Innovative Financing for Education

UNESCO Future SeminarParis

14 September 2010

Nicholas Burnett and Desmond Bermingham R4D

An idea whose time has come?

• Success of health sector

• Focus of financial transaction tax possibility

• OSI interest and paper 

• Efforts around World Cup

• Leading Group on Innovative Financing for Development Task Force on Education – to present next week at MDG Summit

• UNESCO Experts Committee on Debt Swaps for Education and Innovative Finance – underway

• This Seminar

• Much talk in many fora

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Outline

• Overview of Education finance• What is Innovative Financing?

• Why Innovative Financing for Education?

• Major current proposals

• Next steps and questions

Education Financing – Current Situation

Additional aid tobasic educationif Gleneaglescommitments are metIn 2010

Current aid to basiceducation

Aidshortfall

$ 11 billion 

Estimated current resources$ 12 billion

Additionalresources fromprioritization

EFAfinancing 

gap 

$ 16 billion

0

5

10

15

20

25

30

35

40

$ 3 billion

$ 4 billion 

Average annual resources neededto finance EFA (2009‐2015)

US$ 36 billion

Additionalresources fromgrowth

$ 3 billion

$ 2 billion

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Source: UNESCO EFA GMR 2010.

Sources of Education Finance

Domestic (bulk)Tax and other government revenuesSometimes earmarked taxes (training levies for vocational education)Households

International (minor but key)Education share of ODA constant at about 12% (health up from 11 to 17% since 2007)Education ODA around $11 billion per year of which only $4 billion for Basic EducationEmerging donors – Gulf, China, Russia, Korea, Brazil, etc.Emerging private – Dubai Cares, CIFF, MasterCard Foundation, Hewlett Foundation etc.Fast Track Initiative only global financing mechanism and at a crossroads

Where does the education spending go?

PUBLIC

About 4% of GDP in developing countries.

• Teacher salaries are a large share (80 – 90%) of recurrent costs.

• Books, materials, school construction, equipment and repair, teacher training, school transport, school meals, etc.

• Reasonably progressive at primary level and increasingly less so at secondary and higher levels

PRIVATE

About 1% of GDP in developing countries.Mostly (80%) for tutoring, though not everywhere.Also on school transport, uniforms, meals, fees sometimes, PTA dues etc.

Significant non-financial costs particularly for the poor:

child laborhousehold labor sibling childcare

Innovative Financing –What are We Talking About?

The Leading Group (www.leadinggroup.org) identifies three key features of innovative financing for development:

1. Linked to global public goods.2. Complementary and additional to traditional ODA3. More stable and predictable.

• Reflects view that ODA from traditional sources will not be sufficient to meet concessional finance needs of low income countries.

• We follow this but go further to include:• domestic finance, complementary to tax revenue etc• idea that the way the finance is both raised and spent is important.

Why Innovative Financing for Education?

1. Resource mobilization – fill the financing gaps2. Raise profile and visibility of education3. Spend more effectively, efficiently and equitably4. Meet the needs of conflict‐affected countries5. Promote innovation in education

Note: We are talking about both :• Innovative financing for education.

and• Promoting innovation in education through the use of 

innovative financing and promotion of efficiency.

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Resource Mobilization

• EFA Funding Gap

• Traditional ODA Prospects Gloomy

• Timing critical

–bulge in low income countries over next 15 years

• Importance of whole sector approach

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Raise Profile of Education

• Education too low on global agenda– compare security, climate change, public health, etc

• Education sector has not done a good job of marketing:– Education MDGs perceived as relative success despite learning crisis

– Broad MDG approach not drawn: MDG2+MDG3=8MDGs– Perceived by potential funders as a conservative sector, lacking a culture of innovation and risk‐taking (ODI paper)

– Signs of donor fatigue and endless unproductive wrangling over FTI, possible global fund etc. does not increase confidence outside the sector

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More Effective Spending• LACK OF RESULTS ORIENTATION

– Compare other sectors• EXTERNAL INEFFICIENCY IN ALLOCATIONS

– Too much for higher, not enough for basic , especially ECCE and literacy• INTERNAL INEFFICIENCY IN SPENDING

– Learning crisis, dropout, repetition, etc.

• INEQUITY IN SPENDING– Primary education spending usually reasonably progressive not so for 

secondary and especially higher education– Lack of spending on key promoters of equity such as literacy and ECCE

• PRIVATE SPENDING– Fees etc., tutoring difficult for the poor

– Scope at higher level• NEED FOR PREDICTABILITY AS EDUCATION TAKES A LONG TIME

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Support Conflict-Affected Countries

• Half of out-of-school children are in conflict-affected countries.

• Particular difficulties in these countries to increase or indeed maintain government spending.

• Refugee children pose a special issue with host countries often being reluctant to bear the cost of their education

• All points towards a need for international financing• For several years, INEE has been calling for this (and

specifically for innovative financing) but nothing has happened.

• An urgent need.

Promote innovation in education

• “Not business as usual”

• Extremely conservative sector– Most senior administrators were teachers

– Teachers usually teach the way they were taught

• Very little innovation– Some, of course, e.g. mega‐schools

• Little rigorous research and even less policy‐relevant research– Contrast health and climate changes where there is a strong 

underlying scientific paradigm of research and experimentation

• Opportunity in current crisis?

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Innovative Financing for Education:The Virtuous Circle of Change

Promising Proposals

Broad Financing Proposals

International financial transaction taxLocal currency education bondsEducation Venture FundDiaspora BondsVoluntary Contributions from RemittancesDebt for Education Swaps

Profile Raising Proposals

Sports levy

Multi-stakeholder partnerships

Micro donations from bank transactions

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International Financial Transaction Tax

– Leading  Group Task Force on International Financial Transactions will consider proposal on currency transaction tax.

