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

Chapter 3 | Outcomes for Access, Quality, Financial Sustainability, and Effects on IFC Returns

This chapter presents evidence on how access and equitable access (including inclusiveness and affordability), quality, and financial sustainability were treated in IFC’s investments in K–12 private schools and how they also affected IFC’s return on investment. The findings draw on the portfolio review and case studies undertaken for this evaluation and reflect issues raised in the SLR, secondary data analysis (SDA), and views expressed by key informants.

Access to Education and Equitable Access

Like most DFIs investing in K–12 private education, IFC financed the construction or expansion of school buildings, modern facilities, and other capital needs of K–12 private schools to increase student enrollment. The development objective for 11 of the 25 IFC direct investments in K–12 projects was some variant of “increasing access to quality private education to meet demand for quality education from middle-class parents”; for three other projects that were expanding their secondary school programs and introducing a vocational curriculum, the development objective was typically something akin to “increase in access to high-quality vocational training and subsequent human development effect.” Nineteen of the 25 IFC direct investments primarily supported the clients’ financing needs for the construction of new school buildings as part of school expansion. A further five projects (all in Sub-Saharan Africa) financed a combination of building a new school (through acquisition or new construction) and improving or modernizing existing facilities.

IFC investments are likely to have increased enrollment in supported schools, but mainly for children from middle-income families. In line with its education sector strategies before 2012, IFC’s focus on increased access to quality education was mostly in schools that targeted students from middle-income families. Sixty percent (14) of projects supported schools that targeted children from middle-income families. IFC also invested in a school that enrolled K–12 students from upper-income households and another that enrolled students from both middle- and upper-income households. Appraisal documents for four projects provide no details on the target income level of students. As mentioned in chapter 2, IFC’s 1999 and 2001 education strategies aimed to meet the demand from a growing middle class, but the 2001 education strategy added an aspiration to expand educational opportunities to middle and lower classes to contribute to social mobility and poverty alleviation.1 Possibly reflecting the emphasis in the World Bank’s 2011 education strategy, Learning for All, IFC’s 2013–15 education strategy referenced dropout rates, especially among the poorest students, which affect the efficiency of education systems.2 The 2013–15 strategy also referenced plans to pilot low-cost business models with the potential to scale up (for example, low-cost schools in Africa).

The evaluation could not determine if the increase in the number of students enrolled in IFC-financed K–12 private schools was the result of drawing students away from other schools or enrolling out-of-school students. Appraisal documents did not indicate if IFC served surplus demand, although, given the core target group (students from middle-income families), the schools in which IFC invested were unlikely to have been seeking to attract otherwise out-of-school children.3 Because IFC did not collect relevant data on most of the projects’ stated development objectives after commitment, the absence of evidence also makes it impossible to determine if the stated development impacts of IFC investments (such as reduced crowding in public schools, increased efficiency in the public schools through increased competition from private schools, or spillover effects in training for public teachers and schools) occurred. Moreover, there is no indication that IFC investments were intended to address access beyond the students enrolled in the supported schools to include underserved groups, such as those out of school, the impoverished, or children with disabilities (see concept used to assess access in appendix A).

Most countries in which IFC invested in K–12 private schools currently report nearly universal enrollment at the primary level (2014–20). The findings of the SDA undertaken for this evaluation also found that over the period in which IFC was actively investing in K–12 private education, gross enrollment in primary school at the global level increased from about 98 percent in 1995 to more than 103 percent in 2017. Net enrollment rose from about 82 percent to more than 89 percent over the same period. Increased rates of enrollment were predominantly in public education, but the share of enrollment in private schools has also been increasing, consistent with the global trend noted in chapter 1. The combination of an increasing private share, increasing educational participation (and, in some countries, growing population), and the rise of the middle class in emerging markets means that the number of private school students has increased in most countries.

The SLR found that private education can screen out the poorest even in a low-fee context, which emphasizes the importance of careful design and close monitoring of investments where equitable access is a problem.4 Low-fee private schools are the result of both private entrepreneurship and strong household demand for quality education; these schools have emerged and expanded spontaneously in low-income countries at the margins of state systems (Verger, Zancajo, and Fontdevila 2018, citing Walford 2015). The SLR found that low-fee private schools are still not accessible for the poorest social groups in some contexts. They tend to attract those families among the impoverished that have higher levels of education and greater expectations for their children—that is, the most advantaged among the disadvantaged (Verger, Zancajo, and Fontdevila 2018). The SLR also found that context—type of private school, quality of public system, state regulation, country- and region-specific socioeconomic and demographic characteristics, and other factors—is very important (Bodovski et al. 2017; Snilstveit et al. 2015). Private schools are heterogeneous, which has to be considered along with their location (urban versus rural) in any assessment of their efficacy. Several studies show variance in private school performance among districts in the same country, such as in Indonesia (Asadullah and Maliki 2018) and India (Azam, Kingdon, and Wu 2016), which suggests that differences between urban and rural areas—and region-specific socioeconomic and cultural characteristics—can significantly affect access to, and the quality of, private schools. Details of SLR findings are presented in appendix H.

