Q&A: A look at a new results-based education fund for Africa and the Middle East

ABIDJAN — A new billion-dollar, outcomes-based education fund for Africa and the Middle East hopes to close the gap in global education by pooling grant funding and using it to scale innovative education services.

Still in its design phase, the Education Outcomes Fund for Africa and the Middle East, or EOF, will use development impact bonds to attract upfront capital and drive country performance and innovation.

Under the guidance of leaders from the Global Steering Group for Impact Investing and the Education Commission, EOF will complement other worldwide initiatives, such as the Global Partnership for Education and the International Finance Facility for Education, by providing funding for learning innovations in a region expected to have 40 percent of the world’s children by 2050.

The way the fund works is this: Governments set learning objectives, donors identify where they align in those areas and make commitments. EOF establishes a price for each targeted outcome and then service providers bid for contracts and are selected based on their suitability, impact, and cost efficiency.

Impact investors fund the interventions and service providers implement the programs, evaluated on their ability to produce results against established metrics.

Independent evaluators will measure the success of the program in helping education systems reach established targets. EOF will then use funds from “outcome payers,” such as international aid donors, philanthropists, and corporations, to pay service providers and impact investors a principal, plus return based on outcomes achieved.

The pooled fund of development impact bonds is designed to reduce transaction costs on the individual results-based contracting mechanisms and will incentivize impact investors to work with service providers to develop their capacity.

Momentum behind education financing ramped up earlier this year when developing and donor countries, along with other international institutions and civil society groups, pledged $2.3 billion over a two-year period during the GPE replenishment.

While the pledging conference missed its $3.1 billion target, education proponents told Devex that this event was a turning point for education financing and was an opportunity to garner international support for education in ways similar to global health.

“Even with all the domestic financing, there is a big opportunity to use innovative financing models for education; they have been used strongly in energy, health — [but in] education [the introduction of innovative financing models] has been rather marginal,” Amel Karboul, EOF CEO and commissioner on the Education Commission, told Devex at the World Innovation Summit on Education in Accra, Ghana.

The current global “learning crisis” as described by "The Learning Generation” report, estimates that 330 million children are failing to learn, with a $39 billion gap in education funding per year needed to achieve the Sustainable Development Goals.

Impact investing can be an effective funding model, but the question becomes how to engage and collaborate with the private sector and not-for-profit organizations to achieve learning outcomes, Karboul said.

“There is also [a] trend in paying for success, paying for results and outcomes versus paying for inputs,” Jared Lee, lead principal at EOF explained.

“Governments can’t do it alone, all over the world and even more in Africa with weaker institutions,” he said.

Lee spoke with Devex about how the fund is at the intersection of public-private partnerships, impact investing, and results-based financing.

The conversation has been edited for length and clarity.  

In what ways does this fund address the need to innovate in education?

It’s not so much that we need innovation in education, it’s that we need innovation in the financing of education. The biggest challenge today is that too much money goes into programs that don’t necessarily work and not into those that are working — with a proven track record — to be scaled in the way that they should.

The core innovation that we are looking to supply, is an innovation in financing — meaning we align the interest of donors, investors, and civil society around a focused set of outcomes. We allow aid money to only go for what works, creating a transparency not only around what’s working but the cost efficiency of different interventions.

If you look at different interventions in different contexts, you see what outcomes we’re achieving and at what cost. At a cost-per-outcome basis, there’s a huge range in efficiency.

What our fund aims to do is create transparency across all the intervention types — both what is working and the cost efficiency — and concentrate funding to the most cost-efficient interventions. Taking the risk off the donors and giving it to an investor, because the donor only pays for what works through an impact bond.

What are the opportunities or challenges to this type of financing model, especially in places like sub-Saharan Africa, where experts have estimated that 90 percent of students are not reading at their grade level? As a performance-based fund what are possible challenges investors and service providers may face?

The start of the challenge really comes from overloaded education systems. Even with the public and private systems combined there’s still a huge shortfall in access and quality. Combine that with the incredibly high population growth rates in sub-Saharan Africa, and this is why the learning crisis is getting worse — because the population growth is far exceeding the capacity of the systems to keep up with that.

We absolutely recognize the importance of government and domestic resource mobilization — and GPE is a key instrument to effectively channel international money to strengthen government systems. But we are looking to be the GPE for nonstate actors.

One challenge today is a huge fragmentation in the funding and programming for nonstate actors. There are all of these “pet projects,” yet there’s no overarching or strategic framework that pushes these things forward.

The opportunity through this outcomes-payment fund is to agree with governments and other stakeholders about what we are trying to achieve, what we should be paying to address that, and only pay for what works — to find and scale the most cost-efficient interventions to help increase learning.

Discuss where EOF is, in terms of launching and implementation?

We are using 2018 to do the detailed design work.

In terms of the fundraising, the Education Commission is strongly supporting the International Finance Facility for Education right now. We’ll start fundraising more toward the end of the year with official donors. However, we are very much engaging bilateral agencies and donors in the design to make sure we are designing something that is appropriate.

We have been through an extensive country prioritization process for pilot programs: Ghana, Senegal, Morocco, Western Cape in South Africa, Jordan, Burkina Faso, Kenya, and Zambia.

We plan to add an additional 12 countries for the second phase.

Governments definitely have a role to play in the success of this initiative by helping set priorities and outcomes for the fund. In the longer term, we want to build governments’ capacity to take over this outcomes-funding approach through nonstate actors.

They need both the appetite and the capacity to support an initiative like this. For this fund to be effective, we need to have a reasonably well established, thriving landscape of nonstate actors that already have monitoring and evaluation systems in place that make them suitable.

We are also looking to catalyze the market, and one of the core ideas is to find what works and scale it as we are looking to scale interventions across borders.