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

Chapter 1 | Evaluation Context and Background

K–12 Education Context and the Rationale for Private Sector Investment

Demand for private kindergarten through grade 12 (K–12) schools has been growing in low- and middle-income countries. Total enrollment in private K–12 schools in low- and middle-income countries has risen for more than a decade, from 10 percent of the school-age population to 17 percent at primary level and from 19 percent to 27 percent at secondary level (The Economist 2019). The highest shares of enrollment in private schools at the primary level are in South Asia and Latin America and the Caribbean (greater than 20 percent), with lower shares in Middle East and North Africa and East Asia and Pacific (less than 10 percent). Regional variation for secondary schools is similar.1

A major reason for the increase in demand for K–12 private schools is the inability of governments to keep pace with rising populations, resulting in school crowding or lack of adequate provision. Income growth and urbanization, a changing labor market, and demand for greater choice and accountability also contribute (Caerus Capital 2017). Demand for private education has been especially strong among middle-class parents, often because of perceived or actual shortcomings in the quality of education offered through public schools (Tooley 1999). The growing pressure caused by both forces has prompted school owners to seek long-term financing to expand and meet that demand. It has also fueled an expansion of low-fee schools (Härmä 2021). Yet in many countries, financing can be difficult to obtain and then only at onerous rates. This situation has attracted the interest of international actors that include foundations, philanthropists, private investors, and development finance institutions (DFIs) such as the International Finance Corporation (IFC).

Governments have acknowledged that they cannot meet the growing demand on their own, leading DFIs—including IFC—to suggest that the private sector can help ensure not only that the demand is met but also that it can contribute to the achievement of Sustainable Development Goal (SDG) 4. Private investment, the DFIs assert, can help narrow a sizable gap in funding—a shortfall in public investment and international aid—necessary to achieve “equitable and inclusive access to quality education,” as envisioned in SDG 4.2 In 2020, the United Nations Educational, Scientific, and Cultural Organization projected a shortfall of $148 billion annually to achieve the goal by 2030. It has recently indicated that the gap will be increased by the effects of the coronavirus (COVID-19) pandemic on education, to as much as $200 billion annually (UNESCO 2020). The ability of the private sector to contribute to the achievement of SDG 4, however, depends on whether it can ensure both equitable access and quality improvements, given the degree of learning poverty in developing countries. In theory, the investments in private schools would free up government resources, which were being spent mostly on the middle class enrolled in public schools, to improve public schools (IFC 1999; Tooley 1999). In interviews for this evaluation, local civil society organizations expressed similar opinions regarding the value of IFC investments (and financing from other DFIs) as support to governments, especially in low-income, conflict, and postconflict countries that are under pressure to meet the commitments of SDG 4 (appendix G).

Evaluation Motivation, Purpose, and Focus

This evaluation was motivated by a commitment the World Bank Group president made as a condition of the $5.5 billion capital increase approved for IFC in 2020. Under that commitment, the Independent Evaluation Group (IEG) would evaluate IFC investments in K–12 private schools “including impacts on educational outcomes, access, poverty and inequality…to determine whether there are any circumstances under which future IFC investments in private, fee-charging K–12 schools could be made without impacting negatively on poverty, inequality, the right to education, or the provision of public education.”3 Although educational outcomes such as equitable access and improved quality are particular to the sector and could be addressed by IFC investments, poverty and inequality are broader issues that are affected by many other factors and cannot be addressed in IFC’s limited investments in K–12 private schools.

The purpose of the evaluation is to meet the terms of that commitment and provide evidence to guide IFC’s future actions in K–12 private schools through an assessment of its investments in the subsector. The evaluation aims to aid IFC management and the Board of Executive Directors in deciding whether and under what circumstances it should resume investing in K–12 private schools. To do so, the evaluation not only assessed IFC investments in K–12 private schools but also sought to identify what changes may be needed for IFC to support K–12 private schools in the future.