IFC invested in a few low-fee schools, but no data are available to determine the socioeconomic profile of those who attended these schools. IFC provided first-loss RSFs to four projects in the Sub-Saharan Africa Region that were designed to support the expansion of schools that charged relatively low fees. Although some of these schools probably catered to students from low-income families, monitoring documents do not provide sufficient information to know whether the schools maintained the proposed low-fee structure, including the two RSF projects described in box 3.1.

Box 3.1. IFC Investments in Low-Fee Schools in Sub-Saharan Africa: Case Study Findings

In the Kenya and Rwanda school project case studies conducted for this evaluation, the International Finance Corporation (IFC) provided Risk-Sharing Facilities (RSFs), including advisory services, to support lending by two domestic banks to low-fee kindergarten through grade 12 (K–12) private schools. In both projects, the financial intermediaries, backed by IFC’s RSF, provided loans to small schools to add classrooms and facilities, procure educational materials, and increase enrollment (although no data substantiate the extent of the increase).

In both countries, the introduction of free primary schooling in pursuit of the second Millennium Development Goal to achieve universal primary education resulted in overcrowding and perceived deterioration in the quality of education. The absolute level of public investment in education did not decline, but the starting point was low and did not increase commensurate with increased enrollment. This was particularly the case at the lower secondary level, although in one country there was also demand for private primary education within communities that did not require young children to travel significant distances to school and for teachers who live within the same community (a sense of familiarity).

The RSF in Kenya was designed to support schools for low- and middle-income students, and the case study found that the RSF benefited low-fee schools, including those in urban slums. The result is less clear for the Rwanda RSF.

In both cases, IFC advisory services provided school owners and managers with training to run their schools as self-sustaining businesses, with sound governance structures and financial and operational systems, creating creditworthy entities that could secure financing. IFC also trained financial intermediaries to help them appraise K–12 school borrowers and develop lending to K–12 schools as a business line. In one case, 22 schools secured loans from the intermediary (a local development bank), although school owners claimed that the financial terms were not different than what might otherwise have been available. Some evidence indicates that the accompanying advisory services resulted in a further 30 schools obtaining loans from other commercial banks, although the favorability of the terms of those loans is unknown.

There is no evidence that access policies of schools were considered by the financial intermediaries that partnered with IFC in either case. In one case, the law forbade any discrimination. In another, the project targeted low- and middle-income families, and in that case, it is clear that at least some of the schools, operating in slums, catered to impoverished families.

Source: Independent Evaluation Group case studies.

With the focus on middle-class students, IFC addressed the question of equitable access through the schools’ provision of bursaries or scholarships to low-income households, but data on the number or profile of beneficiaries were not consistently collected and tracked. Project appraisal documents contain review of bursaries and scholarships offered to extend access to low-income students. In a few projects, the provision of scholarships to children of teachers and staff is part of their benefit package. Scholarships extended to low-income students were identified as expected development outcome indicators in the Board approval documents of 11 projects, while scholarships were assessed in the early screening documents in 12 of the 25 direct investment projects. For example, approval documents for one project indicated that the school intended to offer free education bursaries to low-income households for up to 10 percent of the enrolled students. As part of that project, the investment also intended to provide free education bursaries for 200 students. One of the K–12 projects evaluated provided scholarships to 18 low-income students and reported the annual cost of the scholarships provided because of IFC’s investment. However, the scope for expanding the provision of bursaries and scholarships also affected costs and revenues for schools. Thus, there are few examples of projects that were able to expand scholarships to include low-income students. In another project, the school intended to offer 5 percent of school enrollment capacity to students from low-income households. However, when the project was evaluated, it had achieved a slightly lower rate of more than 3 percent because of the school’s financial difficulties.

