development of the social investment market in Member States and 
lack of institutional development.     

6.2  Future plans / scope for replication 

6.2.1  Scope to scale-up 

With the exception of possible PPPs and loan funds, interventions are too small and 
fragmented to form the basis of Investment Platforms. Hence, this will require Member 
States to take a lead in stimulating the requisite capacities, perhaps capitalising on the 
use of institutional experience developed to deliver Structural Funds, but recognising 
the current general lack of interest as expressed by ESF Managing Authorities. The 
Portugal Social Innovation Fund might establish a useful precedent. 

In the case of funding PbR projects, Member States and the social investment 
community will need to consider the development of national scale, social impact 
funds. We consider the nature of such a fund in the next section, but such funds would 
require Member States to commit additional public expenditure to the commissioning 
of education and training outcomes in recognition of the potential fiscal benefits.  

A detailed response to the recent EIF request for expressions of interest from financial 
intermediaries to deliver social investment, and the capacity of interested 
intermediaries to operate at the level of individual interventions of the type identified, 
is still awaited. If market interest is high, then the need for Investment Platforms 
might be avoided, with reliance placed on individual intermediaries building the 
requisite portfolios.  

Early feedback from EIF suggests there is an encouraging level of interest shown from 
financial intermediaries and commissioners in the piloting of PbR projects but also 
confirms that PbR is still a nascent instrument whose use is likely to be piloted 
selectively by sector and geography, depending on social priorities. As such the 
awareness, especially of commissioners and intermediaries, of the possibilities needs 
to be raised, 

6.2.2  Potential role for EFSI in funding the delivery of education and training 

outcomes 

The case studies have identified, subject to institutional capacities, investment 
opportunities to which EFSI could contribute and which could enable the repayment of 
capital invested, with the prospect of some, albeit modest, financial return. In so 
doing, the presence of EFSI would lower the risk exposure to national investors and 
enable some leverage especially of social investment.  

The main obstacles to EFSI participation relate to the lack of institutional capacity and, 
to some degree, lack of interest at Member State level to take forward the 
development of new funding vehicles.  

6.3  Overall conclusions on project feasibility 

To benefit from EFSI support projects need to satisfy EIB due diligence tests as well as 
an assessment by the EFSI Investment Committee to determine whether they are 
eligible for backing under the EU guarantee.  

We briefly summarise below, based on the case studies, the ability of interventions 
directed towards education and training outcomes to satisfy these tests and associated 
criteria.  In summary, education and training projects need to be: 

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  Economically and technically viable – projects that are capable of repaying 
capital and loans. There is limited technical experience of payments by results 
(PbR) projects in this field (mainly relating to support for young unemployed). 
Technical competences in relation to student or adult loan funds and PPPs are 
well established; 

  Eligible and consistent with the EU policies – and contributing to one or 
several objectives set out in the EFSI Regulation - education and training 
projects fit well with the strategic objectives of EFSI, especially in relation to 
the need to support the development of human capital; 

  Mature enough to be bankable – Student or adult loan funds and PPP have 

demonstrated to be bankable. The bankability test is harder to satisfy given the 
lack of experience with payments by results (PbR) projects in this field, but 
evidence does confirm the potential to provide financial return based on fiscal 
benefits;  

  Provide additionality – With the exception of PPPs, the required innovation 
and the probable higher risks associated with the education and training 
interventions should satisfy an additionality test, and in the case of PPP the 
cases demonstrate there is scope for innovation; 

  Maximise where possible the mobilisation of private (and/or social) 
sector capital (italics added) – The extent  of mobilisation will be subject to 
the institutional capacity of the emerging EU social investment market in 
general, and by the willingness of Member States to commission payment by 
result interventions in particular on the basis of the blended returns achievable. 

6.4  Overall conclusions on the feasibility of establishing investment 

platforms 

Assuming that co-investment from EFSI is through an investment platform, but 
recognising the current EIF efforts to recruit financial intermediaries to support social 
investment, each investment platform will need to be set-up by an organisation 
(platform sponsor) able to be the driving force in the creation of the platform.  

The sponsor needs to establish: 

the investment needs,  
the sectorial and geographical focus,  
the business case,  
the sources of funding,  
the risk-sharing agreements, and 

 
 
 
 
 
  decision making rules. 

The sponsors will usually come up with the investment idea for the platform to deliver. 
Often, they will provide part of the funding for the platform's activities. Sometimes 
they would manage the platform. 

