Abbreviations and Acronyms
AMCAdvance Market Commitment
ARKAbsolute Return for Kids
ASERAnnual Status of Education Report
BIABridge International Academies
BMGFthe Bill and Melinda Gates Foundation
CHAIClinton Health Access Initiative
CIFFThe Children’s Investment Fund Foundation
CODCash on Delivery
CSRCorporate Social Responsibility
DFI Development Finance Institutions
EBITDAEarnings Before Interest, Taxes, Depreciation, and Amortization
EFAEducation for All
FTIFast Trick Initiative
GAVIGlobal Alliance for Vaccines and Immunisation
GDPGross Domestic Product
GFATMGlobal Fund to fight Aids Tuberculosis and Malaria
GHIFGlobal Health Investment Fund
GPIGender Parity Index
HNWHigh Net Worth
IFCInternational Finance Corporation
IFFImInternational Finance Facility for Immunisation
IMFInternational Monetary Fund
INRIndian Rupee
ISFCIndian School Finance Company
ISLAInternational Solidarity Levy on Airline Tickets
LCPSLow Cost Private School
LEAPSLearning and Educational Achievement in Punjab Schools
LHGPLion’s Head Global Partners
MDGsMillennium Development Goals
MDRIMultilateral Debt Relief Initiative
MOEMinistry of Education
NECNational Education Census
NWFPNorth West Frontier Province
ODAOverseas Development Assistance
OOSOut of School
PEFPunjab Education Foundation
PETFPakistan Education Task Force
PKRPakistan Rupees
PRIProgramme Related Investment
PLSMPakistan Living and Social Measurement
RTERight to Education
SMESmall Medium Enterprise
TCFthe Citizens Foundation
UNESCOthe United Nationals Educational, Scientific and Cultural Organization
USDUS Dollars
WB The World Bank
WHOWorld Health Organisation
WISEWorld Innovation Summit for Education
Confidential Draft / 1Section II | / Catalysing Investment in LCPS / Section II |
Table of Contents
Scoping Paper: Catalysing Support and Investment for Low Cost Private Schools in Pakistan
Abbreviations and Acronyms
Section I | Executive Summary
The Case for Supporting Low Cost Private Schools
Existing Private Sector Donors & Investors
Innovative Financing Models
Interventions
Recommendations
Section II | Introduction
Pakistan’s burgeoning private school sector
Other factors influencing the expansion of the LCPS sector
Section III | The Case for Supporting LCPS
Low Cost Private School Model
Upper & Middle Quintile Private School Model
Foundation Supported School Model
Regulatory environment
Conclusions & Recommendations
Section IV | Existing Private Sector Donors & Investors
Foundation and CSR Funding
National Businesses
Foundations
International Businesses
Investing in Pakistan’s Education Sector
Commercial Investors
Impact Investors
Estimating the size of the education market
Where will they invest?
Section V | Innovative Financing Models
The Relevance of Innovative Financing Mechanisms in Global Health
Tested Mechanisms
Models under development: The Global Health Immunisation Fund
Innovative Financing Mechanisms in Education
Endowment Models
Guarantee Models
Public-Private Partnerships
Relevance of the Leading Group’s Task Force on Innovative Finance for Education
The Education Venture Fund
Debt Conversion Development Bonds
Diaspora Bonds
The Travellers’ Savings Fund for Development
Results-Based Approaches
Conclusions & Recommendations
Section VI | Interventions to Support the LCPS Sector
The “do-nothing” option
Making markets work for the poor (M4P)
Enabling Environment Support
Key examples of enabling environment interventions include:
Indirect School Support
Key examples of indirect supports to schools include:
Direct School Support
Key examples of direct supports to schools include:
Conclusions & Recommendations
Section VII | Conclusions and Recommendations
Section VIII | Annex 1 – Diagrams
Figure 1: A potential private sector investment model for Punjab
Figure 2: A potential long term DFID exit strategy for EFS
Figure 3: A potential financial sustainability model for EFS
Section VIII | Annex 2 – Health Financing Mechanisms
International Solidarity Levy on Airline tickets (ISLA)
Product (RED)
Debt 2 Health
The International Finance Facility for Immunisation
The Advanced Market Commitment – AMC
The GAVI Matching Fund
The Global Health Investment Fund
Section VIII | Annex 3 – Other Case Studies of Note
Gray Matters Capital Foundation’s Affordable Private School Initiative
National Independent Schools Alliance (NISA)
Section VIII | Annex 4 – Bibliography
List of Sources from UBS Optimus:
Confidential Draft / 1Section II | / Catalysing Investment in LCPS / Section II |
SectionI | Executive Summary
The education sector in Pakistan has made significant progress over the past 10 years, however it remains under acute pressure. Demographic shifts and a lack of public financing mean that in Pakistan’s public education system has been increasingly stretched, both in terms of scale and quality of provision. As a result families have increasingly turned to private schools, which are estimated to now account for 20% of all school places in Pakistan (ASER Pakistan 2012).
