Impact investing opens new funding pathways for global development
The 17 Sustainable Development Goals (SDGs) chart an ambitious agenda for a more peaceful and prosperous world. But these goals carry a high price tag; it is estimated that an additional $2.5 trillion is required annually to turn this agenda into action.
Impact investing presents a potential funding pathway to help fill this serious financing gap. Impact investors leverage private capital to support companies and organizations that can generate social and environmental returns, alongside financial gains. These gains can even be re-invested into further global development efforts.
The role of impact investors in providing quality education for all
Investing in education, particularly for girls, has a significant multiplier effect on individuals, families, and entire countries. The Global Partnership for Education states that every additional year of schooling can increase an individual’s income by 10% and can raise average annual gross domestic product (GDP) growth by 0.37%.
Education also generates important returns in health, resiliency, and security. For example, if all mothers completed primary education, maternal deaths would be reduced by two-thirds. Universalizing upper secondary education by 2030 would prevent 200,000 disaster-related deaths in the 20 years that follow. And if the enrollment rate for secondary schooling is 10 percentage points higher than the average, the risk of war is reduced by about 3 percentage points.
Education is also a growing business. This is particularly true in sub-Saharan Africa where there is a funding shortfall of $39 billion per year to meet the education needs of its bulging youth population. From private education providers, to teacher training programs, to education technologies – businesses are filling this massive need and will likely continue to play an important role in the education sector going forward.
New report explores the opportunities for impact investing in the education sector in East Africa
WUSC recently funded an assessment of opportunities for impact investing in the education sector in East Africa. Although financing for the education sector is relatively vibrant in Kenya, the same cannot be said for other countries in the region. Moreover, current financing is concentrated in a few specific business models, which greatly reduces the potential benefits of innovative solutions to tackle education quantity, quality, and inclusiveness.
Gaps identified include:
- Impact investors’ limited budgets and gaps in rural infrastructure constrain sourcing investment deals to small geographical locations often in urban settings.
- The tendency to engage in pattern recognition among impact investors (i.e. investing in individuals or structures which are familiar) makes it difficult for investors to understand and analyze new and innovative business models.
- There is a lack of capacity to measure the risks and quality of education provision. This increases overall investment risk and pushes investors to seek more guarantees, such as closer collaboration with the public sector, placing additional demands on investees.
- Many young companies in the sector find investment amounts too large to manage and do not include the capacity-building supports they need. At the same time, the investment instruments on offer are limited and do not always match East African market realities.
In this context, the report identified many potential roles donors could play in supporting the impact investing market for education in East Africa. These include:
- Catalyzing investment by offering alternative funding instruments.
- Facilitating private-public-partnerships by integrating start-ups and smaller companies within larger donor projects.
- Cultivating the start-up community by providing peer learning opportunities.
- Providing direct services to start-ups to improve their readiness for investment.
- Providing quality assessment services to local banks or investors to validate education quality.