Any institution or a group of institutions can become a platform sponsor. The following 
types of entities could be platform sponsors: 

i. National Promotional Banks (NPBs) 

ii. Government agencies 

iii. Commercial Banks and other lending institutions 

iv. Investment Funds and Investment Companies 

v. Corporates 

vi. Body implementing ESIF programme financial instrument 

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vii. Sovereign Wealth Funds 

The case studies indicate some uncertainty and ambiguity over the possible platform 
sponsor, notwithstanding the need to develop sufficiently large national co-investment 
opportunities. 

With the possible exception of corporates all types of entity are possible promoters.  

In the case of platforms based on payments by results, the most likely candidates 
would appear to be: (i) NPBs, where there is a willingness to consider investment in 
intangible assets; (ii) government agencies seeking to expand and formalise the use 
of local level interventions in response to identified national education and training 
needs; and (iii) ESIF Managing Authorities (especially ESF) with a particularly strong 
interest in the use of financial instruments. 

However, with all these three parties, the study has found no substantial interest or 
enthusiasm by such entities, reflecting in part: (i) a lack of awareness of the 
opportunity (both in terms of the actual role of EFSI and the scope to generate 
financial return); (ii) some concerns over the principle of using third party investors in 
the sector; and (iii) concern over the up-front costs of establishing the Platform and of 
generating the necessary pipeline.  

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7 

Recommendations to support EFSI investment in Education 
and Training 

7.1  Limitations on the use of EFSI for Education and Training 

The research throughout this study has revealed some limitations and challenges in 
relation to establishing social impact investment in education and training on a 
sufficiently large scale to attract co-investment from the EFSI fund. The reasons for 
this are manifold: 

  Most projects are rather small scale in terms of funding requirement and 

outreach. The number of individual beneficiaries are commonly very small, 
often less than 100, and sometimes less than 50 people;  

  Payments for results in the education and training sector rely on commissioners 
accepting that fiscal and economic benefits have potentially long lead-times, 
lasting decades; 

  So far, interventions have been a ‘one-off’ approach, which means either the 
investment has been successful and funders receive their premium or reward, 
or it has been unsuccessful and the funders have lost the funds provided. The 
absence of a portfolio approach means that there is no precedent for risk-
sharing; 

  Transaction costs for any single project are high, as the contracts have to 

address the very specific nature of each individual intervention; 

  The success premia are limited and the risk of failure commonly substantial. 
From an analytical point of view, this is an “unhealthy” shift of risk from the 
state to the funder, whereas the major return will accrue to the state;  

  The “social investors” are foundations or other entities, that can afford some 
loss of investment capital (whereas they may benefit reputationally, from the 
social impact achieved);  

  The major focus of such “social investors” lies in the innovative education 

intervention (or any other type of intervention) and the (expected) positive 
outcome of the intervention. The indirect benefits, of being socially innovative 
etc., is obviously already a sufficient incentive for these agents;  

  Thus, there is only a modest economic, but a major social, impetus for such 

investors, with a substantial risk of failure (although risk management and due 
diligence tests are increasing in use);  

  The “result” of the intervention can be defined as the direct short-term output 
of the intervention (e.g. a certain number of dis-advantaged youth graduating 
from secondary school; a certain number attending and completing a 
programme; a certain number of adolescents receiving qualifications.). This 
could provide an incentive to focus on these targets only, rather than on the 
longer-term effects on the labour market and related effects on tax revenue to 
government. The longer-term outcomes also need to be defined and linked to 
issuing additional payments; 

  The longer-term fiscal returns are often substantially higher than the short-
term effects indicate (e.g. medium-skilled people have a much lower risk of 
unemployment, a higher income, a higher employment rate, retire on average 
latter etc.), and, thus, the premium paid to service providers, which is based on 
short-term results covers only a very small share of the total return etc.; 

  Based on this analysis, it is striking that the public agents do not commission 

more social investment projects, as the fiscal benefits substantially exceed the 

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costs of commissioning and carry no risk at all. However, public sector spending 
limits, the consideration of the payment liability as debt, even if it has to be 
paid only in case of successful intervention, with higher fiscal returns, and the 
focus on short-term rather than prospective longer-term impacts constrain 
commissioning. It is also striking that social investors are willing to invest on 
these terms in pursuit of social impact. This highlights the importance of social 
impact benefits to the social investors. 

The points above should not be misunderstood as criticism of social impact investment 
for education and training. The critique herein explains why, despite its merits and the 
strong public interest, the social impact investment market generally, and education 
and training interventions specifically, are still very limited.  

