New funding provides lifeline for low-cost schools
LOW-COST private schools are flourishing in the slums and shanty towns of the developing world because parents see education as a route out of poverty.
In cities like Hyderabad and Delhi in India, 60 per cent of children attend low-cost private schools. Numbers are also high in Africa with 75 per cent of schools in Ghana being private and unaided and 65 per cent of children attending.
But school growth and development has been delayed for years through a lack of capital funding – until now.
Impact investors – those looking for a financial return on their investment but who also take account of the social and environmental impact of the business - have emerged.
The supply of capital for low cost private schools can now be accessed through a range of companies investing in the affordable private school space.
The majority of poor children are attending affordable private schools in urban areas of Pakistan, India, Nigeria, Ghana, and Kenya where parents pay fees of typically around £2- £4 a month accounting for between six and 10 per cent of minimum wage.
Parents believe private schools are better than the supposedly ‘free’ government school alternative because private schoolteachers get better results.
Facilities are better in the low-cost private schools and class sizes are typically smaller.
The cost of private schooling is kept low in order for parents to be able to afford the fees. Many school entrepreneurs are looking to improve their school’s quality and expand capacity so retaining and attracting pupils is a high priority.
But working in slum areas gives private schools no property rights, deeds or collateral to get a loan.
It is against the law to make a ‘profit’ from education in India so school accounts cannot show the true state of the school’s ability to pay back any financial advances.
Getting a loan to improve a school has been almost impossible. Bootstrap financing - that is schools using their own money to expand or improve - has been the only option.
By using their current earnings and assets they are able to build up the school from very little and with no outside capital.
This lack of available capital has held back the progress and growth of the affordable private schools’ sector in developing countries. A supply of capital for low-cost private schooling can now be accessed through companies such as Gray Ghost Ventures, Edify, Opportunity International and the IDP Foundation.
Edify had issued 440 loans worth a total of US$3 million to help affordable private schools by 2011. It is aiming to provide loans to around 4,000 schools by 2016 benefiting at least one million children.
The average loan in Ghana is roughly US$2,800 and Edify employs fully dedicated accountants to work with and visit each school at least once a month to monitor spending and cashflow.
Loans are allowing schools to improve their quality and to benefit from economies of scale. But multiple regulatory hoops are creating barriers to entry for impact investors which is impeding growth within the sector. The inability to legally show profits, as in India, is also detrimental as profitability shows efficiency, innovation and effectiveness.
Opening these markets provides a win-win for the investors, children, parents, teachers, school owners and the communities themselves.