Evaluation Scope

The evaluation scope is limited to IFC investments in K–12 private schools from fiscal year (FY)01 to FY20. Consistent with Bank Group President David Malpass’s mandate to IEG, the evaluation focus is on IFC investments in K–12 private or nonstate schools that operate by generating fee-based revenues. The schools may be for-profit or not-for-profit, but in either case, they earn revenues and may incur net returns and surpluses (or losses). The scope is also limited to IFC investments through loans, equity, quasi-equity, and Risk-Sharing Facilities (RSFs) used to finance projects (box 1.1). The evaluation assessed advisory services only for two case studies involving RSFs that included those services as part of the investments. The evaluation specifically excluded financing of other K–12 education projects, such as technology-related (EdTech) or public-private partnership projects.4 Also in line with the mandate from Bank Group President Malpass, the review homes in on systemwide effects of IFC’s investments, rather than assessing individual IFC investments in K–12 private schools. The evaluation also does not assess the inherent value of supporting K–12 private education or private education in general through any means. Finally, although the evaluation period is FY01–20, IFC stopped financing new investments to K–12 private schools (though not other areas of education) in 2017 for lack of viable investment opportunities. IEG reviewed IFC education strategies from its entry strategy in 1999 through its most recent articulation of education strategy in 2018. Although the evaluation assessed projects approved and committed relative to their consistency with the prevailing education strategy at the time of approval, because no K–12 private school projects were approved and committed after 2017, IEG explicitly did not review if and how IFC operationalized its 2018 strategy nor did it review IFC’s more recent initiatives, such as the Anticipated Impact Measurement and Monitoring (AIMM) system, Upstream activities, IFC Country Strategies, and Country Private Sector Diagnostics.

Box 1.1. IFC Instruments Used for Investing in K–12 Private Schools

Straight senior loan (International Finance Corporation [IFC] A loan): A loan to a client that ranks above or equal to other lenders and does not have subordination features or deferability of repayment of principal and/or interest characteristics. Straight senior loans do not have features that provide IFC additional upside return potential (such as convertible loans, loans with attached warrants or options, or income participation loans). An A loan is provided under IFC’s own account. Some examples include IFC investments in Promotora de Centros Educativos de Occidente A.C., Kabojja Junior School, Braeburn Schools Limited, and Yayasan Pendidikan Singapura Indonesia schools.

Syndicated loan (IFC B loan): A loan for which IFC is the lender of record, but the loan is not booked for IFC’s own account and in which other lenders acquire participations. Participants share risks with IFC, as the arrangement gives participants and IFC equal rights to payment. IFC investment in Yüce Özel Eğitim ve Kültürel Hizmetleri A.Ş. is an example.

Straight equity: IFC provides financing from its own account in exchange for ownership of 5 percent to 20 percent of the company (an “equity stake”). IFC becomes a part owner or shareholder of the company and participates in the profits when things go well but receives no returns if the company does not turn a profit. When IFC’s role in the company is exhausted, IFC exits the company by selling its shares to either another investor or back to the company. IFC typically holds on to its shares for an average of seven years. IFC equity investments in Maple Leaf Educational Systems and NewGlobe Schools/Bridge International Academies are examples.

Quasi-equity: Direct IFC investments in debt or equity instruments that are neither straight senior loans nor straight equity investments. Quasi-equity investments in debt-type instruments include senior loans with option (C loans) features that provide IFC additional upside return potential and subordinated loans that are junior in liquidation (or lower in priority) to senior loans or that include a provision that allows deferment of interest payments, principal payments, or both.

Senior loan with options (IFC C loan): A loan to a client that ranks above or equal to other lenders and has option features that provide IFC additional upside return potential (such as convertible loans, loans with attached warrants or options, and income participation notes, including such participation notes with deferred rate-setting arrangements). Examples include investments in First Education Holding BSC and Cairo for Investment and Real Estate Development SAE (CIRA).