From the review of cases in this study, investment is unlikely to grow substantially 
without efforts to support the introduction of ‘programmes’ of interventions rather 
than relying on individual interventions. So, nothing is “wrong”, but the current risks, 
small scale, and relatively high transaction costs prevent the full exploitation of social 
impact “investing” in the real sense of the term “investment”.   

7.2  The case for a National Social Impact Fund (SIF) for education 

and training 

The previous analysis indicates that new approaches are needed, if social impact 
investing is to play a bigger role in the future provision of education and training 
outcomes. The key features of the new approach are:  

  a fairer allocation of risk and return between public and private stakeholders 

(for example, by establishing interim payments for early results, and additional 
payments for mid- to long-term achievements, or allowing projects a share of 
the fiscal benefit); and 

  raising the number of projects/interventions to spread the risk and diversify 

funding / revenue streams.  

In the view of the consultants, this calls for the development of a national scale 
“Social Impact Fund”, which has the potential to enter into a number of social impact 
investments across various sectors of education. 

The basic proposition of a Social (Education & Training) Impact Fund (SIF) is that 
(social and private) investors provide the state with additional resources to increase 
educational outcomes (e.g. enrolment rates and/or to enhance quality in a certain 
education sector or in several sectors), and these resources, in turn, provide a set of 
fiscal benefits to justify the public expenditure to reward the investors.  

7.2.1  Why should the state be interested in cooperating with the Fund? 

The SIF is by design intended to help deliver public policy goals relating to education 
and training and the related economic and social benefits.  

Financially, from the government’s perspective, the Fund facilitates increased 
investment in education / training without relying entirely on public resources. 
Government will only contract with a PbR and invest in the Fund if government 
revenues and other defined benefits, in excess of government payments, can be 
confidently considered to be delivered by the contracted results. In this way the state 
transfers the risk that the intervention fails to deliver the specified results to the 
provider.   

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Depending on the uncertainty over future cost savings/higher revenues, there should 
be limited risk to the public budget due to the reliance on the future returns unless a 
guaranteed minimum payment is agreed upon54.   

An obvious, but critical, point is that additional government funding will be needed in 
the short-term to provide for the costs of additional interventions. This is likely to be 
constrained by overall public expenditure budget limits. Hard empirical evidence on 
which interventions are particularly successful is also still rather limited, and makes 
the justification for ‘payments for results’ interventions difficult.  

Continued work to define and value education and training results is required, 
accompanied by formal analysis of the fiscal benefits (see below). However, a 
substantial cultural change is also required in government to prioritise an ‘invest to 
save’ approach over immediate and short-term policy responses to social problems. 

7.2.2  Who may invest in the SIF? 

The Fund should be open to any person or organization that is willing to invest and 
meets standards of governance and probity. In practice, the Fund will be attractive to 
investors who do not want to settle for lower interest returns from government bonds 
and who are willing to accept a slightly higher risk. Life insurance companies or 
foundations may be willing to invest to the extent that the returns are higher than for 
other low-risk investments.  

7.2.3  What are the expectations for returns? 

As with any investment, the return to the Fund, and thus to investors, depends on the 
performance of the Fund’s income, which itself depends on the fiscal returns and the 
share that is appropriated to the fund. Strictly speaking, this means that the Fund 
invests in the early years, with its value increasing only slowly over time, depending 
on the education sector in which the money is invested.  

For investors, the expected return from their investment in the Fund might be 
expected to be higher than the return from state bonds, while some minor risks 
remain because of possible economic downturns or crises, etc.  In order to make the 
SIF’s attractive to life and other insurance companies, foundations, etc. it might be 
necessary to discuss a guaranteed return as a lower bound, although this may result 
in different considerations in relation to public debt. The commitment of a certain 
share of future tax revenues is clearly not debt for the government, because such 
payments will have to be made only when, and to the extent, that higher tax revenues 
are realized or social welfare payments decrease. However, a guaranteed minimum 
return to the Fund could be viewed as public debt or at least a public liability.  

However, the size of the returns will depend on the share of the fiscal returns 
allocated to the fund. This share will depend on negotiations between the Fund’s 
management and the government. One might expect that the opportunity for 
government to leverage investment in support of objectives usually only met through 
government spending, and for investors to monetise a share of the fiscal benefit, 
would enable a compromise agreement to be reached   

Estimating the fiscal returns to public budgets and social insurance systems will need 
to become more explicit and subject to greater scrutiny, (as noted above). In so 
doing, these calculations might potentially enable investors to come forward with new 
proposals to maximise the fiscal benefit and hence the return the SIF.  

