The many paths to financing education, Part I Implementation

Moderator
  • Barbara DREXLER, Frankfurt School of Finance & Management
Speakers
  • Lauren BRANIFF, CGAP
  • Nathan BYRD, Opportunity International 
  • Rüdiger MEISTER, ADG 
  • Joyce OWUSU-DABO, Sinapi Aba Savings and Loans Ltd., Ghana

PRESENTATIONS 

Barbara DREXLER started the session by polling the audience if they thought it was very risky to provide higher education loans (50% of the audience), tertiary education loans (30%) and loans to secondary schools (10%). She then introduced the panellists and explained that they would provide case studies for these different loan types. 

Nathan BYRD presented the results of field research that Opportunity International performed among their clients and education institutions in Africa. They found five reasons why children were dropping out of school: schools were too expensive, not local and require travelling distances, are of low quality or due to a reduced life expectancy of children and their parents. Many of these reasons are economical. 

Byrd explained that Opportunity International developed several products as solutions. These included a school fee loan plan; loans for institutions; Edusave, which combines insurance with a savings programme; and a scholarship. He found that the risk for these loans is quite low. Opportunity International’s database allowed them to create an algorithm that helped de-risk their products by predicting what the chances are a child drops out of school. 

Rüdiger MEISTER explained that ADG took a different approach. ADG trained MFI staff so they could distribute a high number of education loans while ensuring high portfolio quality. Meister explained that ADG wants the MFI to know and understand their clients, products, social responsibility and risk. He presented ADG’s flexible training package which includes eight modules, covering social aspects of educational loans, client management and risk management. 

Joyce OWUSU-DABO presented the youth development programme from Sinapi Aba Trust in Ghana. She explained that in Ghana informal support is needed for youth between the ages of 15-24 that dropped out of school or did not go to school. In Sinapi Aba’s Youth Apprenticeship Programme the poor vulnerable youth is enabled to choose and learn a trade of economic value and they are supported with informal education for three years. After the programme, they provide the participants with a loan for start-up capital so they can start and grow a business or the apprentices get employed. Consequently, the poor vulnerable youth become financially independent, responsible and able to make informed decisions about their lives, future families, their businesses. The programme is fully sponsored. 

Lauren BRANIFF explained how many children drop out of schools because the education expenses are too high, even in a country like Uganda, where primary education is free. She presented several digital finance solutions that can improve access to education. Introducing technology in education can improve school quality. However, access to this technology can be difficult in low-income households. Braniff also presented several digitized payment solutions that help address budget gaps, for example digitising school fee payments or teacher salaries. Digital Financial Services can improve consistent access to schools because they are flexible, convenient, fast, accessible, confidential and affordable. 

DISCUSSION 

The moderator asked the panellists how they made educational loans sustainable. Normally if you provide a microfinance loan there is a collateral which you can claim if there is a default on the loan, this is not the case for education loans. Byrd answered that all of Opportunity International products need to be sustainable, scalable and impactful. Educational loans are long-term and have proven to be less risky. He explained that a client survey showed that they spend almost half their income on education. By investing more in their clients with education loans, they become more profitable and have more capacity to pay back the loans. 

Meister added that for microfinance products to be sustainable, they need to be profitable. He explained that the MFI needs for education loans are similar to the needs for other microfinance loans: staff needs product knowledge, understand what the customer requires, what their capacity is, how to advise them, and a knowledge of the client’s debt. Dabo concluded that education loans are an investment in the future incomes of these children; return on the loans comes later than a microfinance loan for a business. 

A member of the audience asked to hear more about how the panellists deal with the quality of education. Byrd explained that improving the quality of institutions cannot be a top-down decision but needs to be decided by the schools themselves. He explained that they cluster schools and then decide where to invest in quality. Schools do a self-assessment to see where training is needed. Combining this quality programme with education loans leads to the best results. 

Drexler asked the panellists and the audience if the presented solutions are not taking away the responsibility of the state, which should provide schooling. An audience member asked the panellists to discuss the role of private schools, which is underestimated. Byrd explained that in many developing countries, the state is not unwilling to take up the responsibility of education, but simply unable to do so. The tax base is insufficient for states to provide a systemic solution to education. Private schools do not increase school fees, but need to make a profit. If they improve the quality of the school, they can attract more children and make more money. Dabo added that although it is the responsibility of the state to provide education, it is also the responsibility of the parent to take care of their children. Private schools have better results, when parents enrol their children in private schools with a microfinance solution, the child becomes an asset for the family.