The lack of evidence on opening access to low-income or impoverished students may also stem from the inadequate attention to concerns about equitable access. As examples, the Board documents for three K–12 private school projects in the East Asia and Pacific Region did not mention at all the provision of scholarships to low-income students. In two other K–12 private school projects in the Region, the Board documents indicated only that scholarships and tuition discounts were part of the economic return on invested capital calculation, but they did not specify the intended beneficiaries (and the number of scholarships to be provided), and no information was collected on whether the scholarships were provided and, if so, to how many low-income students. In another project supporting a school in the Middle East and North Africa Region, the Board documents identified the number of scholarships that it expected to award to low-income students as an indicator to be tracked, but monitoring reports provide no data on this indicator.

Little evidence exists that the schools in which IFC invested had access policies that referred to enrollment of specific target groups. IFC typically set out to track the number of students enrolled. Fourteen projects also intended to track the number of female students (and female faculty members and staff), but data were collected in only 4 projects during supervision. In all 25 projects, there is no reference to tracking school enrollment of marginalized groups such as the impoverished or people with disabilities in the project approval documents. Monitoring and supervision documents for only 30 percent (7) of schools referred to policies of enrolling marginalized groups. Just 5 of the 25 IFC projects report on improvements in affordability or inclusiveness.

Enrollment numbers were regularly tracked without reference to student profile (such as disability or previous school attendance), and students’ socioeconomic profiles were not monitored. All access-related indicators at appraisal were output rather than outcome oriented, such as enrollment, number of scholarships, additional hire of teachers and staff, and gender. The number of students enrolled was the predominant access-related indicator in IFC documentation at appraisal (21 projects), but data collection of this and other indicators diminished over the life of the projects. Enrollment was tracked for 15 projects (60 percent). The next most-referenced access indicator at appraisal was provision of scholarships. Other access-related indicators—tuition rates or access to quality education, vocational training, or bilingual education—were referenced in appraisal documents for 2 projects each.

IFC’s assessment of affordability was broadly based on benchmarking the fee structure of supported schools against other private schools in the country, including international schools. Fees charged were often less than those comparators, but they were still at a rate that was unaffordable for low-income and impoverished families. In some cases, IFC financed school expansion into secondary cities in poorer parts of the country (Egypt, Mexico, Indonesia, South Africa) where the government had provided incentives to private schools to establish a scaled-down version of their flagship schools in the capital. IFC-financed schools in secondary cities still generally attracted students from middle-class families, although an evaluation of an IFC-supported school project in Mexico found that it also enrolled low-income students.5

IFC investments rarely responded to barriers to access encountered by certain groups or to broader challenges faced by education systems. Because of IFC’s transaction-based approach—its focus on financing individual schools or networks—access was considered relative only to the schools financed by IFC without considering the effect those schools may have on the local education systems within which they were located, or opportunities available to potentially underserved groups such as out-of-school children, the impoverished, or children with disabilities. Adopting an approach that took into account the local education system would be preferred because, as the SLR found, private schools may lead to greater inequality because of sorting and increased learning inequalities between, respectively, children from impoverished rural backgrounds and their wealthier rural and urban-based counterparts.

The evaluation also found weaknesses in mitigation efforts to counter potentially negative spillover effects such as exacerbating inequalities. No attempt was made to measure stated development impacts of IFC investments in the Board documents, such as reduced crowding in public schools, increased efficiency in the public schools through increased competition from private schools, or spillover effects in training for public teachers and schools. Development impacts that were achieved and monitored for the schools in which IFC invested included increases in student enrollment, number of teachers and staff employed, and taxes paid by the private school to the government. The apparent lack of attention given to spillover effects beyond the schools in which IFC invested is a weakness.

Other DFIs have recently developed specific criteria governing their investments in K–12 private schools to avoid limitations of the transactions-based approach and to recognize the broader education landscape within which financing is offered. The United States Agency for International Development, the Commonwealth Development Corporation, and Swiss Agency for Development and Cooperation have recently reappraised their engagement in K–12 private schools, recognizing the complexity of education systems (box 3.2). These DFIs have also recognized the substantial number and variety of stakeholders involved in education provision, explicitly identified target groups, and committed to piloting and testing innovations to reach them. These developments are recent and are, as such, untested.

Box 3.2. Adjusting to an Education System’s Approach

The framework of the United Kingdom’s Commonwealth Development Corporation (renamed as British International Investment) for maximizing the impact of education investments recognizes risks associated with private investment, such as significant variability in quality and little incentive for private companies to target harder-to-reach, costlier groups unless there is a clear business case (CDC Group 2019). It also recognizes that competition among private schools for the highest-quality professionals and students can have a negative impact on public provision.