54 Government payments to the Fund to ensure a minimum return are a potential charge against the 
government budget. Recently such government guarantees have been criticized by courts of auditors in 
Germany, on rather narrow grounds. 

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7.3  Actions to improve the financial performance of payments by 

results interventions and returns from the SIF 

In the context of a Social Impact Fund, action is needed both in terms of improving 
the returns to individual interventions through contract design and increased sharing 
in fiscal benefits (see below) and risk sharing across multiple interventions. 

7.3.1  Contract design 

7.3.1.1  Flexibility in profile of target outcomes 

Any funder who is not driven by a social impetus alone has an interest, and, in fact, a 
need to balance profits and losses. With payment by results/pay for success this is not 
guaranteed at all, unless the portfolio of investments is so large and diversified that 
the premia of the successful interventions are sufficient to compensate the full losses 
of failing interventions.  

Even this requires a premium that is not just marginal, as a simple example 
highlights: if only 5 of 100 interventions fail, the premia of the 95 successful 
interventions have to be more than 5.2% in order to ensure that the basic funding 
volume does not deteriorate. In case of a failure rate of 10% the premium has to be 
above 11%.  

Recent UK cases have introduced some flexibility within interventions to allow 
providers to vary their outcomes against a set profile of target outcomes – if there are 
problems achieving Outcome X, they can re-profile to achieve more of Outcome Y.  

7.3.1.2  Performance related payments 

Additional funders would step into the “market” if they can expect at least a modest 
return across all their investment projects. One option (used in the UK) is to revise the 
contractual design, so that payments are related to the size of performance, e.g. the 
service provider is not just paid a lump-sum once the benchmark is achieved, but paid 
an additional premium for each additional person who benefitted from the 
intervention. This could transform the approach into a “real” model of “payment for 
performance”. This could turn the general approach into a model that is attractive to 
investors, interested in (modest) financial returns.  

7.3.1.3  Use of tax relief 

Individual Member States are able to set whatever tax rates they wish for whatever 
economic activity, within the boundaries of EU state-aid provisions, i.e. any taxation 
regulation must not reduce competition, or be used to prop up private companies 
which otherwise might go bust in a competitive market. 

In the context of this EAC initiative, where EFSI-supported interventions are more 
likely to be ‘national', as opposed to 'cross-border', the possibility for infringement of 
state-aid rules on the grounds of competition seems less likely. 

Hence, in principle there is no reason why a Member State cannot give special tax 
relief to EFSI-type interventions for education and training, recognising that such 
reliefs are a cost to government. The use of tax reliefs would need to be judged on a 
case by case approach. 

7.3.2  Sharing fiscal benefits 

The financial returns obtained by the SIF would be improved by sharing the fiscal 
benefits for the public purse between the commissioner (on behalf of the government 
treasury) and the funder. Depending on the specific design of the “Social Impact 
Fund” investors can be shareholders in particular projects (e.g. industry, households), 
loan providers or investment funds (e.g. insurance companies), thereby broadening 
the financial investment volume. 

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Enabling higher premiums (i.e. financial return) to the Social Impact Fund from a 
higher share of a given fiscal benefit could be linked to a requirement to re-invest the 
returns in further Interventions, once a certain minimum return, which provides an 
incentive for private investors to invest. It would have to be agreed at the outset what 
a reasonable return for the “investor” would be, but, given that the State benefits in 
any case, such a mechanism could generate additional returns without incurring 
upfront costs and with no, or limited, additional risk. 

The share of the fiscal return allocated to the SIF might be between say 25% up to 
say 50% over the lifetime of an investment, i.e. (theoretically) until the defined cohort 
that benefitted from the intervention retires, The share might increase as the realised 
fiscal benefit increases. This would be an added attraction for long-term investors as 
net returns increase over the life-time of the investment.  

7.3.3  Risk sharing and the diversity of the SIF 

In the context of a SIF operating a portfolio of interventions, financial returns could be 
used to cross-subsidise financial returns from other interventions funded by the SIF 
which generate higher social impacts, but lower financial returns. 

This raises the question of how diverse the SIF should be, given that investment is 
needed in a range of educational sectors. The investments in different levels of 
education have different roles, different time horizons and different rates of return. 
For example, higher education investment may have a fiscal rate of return of about 
20% or more and will start to yield returns in four or five years, while investments in 
early childhood education may have even higher returns according to Cunha et al. 
(2006), but they will only start to bring additional returns fifteen years or longer.  
While most investors tend to have a short investment horizon, some, such as life 
insurance companies, may have a longer horizon. This clearly suggests that it would 
be better to establish the SIF more as a ‘fund of funds’ with several individual funds, 
one for each level of education. If investors wish to diversify their investments, they 
can do so by placing their capital in different education funds.  