Risk-Sharing Facility: IFC shares the risk of loan default in an agreed-on portfolio originated by the partner bank, thus encouraging the bank to lend more to the chosen sector. IFC does this by agreeing to purchase a percentage participation in loans that defaulted or were written off, or both, (in line with local central bank requirements), usually subject also to the partner bank or another institution absorbing a first-loss component. IFC then shares in any recoveries from the defaulted loans. The Risk-Sharing Facility product allows a client originator and IFC to form a partnership with the goal of introducing a new business or expanding an originator’s target market. In addition to sharing the risk of loss associated with the covered asset portfolio, IFC is often able to arrange for the provision of advisory services designed to expand the capacity of a bank or corporation to originate, monitor, and service the assets. Examples include the Risk-Sharing Facility with K-REP Bank (Sidian Bank), Banque Rwandaise de Développement, and The Trust Bank of Ghana.

Indirect investments through Funds: Investments in kindergarten through grade 12 (K–12) private schools made by private equity funds and venture capital funds (known collectively as “Funds” in this evaluation) in which IFC provided equity investments. The Funds, not IFC, set the investment criteria and conduct the appraisal, selection, and monitoring of the investments. Funds are required to submit a report to IFC about their investee companies.

Source: International Finance Corporation Business Glossary.

This is the first time that IFC’s investments in K–12 schools have been evaluated. IFC experimented and explored during 22 years of investing in K–12 private schools, but it has not yet conducted self-assessments or outsourced reviews of its investment experience. Moreover, during the period assessed, IFC has not articulated a theory of change specifically relevant to its investments in K–12 private schools. This evaluation seeks to fill both gaps to better inform any future IFC investment in K–12 private schools. In this, the evaluation was aided by consultation with IFC’s education specialists.

Evaluation Approach, Methods, and Limitations

The evaluators sought answers to three main questions:

  1. How did IFC investments in K–12 private schools align with identified country education needs?
  2. To what extent did IFC investments reflect the characteristics of quality K–12 private education?
  3. What has been learned that could help IFC improve its engagement in K–12 private education in the future?

To answer these questions, the team assessed IFC investments in K–12 private schools on four dimensions: access (including equitable access), education quality, financial sustainability, and relevance of K–12 private schools in which IFC has invested. These dimensions were selected for their consistency with IFC’s strategic objectives in the education sector. The literature also maps these dimensions to long-term educational outcomes and the reduction of poverty and inequality, making them relevant to broader Bank Group goals. For more on the terminology and concepts used throughout this report, see appendix A.

The evaluators used a mixed methods approach to collect data and triangulate findings among various sources of evidence to answer the evaluation questions. The methods used include a portfolio review, a structured literature review (SLR), the analysis of five investment project case studies, a review of IFC strategies on education, and an analysis of education sector data from secondary data sources such as enrollment data and scores on international learning assessments (Programme for International Student Assessment, Third Regional Comparative and Explanatory Study, and others). The full methodology is described in appendix B. The use of mixed methods and multiple sources of evidence strengthened the rigor of evidence. Yet the evaluation is constrained by the very small number of IFC K–12 private school investments in a short list of countries, scant monitoring and evaluation data, and limited literature—and often mixed findings—on private education results and outcomes in low- and middle-income countries. The evaluation is also constrained by the inability to conduct field research because of travel limitations imposed by the COVID-19 pandemic. For the same reason, most interviews for the evaluation were conducted virtually. When conditions permitted, the team conducted in-person interviews of local stakeholders, including local civil society organizations.

  1. For more information, see the United Nations Educational, Scientific, and Cultural Organization Institute for Statistics at
  2. “Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all: By 2030, all girls and boys complete free and equitable primary and secondary education” (Sustainable Development Goal 4, Target 4.1, http://
  3. Letter from David Malpass, World Bank Group president, to Steven T. Mnuchin, secretary of the Treasury, March 20, 2020.
  4. The International Finance Corporation also invested $19.8 million in four kindergarten through grade 12 (K–12) educational technology projects and $80 million in two public-private partnership projects by two municipalities in Europe and Central Asia Region. Be¬cause of the different nature and development pathways of educational technology and pub¬lic-private partnership projects and the small number of these projects, these were excluded from the evaluation.