Contrary to popular belief, private schools are not just for the middle and upper income echelons; the majority of these schools in Pakistan can be classified as “low cost private schools” (LCPS) or private schools that cater to children from low income families. Evidence from Pakistan suggests that when they have the choice, many parents prefer to send their children these schools over government schools (Andrabi, Das, & Khwaja, 2006).
Historically international support for Pakistan’s education sector has focused on the public system. The scope of this paper lies in the challenge of how to best support the burgeoning low cost private sector, if there is a case for donor support at all. It will look closely at various potential interventions and opportunities for support, drawing from international studies as well as those from Pakistan. It will also assess the different ways of financing these interventions, with particular emphasis on catalysing complimentary private sector and foundation support.
The conclusions and recommendations of the authors are based solely on desk-based research. Given the paucity of evidence on LCPS in Pakistan, we recommend that before any of these recommendations are executed, they are corroborated by a second, in-country study. Much more needs to be done to address the evidence gap if the donor community is to bestrategic in its support to LCPS.
The Case for Supporting Low Cost Private Schools
Figure 1.1: Enrolment Levels by Sector (children aged 6-16 years) (ASER Pakistan, 2012)
The central case for the support of LCPS’s is that the public sector is simply not able to cater for the number of out of school (OOS) children as well as those currently enrolled in the private system. Indeed the overall GDP per capita and tax collection rates from the poorest in society mean that this situation will not change for a minimum of 2-3 generations, and therefore the LCPS sector will de facto remain a key feature of the Pakistan education system for many years to come.
However this situation is not as disastrous as the numbers suggest. Evidence from the LCPS sector in Pakistan demonstrates that the education outcomes at the primary level are at least as good as, and in some cases better than, their peers in the public sector (Andrabi, Das, Khwaja, Vishwanath, & Zajonc, 2007). Furthermore enrolment in LCPS has proven to be substantially more gender equitable than in the public sector – a fact that alone would warrant further investigation of the LCPS sector due to the severe gender disparities in Pakistan.
If it is accepted that there is a place for private schooling for the poor in Pakistan, the next question is which model to use to achieve this. Should donors focus on supporting existing LCPS? Or supporting foundation schools or private schools that cater to higher income brackets to expand into the LCPS sector? This warrants a look at the operating models for these three types of schools.
Low Cost Private School Model
Low operating costs mean that despite low fees and the unreliability of their income streams, LCPS are able to remain profitable. The greatest cost of schooling is teacher salaries, which are far lower in the LCPS sector than the salaries awarded to teachers in the public sector. The distribution of LCPS differs across Pakistan’s provinces, with the schools mostly concentrated in urban centres due to the more ready supply of teachers and more educated parents with higher incomes. However there is a thriving LCPS sector in rural areas as well (Andrabi, Das, & Khwaja, 2006).
While these schools appear to be sustainable businesses, their capacity for growth and expansion is constrained by various factors, including lack of access to capital, property rights, and availability of labour. Any interventions will likely need to be tailored specifically to the local context.
Upper & Middle Quintile Private Schools Model
The operating costs of schools that cater to the middle and upper quintiles are high, with teachers’ salaries only contributing to half of these costs, but higher fees and the higher profit margins mean that these schools are very profitable. With a good track record, access to debt and equity, capital for expansion is not an issue for these schools.
Some private schools have expressed interest in expanding into the LCPS sector, however it is unclear whether such schools will be able to develop a no-frills school model with a reasonable standard of quality, particularly given the disparity of teacher pay; if teachers are deemed to be sufficiently well trained, they will arguably demand comparable wages to their colleagues at the parent schools. More analysis will be required to check whether expansion of such schools into the LCPS sector is viable.
Foundation Supported School Model
The business model for these schools is similar to that of a school catering to the middle quintile – operating costs are high, and while teacher pay is higher than in LCPS, it only contributes to 50% of costs – the key difference being that students are expected to pay little to no fees, making the schools accessible to children from low income families. Fees are subsidised by foundations or donors, bringing the sustainability of the model into question in the long term.
If a foundation supported school chain was able to overcome this hurdle and find a long-term, reliable source of funding, the model would be useful for extending quality education to low income children in hard to reach areas that are underserved by the public education sector or the LCPS sector.
Conclusion: It is our belief that the existing LCPS offer a better model for support and growth than seeking to replace them with either middle income school models adapted for a LCPS situation or large scale expansion of the foundation sector. These schools are already in situ, have built trust with their communities and recruited staff. The opportunity is therefore to catalyse these schools to offer an even better service rather than trying to replace them with either of the other private models or the State sector.
Existing Private Sector Donors & Investors
Foundations and CSR Funding
A key feature of a substantial programme of support from a donor such as DFID is to ensure that the work is continued when the ODA programme winds down. Fortunately there already exists a broad community of foundation and CSR programmes that have traditionally supported the education sector, many of whom have also supported education in Pakistan. There is therefore a real opportunity to “crowd-in” current donors as partners of a LCPS strategy as this sector will continue to require long term assistance. The growing LCPS sector in countries such as Pakistan presents an excellent opportunity to reinvigorate donors’ interest, which may have waned due to the shortcomings of public sector education. This section distinguishes between National and International Businesses and Foundations – strategies for involving each of these sectors will need to be tailored to each actor and the size, longevity and type of funding provided.
