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An Evaluation of International Finance Corporation Investments in K–12 Private Schools

International Finance Corporation Management Response

The management of the International Finance Corporation (IFC) thanks the Independent Evaluation Group (IEG) for the opportunity to comment on An Evaluation of IFC Investments in K–12 Private Schools: An Independent Evaluation. Management appreciates IEG for undertaking this evaluation and fostering proactive engagement throughout the process. The evaluation comprehensively responds to the request made by management to evaluate IFC’s investment in provision of private education from kindergarten through grade 12 (K–12), including impacts on educational outcomes, access, poverty, and inequality.

The evaluation demonstrates the importance of K–12 private schools. As the evaluation notes, enrollment in private schools has risen globally for more than a decade, from 10 to 17 percent at the primary level and from 19 to 27 percent at the secondary level. The increases are occurring in low- and middle-income countries due to the expansion of low-fee and mid-fee private provision. The evaluation finds that surveyed investors see an unmet demand for quality education at both the low-fee and mid-fee levels, and local civil society organizations see private investment as essential to meeting the fourth Sustainable Development Goal and other related education goals.

However, IFC has faced several challenges investing directly in private K–12 schools. Management agrees with the evaluation’s assertion that most private K–12 schools are difficult to invest in directly. Many of these schools are small and family run and face various challenges in securing external financing from different sources, including IFC. These challenges have contributed to the weak financial results IFC has seen on its debt and equity investments in private K–12 schools. These may have been exacerbated by difficult market conditions, given that the majority of IFC’s K–12 projects were in Sub-Saharan Africa and most of these were in International Development Association countries. Further, as the evaluation highlights, there is potential for investments in private K–12 schools to exacerbate inequalities and have unintended, undesirable spillovers into the public sector school system. IFC management takes these findings seriously and wishes to refrain from activities unfavorable or detrimental to international development. The establishment of Anticipated Impact Measurement and Monitoring tool has strengthened the monitoring and supervision systems, and the establishment of the Upstream approach has enabled the organization to both engage a wider spectrum of stakeholders and take a more programmatic approach. Recent developments notwithstanding, IFC management duly notes IEG’s conclusion that resuming investments in K–12 private schools is not advisable “with a business-as-usual approach” (xiv).

As a result, IFC will not resume investments in fee-charging K–12 private schools at this time. In line with the scope of the review, this decision will encompass any new (i) direct investments or advisory services related to the provision of education in fee-charging (for-profit and not-for-profit) K–12 schools; (ii) public-private partnerships related to school privatization or the provision of education in fee-charging K–12 schools; (iii) indirect investments in fee-charging K–12 schools through private equity fund clients. IFC also does not plan to resume investment in Risk-Sharing Facilities with local banks to support their financing of K–12 private schools. IFC’s support to the K–12 sector will be limited to areas such as investment or advisory services related to (i) ancillary services and other support services and tools or both; (ii) education technology and digitalization; (iii) higher education institutions that may have private K–12 schools or divisions associated with them (as long as IFC’s support is focused on the non-K–12 operations); (iv) public-private partnerships related to school construction or ancillary services (food preparation and so on); and (v) follow-on investments to existing private equity fund K–12 investments.

IFC’s focus in the education space will continue to be postsecondary education. Even when IFC was investing in K–12 schools, these projects were a relatively small component of IFC’s investment portfolio in education. IFC’s focus for its investment activities will continue to be tertiary education and technical and vocational education and training. IFC has also implemented a successful advisory program, called Vitae, to support improved employment outcomes at tertiary education institutions. This advisory program helps institutions improve labor market insertion practices and implement practical interventions that chart a path to employability transformation. IFC is also carrying out the global rollout of a program called Digital for Tertiary Education Program or D4TEP through which IFC assesses the digital maturity of a tertiary education institution and prepares a digital transformation road map for the institution. Lastly, IFC is also actively exploring ways to be more relevant through advisory services and investment in the early childhood education (pre-kindergarten and kindergarten services) space.

If IFC were to resume investing in K–12 private schools, management agrees with IEG’s suggestions on how to do so more effectively. This includes engaging a wider spectrum of stakeholders; establishing a clear framework for investing in K–12 private schools; considering trade-offs between financial sustainability of investments in K–12 schools and access, quality, and broader education system effects; and enhanced monitoring systems and supervision mechanisms. However, IFC does not envisage resuming investments in private K–12 schools in the near future.