Since the returns may differ significantly and may have very different probabilities and 
risks, this offers the SIF some flexibility for managing risk and return across funds, but 
would require the SIIF to be established as a single company. For example the returns 
to investments with a shorter time horizon, for example to higher education, can be 
used to boost investments in education sectors with longer horizons such as early 
childhood education. Provided that the returns arrive as scheduled, some of these 
early returns to the SIF can be used to increase investment levels in other, more long-
term oriented investments, such as, for example, early childhood or primary school 
education. 

7.4  Towards a governance structure for the EFSI / SIF co-

investment 

The Social Investment Schemes, as described under the EFSI Equity Instrument , and 
specifically the Expansion and Growth (E&G) Window, provides a useful template and 
precedent for developing an effective mechanism for the promotion of Interventions 
pursuing social impact through education and training interventions, assisted by the 
participation of the social enterprise sector and other social organisations.  
Nevertheless, this E&G Window is in part directed towards interventions in SME 
developments, which generate commercial and financial outcomes, whereas the 
results from social impact interventions are likely to be less tangible with a 
requirement to produce a blend of social impact and financial return.   

Given the range of potential social impact interventions (even within the education 
and training sector), and which, in turn, will not be uniform throughout Member 
States, there is some benefit in isolating this component of the EFSI Equity Instrument 

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from the mainstream social enterprise support. This could be done by establishing, as 
a conduit for EFSI co-investment support, a specific Social Impact Fund (“SIF”), to 
cover a range of education and training interventions capable of generating social 
impact, not all formulated as a SIB, (for example new student loan funds). 

Whereas, under the E&G Window EIF / EFSI has sought a partnership, or co-financing 
arrangement, with private financiers via “Intermediaries”, the institutional framework 
for promoting and developing Interventions supported by a SIF may be better 
described as via “Platforms”, which could be constituted at either multi-national, 
regional or national level. 

Our view is that subject to the detailed EIF analysis of the responses to their call for 
Expressions of Interest from financial intermediaries in the use of PbR, an Investment 
Platform is the optimal choice, despite the need for a Platform Sponsor, because: 

  The model of using contracted intermediaries to fund individual interventions is 
likely to be challenging due the relatively small size of intervention (typically, 
say, €1 million) and the consequent requirement to aggregate interventions 
into a portfolio capable of receiving co-investment at scale; 

  The Platform offers the advantage of a diversified project flow, attracting 

different investors operating with differing expectations of returns and different 
time scales, enabling some opportunity for risk sharing and co-investment 
opportunities; and 

  The criteria for measuring performance and the success (or failure) of any 

Intervention targeting social impact are, of necessity, diffuse and somewhat 
subjective, e.g. creation of employment; achievement of vocational skills, etc.  
Further, such criteria will be interpreted differently across MS, statistically, 
culturally and nationally. Establishing these criteria across the portfolio should 
avoid the transaction costs of negotiating these terms for each individual 
intervention. 

An indicative outline of the platform based co-investment proposition is described in 
Figure 12. 

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Figure 12 An overview of a suggested co-investment structure for education and training 
investment 

At the outset, some measure of agreement between EFSI and co-investors of the 
value of social impact and of the required balance of social impact and financial return 
will be needed. The range of social impacts and types of interventions considered to 
be eligible for support will be needed; which might be expected to be agreed 
separately with each specific Platform agreed according to Member State economic 
circumstances and social needs.     

1.  Such SIF Platforms would have access to a range of funding sources for 

application to a similarly wide range of social Intervention, albeit that some 
sources may be limited to certain Intervention-type.  However, it seems 
advisable that the common guiding principle for support for Interventions by 
the Platform(s) should be the preservation of capital, i.e. the financial inputs to 
any intervention, including its preparation, implementation and administration, 
should, at least, be commensurate with the economic or financial benefit of the 
outcomes.  

Some co-financiers to SIF Interventions, however, may require that the prime 
condition for any Intervention be measured by the financial benefits alone, whereas 
others may take a more “social” stance and be satisfied by less tangible outcomes. 

2.  Funding sources in the social sector, e.g. foundations, trust, etc., are often 

proscribed, or specific, as to how their funds may be applied in support of social 
Interventions. Hence, not every opportunity, which a SIF Platform might 
promote, may be acceptable to them. Hence, there will need to be put in place 
an acceptance/refusal mechanism for co-investors in the Platform as and when 
investment opportunities arise. 

