The many paths to financing education, Part II Funding

  • Laura HEMRIKA, Credit Suisse / e-MFP
  • Ruth DUECK-MBEBA, The MasterCard Foundation 
  • Lorna LI, OMTRIX 
  • Maria Teresa ZAPPIA, BlueOrchard


Laura HEMRIKA opened the session by stressing the importance of funding to finance education. She then continued introducing the panellists. 

Ruth DUECK-MBEBA provided an overview where education finance brings together two worlds: the public sector that is responsible for education and the private sector that offers finance for education private schools. She introduced the MasterCard Foundation, which aims to advance youth learning and promotes financial inclusion to catalyse prosperity in developing countries. She presented the Foundation’s six initiatives to achieve this goal. Several of these initiatives focus on education and learning (including a large scholar’s programme), innovations in secondary education, and financial inclusion, where next-generation financial services and financing education are being explored. The Foundation focuses its investments on Africa, because of the high financial exclusion in that region, low educational enrolment and literacy and a high number of vulnerable youth. 

Dueck-Mbeba highlighted research that shows how education systems often lack relevance and quality, poor households lack resources for education and that there are limited public financial resources for education. She presented several trends and innovations to overcome these systemic issues, such as loans, insurance and digitising education payments. She concluded that demand for financing education is significant and that financing private schools and market approaches can improve education. She also raised the question of public-private partnerships in education: how these two worlds can complement each other is an ongoing dilemma.

Maria Teresa ZAPPIA presented the Regional Education Finance Fund for Africa (REFFA). She explained that they identified a high demand for education finance products from both households and private education providers. REFFA provides loans and technical assistance to financial institutions, which in turn provide loans to private education providers and private households. Zappia discussed that they have a small portfolio in terms of education finance schemes, because it takes time to engage MFIs to invest in this sector in a responsible and sustainable manner. This raises the question, if the need for education finance is so high, why are not more MFIs eager to enter this sector? 

The guiding objectives of the fund are expansion of education and to contribute to both the affordability and quality of education. By ensuring good quality education, the fund can mitigate the investment risk. Zappia presented several tools and indicators that REFFA developed to measure quality and affordability of education for schools that REFFA invests in. Quality indicators include education related aspects, as well as social, health and safety aspects. Investees need to measure and report on these indicators. 

Lorna LI introduced the Higher Education Finance Fund (HEFF), managed by OMTRIX. She explained that the lack of options to finance the cost of education is the main barrier to meet the high pent-up demand for higher education. HEFF, who provides funding and technical assistance to MFIs in Latin America, believes that these organizations are the best vehicles to channel its student loans program because these organizations have considerable experience with sustainable lending at the bottom of the pyramid, have excellent collection ratios, and have a proven record of accomplishment of successfully introducing new products. 

HEFF offers education loans to MFIs so that they can in turn fund student portfolios. Through its Technical Assistance HEFF also supports the MFIs to implement the product. Li explained that the fund focuses on high demand careers, does not replicate public programmes, and ensures sustainability of the loans with competitive funding and insisting that portfolio MFI provide market rates to its clients. She also provided some insights on HEFFs Technical Assistance Facility, which offers services to MFIs, such as market analysis and guidance marketing to youth, and non-financial services to students, such as counselling and seminars. 



Hemrika came to back to Zappia’s remark on the low demand for education finance schemes and asked for an explanation. Zappia answered that MFIs in Africa often have different priorities and there is a lot of competition between different ideas. Moreover, the education sector is not as well developed as in other regions, for example in Latin America. She added that good quality MFIs in general have been benefiting from several funding sources; they may not want to commit to a fund with such a specific mandate and potentially onerous monitoring and reporting system. She concluded in saying that the technical assistance to MFIs and capacity building is crucial to get them on board. 

Li added that in Latin America the low demand is related to the need of MFIs to be profitable. They see the high social impact of financing education, but also the low margins involved compared to other microfinance products, such as working capital loans. Loan officers themselves are also reluctant to take up education loans if the MFI does not assign incentives. Education loans often take more time and effort than normal capital loans. 

Hemrika asked the panellists to share more about the position of the investors in the funds. Zappia explained that it is quite easy to find investors. There is a high demand to invest in education, but still limited opportunities to do so via dedicated funds. She added that to attract new investors with varying risk levels, REFFA is structured in different tranches based on different risk levels and accompanying returns. She explained that it takes time to develop a portfolio, because of their focus on implementing affordable quality education. It helps to have a successful case study to show to investors, for example REFFAs successful school management training programme in the Democratic Republic of the Congo. This programme involved a training of trainers, which they can repeat in other markets. It showed how loans can change the effect of education. 

Li added that it indeed takes time to build a portfolio because it is difficult to find investees. She found that few MFIs are really interested in educational finance. Many do not have the resources to move forward in this field. There is also a need for capacity building in MFIs, for example in terms of risk management and marketing towards a new generation. 

Hemrika asked the panellists what other barriers need to be removed to move the sector forward. Dueck-Mbeba explained that key issues for the Foundation are innovation, research and having case studies with successful results. She added that in the recent economic downturn, characterized by a long-term period of low rates, a long term view of corporate sustainability is increasingly important. As a result, commercial funds need to be creative to cover these aspects in the long run, especially for education finance. Funders and investments need to segment their clients and markets and adapt their instruments accordingly. Li added that success in the future will depend on the capability of financial institutions to develop and use efficient technologies.