Investors
It is unlikely that traditional, private investors seeking to make a substantial financial return would look to Pakistan unless providing low cost education was their precise mandate – there are simply easier places to invest in education globally and more attractive things to invest into in Pakistan, including schools that cater to the middle and upper income segments. Graph 1.2 illustrates how these investors are concentrated in the less risky, upper and middle income education markets. While the graph also suggests an absence of “impact investors” in the education market, there is a growing interest in education and LCPS among this emerging class of investors, seeking a philanthropic mission via an investment product as opposed to a grant. Likewise, many Foundations and Donor Government-backed Development Finance Institutions (DFIs) are looking to make impact investments to compliment their traditional ODA grant funding mechanisms. Investment can take the form of equity and debt and go directly to schools, or to the education services support sector.
Conclusion: DFID should catalyse greater private investment for the LCPS sector, and there are a number of ways they can go about doing this. This might include the provision of complimentary catalytic grants with a co-investor, or by mitigating risk through guarantees and other innovative financing mechanisms – this will be expanded upon in the next section.
Figure 1.2: Investor Type and Targeted Beneficiaries in Global Education
Innovative Financing Models
A number of innovative financing models in global health and education are covered in this section. Three interventions are especially relevant to LCPS in Pakistan. In order of increasing financial commerciality;
- A matching fund that seeks to catalyse specific corporate philanthropy, similar to the GAVI Matching fund
- An endowment fund that providesgrant funding, conditioned on measured improvements in education outcomes, such as the CARE Foundation Protected Note
- Guarantees to a specialist lender to the LCPS sector, building on the lessons of the microfinance & SME sectors
- A “venture style” fund that invests in either direct provision of education or auxiliary support companies in Pakistan, similar to the proposed Education Venture Fund or the Africa Health Fund
Results Based Mechanisms & Cash on Delivery
One of the great features of schooling is the ability to design products that are outcome based. Some of the most progressive models in this regard already exist in the Pakistan, such as the CARE Foundation Protected note and the Punjab Education Foundation’s (PEF) Foundation Assisted Schools (FAS) programme. Significantly there is growing evidence that results based programmes do lead to improved educational outcomes and improvements in gender parity in enrolment; it has been suggested that girls perform better than boys at school and hence schools in results based programmes have a strong incentive to ensure increased participation by girls in their schools.
Conclusion:DFID should utilize a combination of the above financing mechanisms to catalyse funding to the sector.Funding and investment should be tied to improved educational outcomes whenever appropriate so as to ensure social returns on investments are maximized.
Interventions
A combination of interventions is recommended in order to maximize impact. This section distinguishes between enabling environment support (government policy, guidelines and regulation, and support of trade associations), indirect school support (school management training programmes, assessment systems, teacher training programmes, and teaching materials), and direct school support (school vouchers, school capex, student vouchers, and loans to schools).
In all cases it is critical to adhere to DFID’s “making markets work for the poor” (M4P) guidelines. From this perspective, indirect support to schools is generally a preferred option because these supply-side inputs have the benefit of being less market distorting than direct school support in that they support a broad range of existing LCPS by helping them to improve their education outcomes rather than seeking to reinvent the model and pick winners. However while direct support is riskier, some of these interventions have the greatest potential for impact, particularly when combined with results based metrics. Programmes that include “school vouchers” or subsidies to the best performing schools are recommended, and should be considered carefully.
Conclusion: As the graph below illustrates, it is our belief that a combination of direct support in the form of subsidies to schools conditioned on results based financing, paired with indirect support programmes with an aim to improve education outcomes, has the highest potential for positive impact without too much disruption to the local education market.
Figure 1.3 - Support Interventions for Low Cost Private Schools (Pre-Primary and Primary):
Recommendations
We recommend a combination of the following (in order of potential impact to the sector);
1)Grants
We recommend that DFID establish a direct grant window for the LCPS sector in Pakistan to provide support for both direct and indirect support to LCPS (see table 7.1). The most promising option is to partner with one of the existing public-private partnerships (PPP), such as PEF, or work to establish a new one. Co-financing can be catalysed via a product such as a matching fund or the creation of an endowment fund. Co-investors might include foundations, CSR programmes or international donors, where appropriate, in collaboration with the Government of Pakistan.
2)Guarantees
We recommend that DFID seek to support the LCPS sector via a loan guarantee window, guaranteeing loans provided to LCPS by alreadyexisting lenders in Pakistan. This could build on an existing window such as that provided by the State Bank of Pakistan. There is potential to crowd-in other governments and development finance institutions to act as guarantors as well. If this is not feasible, then DFID should consider investing in a specialist lender directly (see option 3, below).