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3.  The Platform(s) would have the capacity and flexibility to support Interventions 

through a range of financial  instruments:- 

-  Equity, i.e. funding which carries the characteristics of either limitless 

reward or total loss, with no on-going payments (e.g. as dividends)  made 
to financiers during the period of service delivery; 

-  Debt:  i.e. loans which should, in practice, be repaid at some future date, 

e.g. student loans; and  

-  Guarantees:  the provision of a guarantee to a third party, financier, or co-
financier, which will provide full, or partial, compensation in the event of an 
Intervention failure, however that is measured in financial terms.   Such 
guarantees will not be available to support failures in service delivery.  

4.  The main SIF-supported Intervention opportunities for consideration by the 
Platforms could, depending on Member State education and training needs, 
include:- 

-  Payment-by-Results (“PBR”)-type Interventions which delivered results 

supporting education and training provision otherwise foregone, and capable 
of delivering some fiscal benefit (over varying time periods depending on 
the intervention); 

-  Funding for specific groups of students of various education and training 

programs otherwise inaccessible to the specific group of students; 

-  Public-Private Partnership (“PPP”)-type Interventions, which comprise 
significant investment in capital asset, such that a PPP mechanism and 
which can be cost-effective; and which is capable of generating revenues to 
be used to fund additional education and training support (for example 
through investments in energy efficiency and recycling of energy cost 
savings).     

5.  The governance of SIF will, most likely, follow the same framework laid down 
for EIF / ESIF Equity instrument with respect to representation, limitations of 
sectoral investments, etc.  However, it would seem inadvisable that the SIF 
Platform should enjoy powers to raise any additional external funds to those 
provided by EFSI/EIF and their co-financiers.  

6.  It is noted that under the EIF/EFSI Equity Instrument, EFSI funds stand pari-
passu with co-investors, except for social-type investments, where a more 
flexible approach may be called for.  It is recommended that that flexibility is 
also passed to the SIF Platforms. 

7.5  Investment risks and risk management 

Interventions in the social sector are by nature “high risk”. Not only has the Funder to 
evaluate the financial costs and rewards of an Intervention, but an assessment is also 
required as to the social uncertainties of, or risks associated with, outputs and 
outcomes. 

7.5.1  Description of investment risks associated with the Platform 

Conceptually, the risks may be categorised as follows: 

Implementation Risks for Social Investment: 

  General: 

-  How are opportunities for Intervention chosen?  [Are they competitively 

bid?] 

  Specific to an Intervention: 

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-  Will the Intervention be implemented as planned? 

-  Are the aims and objectives realistic and achievable? 

-  What precedents are there for similar Interventions?  Where and when? 

-  What is the experience and capacity of the Provider(s)?  [CV’s, accounts, 

etc.] 

-  Does the Intervention require third party inputs, or are all inputs available 

and already committed to the Provider? 

-  Are the required facilities/assets for the Intervention already available and 

committed? 

-  To what extent does the Provider have to construct or install assets for the 
Intervention? Are these funded and readily available within an agreed 
period? 

-  What is the timetable from start-up to output/outcome realisation?  

-  What are the chances of interruptions or delays? 

-  What are the management and reporting responsibilities of the Provider(s)? 

-  Can the contract with the provider be terminated?  Under what 

circumstances and how? What are the outstanding liabilities in such 
circumstances? 

-  What events constitute Force Majeure?  What are the responsibilities and 
liabilities of the Provider9s) and Commissioner in such circumstances? 

-  Key staff: identification and issues regarding changes to personnel? 

-  Changes in the output specification of the contract: how are these 

managed? 

-  Disputes: how are they to be resolved?  Arbitration?  Expert panel? 

-  Are the assets and operational activities of the provider(s) insured [for 

accident, third party, etc.]? 

-  Do the Intervention meet all environmental, social and climate change 

criteria (viz. Sustainable Development Goals]? 

Output risks of interventions: 

-  What are the output criteria which will trigger payments?  

-  What are the payments to be made to the Provider(s)? What dates? How 

calculated? 

-  The impact of inflation and currency exchange rates: how are these 

assessed? Formulae? 

-  How are bonuses or penalties measured and calculated? 

-  Who is the payer?  Are they creditworthy? [Are any guarantees needed?] 

-  Disputes: how are they to be resolved?  Arbitration?  Expert panel? 

Other Risks: 

-  Possibility of Government / political interference? 

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-  Failure of the Provider(s): what liabilities (e.g. to students) are outstanding 

and who meets those? 

