To address educational needs in low- and middle-income countries, innovative financing mechanisms have been recently developed, but remain highly debated. Does the health experience in innovative financing provide useful insights for innovative financing in education? Axel Gastambide (FERDI) compares the two models, based on a study drafted with Francesca Marchetta et Matthieu Boussichas for the European Commission.
Health and education are large public resources consumers: neglecting these human capital sectors might be harmful at every level. In education, for instance, the chronic under-investment in primary school system of the Sahel countries is a key factor of the security deterioration in the region. In the health sector, the current effects of the COVID-19 pandemic on worldwide national health systems speak for themselves.
Against recurrent financing needs for human capital sectors in developing countries, innovative financing mechanisms have contributed to mobilise significant financial resources in the recent years, mainly for the health sector. More recently, new initiatives attempt to develop innovative financing mechanisms towards education sector. It is good news, but important challenges remain.
Innovative financing in the health sector
Since its introduction at the international conference on financing for development in Monterrey (Mexico) in 2002, innovative financing is a term that has been used extensively to define a diverse range of practices and financial mechanisms aiming to collect additional financing for development oriented towards results. To clarify what innovative financings mean, Boussichas and Nossek (2018), categorize them according to their primary objectives:
- raising additional resources for development through compulsory charges (e.g. levy on air tickets), voluntary contribution or blended finance;
- achieving specific development results via results-based financing mechanism or Development impact bonds (DIBs mechanism harnesses private capital for social services and encourages outcome achievement by making repayment contingent on success);
- creating ad hoc mechanism to fund specific sectors like the International Finance Facility for Immunization (IFFIm) or the Advanced Market Commitments (in AMCs mechanism, a buyer – typically a government or international organization – agrees to a predetermined purchase price for a good or service with a provider – typically a private company, producing for example vaccine).
Innovative financing has been focused primarily on health. Since 2006, over US$8 billion have been mobilized by innovative financing mechanism such as IFFIm, AMC for pneumococcal disease, levy on airline tickets, or voluntary contribution. Most of these funds were channeled through three main platforms: Gavi, Global Fund, and Unitaid. They were used for programs for new and underused vaccines, HIV/AIDS, malaria, tuberculosis, and maternal and child health in low- and middle-income countries. For example, since its creation in 2000, Gavi has helped vaccinate more than 760 million children in the world’s poorest countries, preventing more than 13 million deaths.
While resources mobilized from innovative financing remain relatively modest compared to Official development assistance, the real innovation has been the establishment of new organizational forms as integrated financing mechanisms. After all, achievements observed in health are the result of a clear intervention framework (objective/action/result); strong commitment of public and private partners to a short-term objective with a potential rapid return; and the creation of innovative platforms that are clearly focused on performance criteria.
From health to education: the momentum for innovative financing
Though access to basic school has progressed rapidly in most low- and middle-income countries, important needs remain. These needs concern access (according to World Bank, some 260 million children are still out of primary and secondary school), school completion rate and learning.
To fill the educational gap, numerous initiatives have been developed recently. These are marked by an increasing role of the private sector, either indirectly, through contributions to multilateral new initiatives such as GPE Multiplier, or Education Cannot Wait, or directly, via Impact investing instruments like private equity, private debt and real assets, applied specifically to the education sector.
In the meantime, the Education Commission, chaired by United Nations Special Envoy for Global Education Gordon Brown, is involved in two recent initiatives. First, the Education Commission promotes the International Finance Facility for Education (IFFEd) that aims taking advantage of the multilateral development banks to leverage sovereign credit. By increasing lending capacity in education via new sovereign guarantees on the one hand, and reducing its cost via a grant mechanism funded by sovereign and non-sovereign contributors on the other hand. Second, the Education Commission supports the Education Outcomes Fund (EOF) Africa and Middle East that aims to bring together donors, investors, education organizations and governments to develop interventions using mechanism such as DIBs.
Debated new initiatives for innovative financing in education
These new initiatives are highly debated, with critics on the willingness and capacity of governments to contract new loans to finance education and on the role of non-state actors to deliver educational services. While there is momentum to develop new initiatives to finance education, three recommendations are essential:
- Avoid duplication and fragmentation in education financing mechanisms.
- Catalyzing funding to intervene in situations in which traditional public intervention is difficult either at the macro-level (such as the Education Cannot Wait initiative dedicated to education in emergencies and protracted crises), or at the micro-level (through output-based aid programs focused on vulnerable populations).
- Finally, it is important to shape effective implementation mechanism, as it has been the case with innovative financing for health. In education, it might be promising to develop innovative mechanisms to incite governments to invest in this sector. For example, Barder and A. Rogerson suggested in 2018 that donors might turn the long-term, social benefits of education into shorter-term fiscal returns for example, by promising to pay for outcomes.
An essential private-public collaboration for education
Financial needs to reach the Sustainable Development Goals (SDGs) in the health and education sectors remains considerable. For example, the IMF estimates that additional spending on education and health care in 2030 should amounted to US$1.2 trillion for emerging market economies and low-income developing countries.
Besides traditional funding sources like tax revenue and official assistance, innovative financings and private sector will have a key role to play to support education. In the meantime, innovative financing mechanisms in education might be more difficult to implement than for the health sector, due to specific constraints faced by the educational sector. These include long-term investment return with high results uncertainty, recurrent costs, and difficulty to implement standardized and measurable actions, as has been the case for the health sector. In such context, it remains essential to avoid any fragmentation in actions of funding providers which should not bypass governments strategies and interventions.
The opinions expressed on this blog are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.