In the world we live in, unprecedented opportunities to learn co-exist with enormous inequality. Today there are over 100 million more children enrolled in primary schools than a decade ago, and early childhood education is skyrocketing--a fantastic outcome in such a short period of time. Yet there are also an estimated 250 million children who still cannot adequately read, write and count and 57 million who are still not in school.
There are two fundamental ways to tackle these challenges: either lower the cost of education (while hopefully retaining quality and equity) or get someone else to pay for it. For basic education, the primary sources of funding continue to be domestic country budgets, multilateral and country-specific aid programs (like the World Bank, UNESCO’s Capacity Development for for Education for All Programme, and USAID), and overseas remittances. Yet in the face of bulging education demographics and funding costs, this is not enough. The private sector--specifically, the edtech community--must fill the gap. Here are a few ways this is happening.
Seed and Venture Funding for Low-Cost Schools and Services
Venture and seed funding offer a lifeline to education entrepreneurs, who often have no access to traditional forms of bank lending, in an education industry which has little experience with private sector involvement. Not surprisingly, the most ambitious education start-ups in developing countries are now getting funded through venture capital.
For example, Pearson's Affordable Learning Fund (PALF) and a number of affiliates have sparked investments into low-cost school chains including Sudiska pre-schools in India, APEC middle schools in metro Manila, Omega Schools in Ghana, and Bridge Academies in Kenya. These are for-profit, scalable schools charging as little as $3 a month to families and harnessing technology to deliver curriculum and centralize management costs.
Their level of ambition is wild: Bridge, with a recent investment boost from Mark Zuckerberg, is targeting a 100-fold expansion from its current 100,000+ students, to 10 million by 2025. Still, the capital in play is miniscule compared to the massive unmet demand in parts of Africa and South Asia. PALF has only $50 million to manage, and others such as Unitas Seed Fund in Bangalore are approaching $20 million. Larger, follow-on investments to develop a global network of "academies in a box"--and the edtech innovations to power them--are only beginning to make a difference.
Alternative Loan Finance and Repayment Methods
Global emerging markets are now facing higher borrowing costs on the back of rising interest rates. This is bad news for students in countries that lack an institutional lending capacity for education. The traditional use of tuition discounts, subsidies and financial aid will help only at the margins, bringing the question of how student loans are accessed and structured to the open market.
But for many companies operating globally, education is still viewed as a "social responsibility" rather than a commercial imperative. Businesses may recognize that the process of educating, securing and retaining talent is the best way to build sustainable profits and shareholder value—but they must do something about it while their future employees are still students.
With the world now in reach of educating every child, pressures related to the funding and cost of education are, paradoxically, going to intensify. In the years ahead, more primary school graduates will create higher demand for secondary and university education and, in turn, a deeper pool of potential workers in search of employable skills. This dynamic calls on private companies to provide the type of innovative technology, funding, and market-driven growth solutions that have already shown so much promise, but which will require even more attention to those populations who need it most.
Todd Maurer is Managing Partner of Sinica Advisors LLC, a corporate and investment advisory firm specializing in emerging markets, with a particular focus on Asia.
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