-  Failure of co-Investors to provide funds when called?  [Commitment fees?] 

-  Are there any balance sheet issues for Government in the use of PbR 

contracts for delivering public services? 

-  What responsibilities for due diligence are carried by the Platform Manager? 

7.5.2  Investor issues and perspectives on risk 

Each co-Investor into the National Social Impact Fund will have their own, - often 
quite limited in scope, - investment criteria and the outputs/outcomes they aspire to 
achieve. Hence, not all Intervention opportunities will meet their criteria and, thereby, 
be acceptable to them. 

To the extent that such Investors contribute, in whatever form, funding to a Social 
Impact Platform, they may well require a mechanism, therefore, for approval, or 
refusal, for participation in Interventions which are more than trivial in value.  

Indeed, Fund or Platform Managers may require authority to commit funds to a 
particular sector, or above a particular value, however the latter is measured, as a 
matter of course.  

Investors may also be constrained by the timescale between investment and possible 
returns or outcomes, which will need to be allowed for. Much will depend on the target 
sectors and the intended investment value for Interventions by the Platform(s).  

Finally, Investors will review the taxation issues surrounding any Intervention and the 
rewards accruing.  However, EFSI should be alert to the use by Investors of 
sophisticated investment vehicles and structures, and funding channelled via tax-
havens. 

7.5.3  Platform management  

Likewise, each Platform will have to prepare an Investment Plan to attract funds, 
laying out the aims and objectives, target Interventions, maxim and minima 
Intervention values, output/outcome response time forecasts, etc..  

It is to be expected that the Managers of such Platforms will be constrained by normal 
fund management regulations, as may be imposed throughout the EU. EIF/EIB will no 
doubt have precedents for such operations, which can be followed.  

Finally, consideration and resource needs to be given to the marketing of the Platform 
facilities to Social Intervention Providers throughout the Member State.  

Given that many such Interventions may be quite small in value, accessibility will be a 
key issue for many.  Given the limited value of some Interventions, and the need to 
launch the Platform(s) widely throughout the Member State, small-scale Providers will 
be averse to bureaucratic procedures covering applications and implementation.  A 
balance will have to be struck, if such Interventions are to have market penetration, 
but not at the cost of appropriate governance and control.  Such Interventions, by 
their very nature, will be higher risk to Investors (and Platforms) than larger 
Interventions.  

Much will depend on the Platform Managers to assess and monitor such Interventions. 
Further, the cost of administering Interventions will be largely fixed, whether they be 
large or small, and some small Interventions will require, per € invested, more support 
than large Interventions.  

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7.6  Next steps in pursuing social investment for education and 

training 

7.6.1  A long-term perspective is required 

The pursuit the use of social investment and the development of Social Impact Funds 
(with or without EFSI) to deliver education and training objectives should be seen as a 
long-term process, recognising: (i) the limited experience with PbR projects; (ii) the 
current low levels of awareness of the relevant stakeholder community; and (iii) the 
need to develop an ‘invest to save’ culture based on a broader assessment of the role 
of education and training in economic and social life. 

The possible availability of EFSI funds provides an incentive for Member States and 
the EC to investigate the options further. However, in the first instance relevant 
stakeholders, especially at Member State level, need to have a much better 
understanding of the opportunities and limitations associated with this form of 
intervention. Unless a National Promotional Bank seeks to take the initiative, the 
prospect of developing an Investment Platform will depend upon establishing a mutual 
understanding of the investment possibilities across stakeholder groups.  

7.6.2  Flexibility in timing and location of progress will be required 

The demand for social investment in the types of intervention identified in the Study 
are likely to exist in all Member States to varying degrees, but with different views on 
the priority to be attached.  

The opportunities will inevitably be stronger in those Member States that have an 
interest in the use of social investment generally, and the use of PbR type 
interventions in particular, to address nationally or locally defined needs. Evidence 
from the study suggests that currently, there is a relatively strong interest in 
Germany, Sweden and Portugal in the use of social investment for education and 
training but with relatively less interest in Spain, Netherlands and Poland.   

Analysis by EIF of the interest expressed in PbR in the context of EFSI funding might 
be expected to provide additional insight on the countries with a particular interest.  

7.6.3  Awareness raising is required across all stakeholder groups 

The use of social investment for education and training brings together four discreet 
stakeholder groups that have traditionally and institutionally had little interaction.  

The first group, the formal education and training sector, has had very limited 
interaction with the funding of educational services and little need to consider 
investment needs and financing. Rather the focus is on the design and delivery of 
education and training services within given public budgets. 