– A small levy (0.005%) on currency transactions of four major currencies could raise up to $30 billion per annum.

– Several countries are advocating that a proportion of the FTT should be allocated to finance global public goods and development.

– Climate change and global health sectors have already made proposals for share of the FTT.

– Education should bid for a share of FTT at least equivalent to share of ODA. 

– Same arguments apply to any other proposals for broad development finance e.g. lotteries, global development bonds etc.

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Local currency education bonds

‐ There are over $1 trillion of assets in public and private pension funds in developing countries.

‐ $180 billion in Africa alone.

‐ Funds usually limited to low return investments – typically government bonds.

‐ The  Local Currency Education Bond proposal would allow pension funds and other investors to invest in bonds that finance projects in the education sector by providing guarantees.

‐ Most applicable in higher education or vocational sector which can generate revenue to pay interest and principal on bonds.

‐ This could be used to release government funds to be used in thebasic education sector.

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The Education Venture Fund

– Several  countries are now using ‘social venture funds’ to support education programmes.

– The Ed Venture Fund applies a venture capital approach to stimulate innovation.

Invest.Take risk.Evaluate.Go to scale – or exit.  Measure returns to investment in ‘social capital’.

– Raises finance through a variety of innovative financing mechanisms.– Uses funds to invest in innovation within the education sector.– Takes higher risk than traditional donors. – Uses independent evaluations to learn from successes and failures. 

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Diaspora bonds for education

‐ Estimated 200 million people live outside their country of birth.

‐ Total annual remittances exceed official development assistance in many countries.

‐ Several developing countries also  generate significant income from members of their diaspora by selling local currency and international bonds.

‐ E.g. India has raised over $35 billion through diaspora bonds.

‐ Diaspora members have a higher risk tolerance for investments in their home countries.

‐ Education programmes would need an income stream to pay bond interest.

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Voluntary Remittance Levies for Education

‐ Remittances reached nearly $400 billion in 2008.

‐ Stable and well‐targeted source of additional finance for poor families.

‐ Anecdotal evidence suggests that a significant proportion of remittances is used to pay for education of family members. 

‐ Voluntary Remittance Levy for Education would ask remitters to give a small donation to support education programmes in their country.

‐ This donation would ideally be matched by the financial transfercompany.

‐ There should be no additional cost to the remitter as the G8 are seeking ways to reduce transaction costs on remittances.

‐ Levy programme could also make use of Mobile Money Transfer schemes.

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Debt for Education Swaps

‐ Part of a wider movement to link debt relief to specific development outcomes.

‐ Creditor countries agree to forgive debt in return for binding commitment from debtor country to increase investment or improve results in social sectors.

‐ Already widely used in the health and climate change sectors.

‐ Also used in the education sector in several South American countries.

‐ Debt 4 Education Swaps would benefit small number of low and middle income non HIPC countries that still have debts outstanding with OECD countries.

‐ Important to harmonize swaps with other bilateral and multilateral education support to minimize additional transaction costs.

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Profile Raising Proposals

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• Sports levy

• Multi‐stakeholder partnerships

• Micro donations from bank transactions

Sports Education Levy

‐ Sport has become a universal language – especially among the young.‐ Sports generate huge flows of revenue in high income countries from 

broadcasting rights, sponsorship, player transfer fees and sports products sales.

‐ In soccer alone, the five major international leagues and FIFA generate total annual revenue amounting to almost $12 billion.

‐ A solidarity levy on sports revenues of different  kinds could raise finance and very significant profile.

‐ E.g. The EFA GMR team calculated that a 0.4% levy on the commercial revenues of the five largest European football leagues would generate approximately $45 million per year.

‐ More importantly, it would raise the profile of global education among hundreds of millions of global soccer supporters.

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Multi‐Stakeholder Partnerships in Education

‐ The health sector has used public – private partnerships and multi‐stakeholder partnerships very successfully to raise the profile of global health issues such as HIV AIDs.

‐ E.g. The RED campaign brought together global brand companies such as Nike, Starbucks, Dell, Hallmark, Converse, Apple, The Body Shop and many more to promote the importance of fighting the spread of HIV AIDs.

‐ MSPEs already exist in the education sector mostly involving IT and communications technology companies such as Cisco, Intel and Microsoft – WEF/UNESCO partnership.

‐ More could be made of these partnerships to raise the profile of global education .

‐ New MSPEs could also be established with industry sectors that deal with young people and benefit from educated populations.

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Micro donations for education 

‐ Proposal to use rounding up of payments on financial transactions to support global education programmes.

‐ The ‘Comma Effect’.

‐ In France alone this proposal could raise up to $36 million per year through voluntary donations of the 50 cents round up of over 300,000 people.

‐ Main benefit would be to raise the profile of global education in the general public through links to daily financial transactions.  

‐ Relatively easy to establish.

‐ Good marketing tool for banks and credit card companies.

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Innovative Delivery

• Cash on Delivery (COD) aid• The Single Fast Track Initiative (FTI) fund

• Conditional Cash Transfers• Buying down IDA debt for education

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Next Steps and Questions

• What happens after Leading Group Task Force reports?

• Who will champion?

– Innovative finance for education in general?

– Education as a beneficiary of the Financial Transaction Tax

– Specific proposals and development

• What ideas are ready to try? Need development work? Need furtheranalysis?

• How to leverage household spending on tutoring?

• How to leverage domestic finance with international?

• How to protect ODA during this activity?

• What mechanisms are needed?

• What to do about conflict‐affected countries, ECCE, literacy?

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