NB Financial Health

Thursday
July 18
2013

Katelyn Donnelly and Ravi Patel

Building an Affordable Learning Market: The Pearson Affordable Learning Fund one year on, lessons learned in education impact investing

As we approach 2015, it is clear that the international community will not meet its commitment to universal primary education (MDG goals). As of 2011, UNESCO estimated 57 million children of primary school age were still not enrolled in school. Additionally, 69 million young adolescents, aged 12-15, were out of school. Large gains in education access have been made but often this is to the detriment of the quality of education being offered. In February 2013, UN’s Education for All Global Monitoring Report calculated a $26 billion per year funding gap between now and 2015 to achieve basic education for all at the pre-primary and primary school level. (There is a larger $38 billion per year funding gap at the lower-secondary education level).

In order for developing world governments to deliver universal education access and drive improvements in quality across all schools, we believe further consideration should be given to the potential of the private sector, which could effectively contribute to educating the poor. Evidence shows there has been massive growth in the private education sector targeted towards the poor across the developing world in the last decade. Millions of parents have voted with their feet, opting to send their children to low-cost private schools (LCPS). These schools are accountable to quality conscious parents and often demonstrate lower teacher absenteeism and superior learner outcomes than alternative public sector schools, at a lower cost per student. (For more on the issue, please read James Tooley’s ‘Beautiful Tree: A Personal Journey into How the World’s Poorest People Are Educating Themselves’)

Despite this growth in the LCPS sector, more action is needed. Governments and donors need to be ambitious and support whole system reform, in which both public and private sectors can play a part. Entrepreneurs and organisations need to be nurtured to help deliver viable solutions, supported by expert investors, credible government and supportive regulatory environments. Finally, at the core, robust and reliable data on the efficacy of affordable education provision should inform government education resource allocation and ensure value-for-money for the taxpayer. As the evidence base supporting low-cost provision accumulates, we believe that all governments will come to view low-cost private provision as part of their overall strategy to deliver education for all.

Pearson plc, a global education company, launched The Pearson Affordable Learning Fund (PALF) in May 2012, with a mandate to invest in the creation and servicing of LCPS chains around the globe. We believe our role is to help institutionalise the affordable education sector, improving quality and equality in both existing and newly formed LCPS. The fund also invests in low-income focused, for-profit education models, especially solutions that use technology to help scale education access and quality in both the public and private sector.

The question that drives our team every day is:

‘How long do we have to ensure the next generation of children are educated and ready to contribute to the rapidly changing 21st Century?’

One year since PALF was launched, the fund has made two investments. The first is in Omega Schools in Ghana, a chain of quality, low-cost private schools, led by Ken Donkoh and James Tooley. The second investment is in the PALF – Village Capital Edupreneurs incubator program in India, where two winning peer-selected startups will gain funding. The fund has an exciting pipeline of investment opportunities to explore in the second half of 2013. However, we are glad to have this opportunity to reflect on what we have learnt about education impact investing over the past year and share our thoughts with NextBillion readers.

Issues hindering the expansion of the education impact investment sector

  • Lack of early stage risk capital to prove models. Grant providers or very early stage debt or equity investors are often key to helping entrepreneurs prove the viability of their business models. Two great examples of companies who provide very early-stage finance and support to entrepreneurs are Eleos and Peery Foundation.

  • Lack of local operational support for entrepreneurs. Funds need to build out support mechanisms on the ground for existing ventures and to help them source future investment opportunities. Providing local support is key, for both the investee to have regular access to their investor, and for the investor to learn more about market conditions.

  • In most impact investment sectors, you don’t need deep sector expertise – education is different. Education investing needs to be ‘learner-centric,’ focused relentlessly on impacting educational outcomes. Investors must be able to advise their investees around questions such as ‘What do good educational outcomes look like?’ and ‘What key metrics will we capture going forward, relevant to education and efficacy?’ Funds that operate without this education sector expertise risk financing the growth of mediocre education solutions, whereas we take the approach that education quality and scale of operations, should never be mutually exclusive.

  • Finding the right teams to invest in is difficult. The education impact investment sector is very nascent and therefore improving awareness around the entrepreneurial opportunities available within the sector remains a challenge. There is a dearth of entrepreneurial teams with an optimal mix of operations, finance, education and local operating expertise necessary to build scalable, profitable chains of low-cost private schools in the developing world. Education start-ups are uniquely difficult to manage given the large human capital component – this means the management expertise and maturity of the team are particularly critical.

  • Government regulation differs greatly from market to market. Government regulation can inhibit the growth of private sector education companies. Unless you can manage this carefully, both technically (through different company structures) and through stakeholder management, funds and entrepreneurs will find the legal environment a serious barrier to scale or even initial market entry. (For example, laws around land rental and teacher accreditation must be closely analysed.)

Overall, the education impact investment sector is still in its infancy. There is a lot more work to do to spark debate, support budding entrepreneurs, crowd in capital and grow the ecosystem. One year on, we have learnt a lot and had some great successes – but we know the hard work has only just begun.

Katelyn Donnelly serves as executive director at PALF and Ravi Patel is an analyst at PALF.

Categories
Education, Entrepreneurship, Impact Assessment
Tags
education, Impact Assessment, impact investing