Funding of the education and training system is the separate responsibility of the 
second group, the national, state and municipal budgetary authorities. Even 
here the main focus is on the levels of public expenditure required and its subsequent 
allocation, rather than on new forms of finance. The scope to leverage additional 
investment is generally not a mainstream consideration. 

The third group is the long established investment community, comprising: 
banks, investment, pension fund and insurance companies. Although not necessarily 
of immediate interest in this context their longer-term engagement will help when 
seeking to roll-out and scale-up investment programmes. 

This investment community has been recently extended to include a fourth group of 
social investors and philanthropic capital that purse financial return, but as a 
means of realising social benefits. In a few countries, these latter two groups of 
stakeholders have established well developed, joint working mechanisms, based on a 
formal recognition of social investment as a separate and legitimate asset class. 

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Common messages need to be developed for these four stakeholder groups that 
describe particular opportunities and limitations; and which begin to catalyse a 
dialogue and interest in the underlying investment case. 

Although inevitably framed by Member State interest, there is a role for DG EAC and 
the Commission more widely to facilitate discussion of the possibilities for using social 
investment to support education and training policies. 

7.6.3.1  Opportunities 

Messages include: 

  Some investment needs can be met outside the formal public budgeting, where 
because of a combination of the economic and social benefits someone is willing 
to pay for improved outcomes. This may be: 

-  government, recognising that failure to address needs will have a longer 

term adverse effect on public finance;  

-  employers recognising that failure to invest in additional skills will affect 

future productivity and their competitiveness; and  

-  households wanting to pay for improved services not available from the 

state, including improved support for special needs, or extended childcare 
and pre-school teaching; 

  Investment projects can be constructed that deliver the requisite outcomes, 
based on an understanding of the costs and benefits of the investment, and 
that there are potentially investors to finance the activity, even where returns 
may be over a number of years; 

  Consequently, additional investment can be leveraged into the sector. 

7.6.3.2  Limitations 

Messages include: 

  (Financial) incentives need to be sufficient to reward investors for risks taken in 
the provision of finance. Social benefits alone are not sufficient. In many cases, 
it will be government that will need to take the longer view and support 
investors, with guarantees and up-front payments, although this should be 
framed by an understanding of longer-term fiscal and wider policy benefits, and 
the transfer of risk for the successful delivery of contracted results to investors; 

  Current evidence on the costs and benefits of responding to investment needs 
is often weak or non-existent. The feasibility of investment proposals will often 
need substantial research; 

  Because of the costs of establishing feasibility and because many projects are 
likely to be small in investment terms, responding to local rather than national 
needs, the administration costs of establishing investable propositions may 
outweigh the benefits of investment, until experience and demand have been 
established. 

7.6.4  Feasibility testing is required where adequate levels of awareness and 

interest has been established 

The final step before considering the detailed mechanisms of a Social Impact Fund or 
an Investment Platform is to develop and test various investment projects addressing 
different investment needs as prioritised by Member States.   

The project examples contained in this report may provide some stimulus to ideas. 

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In so far as DG EAC wishes to pursue an interest in the use of EFSI funds for 
education and training purposes, with a particular focus on PbR, then there are a 
number of steps that might be taken to support the necessary raising of awareness 
and promotion of pilot activity: 

  Expand the technical expertise available to Commission Services, especially at 

Member State level given the differences between countries, on the financing of 
education and training including policy areas that might be regarded as 
‘adjacent’ to the formal system, including early years childcare and services for 
those with special needs, youth unemployment and older workers. This would 
deepen an understanding of needs but also investment opportunities; 

  Recognise the development of this stream of funding and type of intervention 
will have interest to a range of Commission Services, including DG ECFIN, DG 
EMPL, DG REGIO, and inter-service consultations would allow the necessary 
sharing of experience and development work. This could include ensuring PbR is 
considered in the context of the roll-out of financial instruments under the 
Structural Funds in the next programme period; 

  Since fiscal benefits are instrumental in supporting the case for PbR, a work 
programme in association with DG EMPL might be considered to better 
understand the scale of benefits for different types of interventions over 
differing periods of time in different countries; 

  Managing Authorities for ESF were cautious in expressing interest in the role of 
possible Platform Sponsor. However, their management capacity, knowledge of 
the types of investment needs potentially capable of forming the basis of PbR, 
and ability to develop project pipelines make them good candidates. This 
potential might be leveraged by encouraging ESF Managing Authorities to take 
forward the use of financial instruments of which PbR would be one, in the next 
programme period. 

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