The purpose of this paper is to outline how innovative financing can contribute to the financing of global education and to recommend mechanisms for encouragement and/or endorsement by the Education Commission so that the potential of innovative financing in education can be harnessed.
By innovative financing, we mean “new or novel ways to generate predictable, additional and sustainable finance” and “the raising of funds from unconventional sources or mechanisms to make existing funds ‘go further’”. A range of innovative financing mechanisms has been considered from those that tailor established financial instruments to education, for example education bonds and loan buy-downs; to relatively new financial instruments ready for expansion such as social impact investment and student financing; to new financial instruments such as debt conversion development bonds. We have not included innovative financing mechanisms that focus solely on spending funds more effectively such as results-based financing or public-private partnerships, unless they are coupled with a mechanism to raise funds too.
This paper assesses each innovative financing mechanisms against a set of criteria to identify those with the most potential for education in developing countries.
We evaluated 18 innovative financing mechanisms for education against the following criteria:
- Positive impact on educational outcomes (access, equity, learning) globally;
- Potential volume of additional finances;
- Replicability and scalability;
- Cost-effectiveness at scale;
- Sustainability and predictability; and
- Feasibility, ease, speed and transaction cost of implementation.
In addition, we interviewed several Finance Panel members and additional experts to obtain their feedback on which mechanisms have the most potential for education.
We recommend the Commission to undertake further due diligence to endorse the following five mechanisms for development and implementation; a global financing facility for Education (GFFE), an education outcomes fund, education bonds, loan buy-downs and student financing. These combine the need to attract funding from new sources with the ability to raise the profile of education, raise financing for both the public and private education sectors and they support a focus on outcomes.
To read more about these mechanisms, download the full report above.