The Swiss Agency for Development and Cooperation produced a scoping study for private sector engagement in basic education and lifelong learning that sets out certain principles, such as that although the provision of education is a shared responsibility that can include public-private partnerships, the Swiss Agency for Development and Cooperation is against for-profit schooling and the commercialization of basic education; private and alternative basic education provision must respect the right to universal basic education and adhere to regulatory national policies and quality standards (SDC 2020). The Swiss Agency for Development and Cooperation adopted a selectivity framework that identified the different types of private sector actors that it can work with based on likely educational impact. The framework is accompanied by additional guidance on how to develop monitoring and evaluation specifically for private sector engagement.

In a good practice guide to engaging with what it refers to as nonstate schools, the United States Agency for International Development (USAID 2020) adopts six principles for engagement, including, for example, the primacy of governments as the guarantors and regulators of education, a focus on schools serving marginalized and vulnerable populations, and an intention to catalyze innovation and scalable solutions in alignment with government priorities. It also recognizes that the nonstate sector is only one stakeholder in the education system, alongside governments, civil society, parents, and students; viewing education systems holistically and engaging all stakeholders can help achieve sustainability.

Sources: CDC Group 2019; SDC 2020; USAID 2018, 2020.

Education Quality

IFC support for education quality in K–12 private schools, as in the case of access, was largely limited to investment in school buildings. IFC’s financing was mostly intended for capital expenditures to enhance the physical capacity of schools. At appraisal, IFC assessed education quality (for example, teacher qualifications, assessment systems, curriculum, graduation and retention rates, accreditation, and other factors) to aid its investment decision.6 However, in the Board approval documents, education quality indicators were poorly defined and only captured outputs (such as number of teachers, training sessions conducted, and teachers training expenditures) that IFC rarely monitored during implementation (appendix D).

IFC rarely financed other key factors of education quality, such as the quality of teaching and training (as described in World Bank 2019a). In three projects, IFC financed education quality enhancement activities in addition to financing capital expenditures for physical infrastructure and facilities improvement. For example, a project in the Europe and Central Asia Region aimed to improve quality through refurbished classrooms and the introduction of high-end teaching equipment, and the pursuit of two international certificates with the help of IFC investment. In addition to infrastructure improvements, a project in Sub-Saharan Africa focused on teacher training and the inclusion of online learning platforms in the curriculum. In another project, IFC aimed to help the sponsor strengthen independent third-party longitudinal assessments of teaching quality (that is, objective assessments of teaching quality). In this project, IFC helped source funding partnerships and assisted the sponsor with developing thought leadership in assessing and reporting quality of education in low-cost private schools. In a project in the Middle East and North Africa Region, the project subsidiary operates a free online education portal that provides educational information and curricula for students in primary school through high school, in English and Arabic, that covers math, sciences, and social studies. The education portal is widely used in the country and the region.

IFC neither monitored education quality nor provided evidence to verify it. IFC did not consistently identify, collect data on, track, or monitor key indicators associated with improved quality for all of its investments. Only four projects tracked student outcome data on the rate of graduation, and none tracked other key data, such as the rate of dropout or repetition. In many projects, IFC did not seek to assess changes or enhancement in education quality over the life of the projects or as a result of its investment. Post-IFC investment commitment, the IFC education specialist hands over the monitoring and supervision to other departments and staff who have responsibility for data collection and reporting on the development indicators identified in the Board paper. IFC’s Development Outcome Tracking System, the previous platform for tracking IFC projects’ development outcome indicators, barely contained updated data on the indicators, which may have been exacerbated by the high incidence of cancellations and droppages in the K–12 private schools portfolio.7

The four RSFs were accompanied by advisory services designed to improve the overall capacity of low-fee schools and partner financial intermediaries. Case studies of the two RSF projects found that the advisory services were highly valued, although their focus was largely on improving the quality of the schools as a sustainable and viable business enterprise, rather than improving education quality. Advisory support in Rwanda included provision of training to 277 schools, mostly for middle-income students (of which 227 operated in low-income areas and 89 in rural areas). Participating schools received training designed to help them meet environmental and safety certification requirements that would allow them to operate legally and access financing. The program supported 28 schools in obtaining almost $11 million worth of financing. Other schools received training in, for example, business planning, financial management, governance, and leadership skills. In Kenya, IFC’s advisory services component of the RSF aimed at strengthening the private school subsector by improving planning, management, business, and finance capabilities, thus improving schools’ chances of accessing loans. The advisory component reached 718 schools in 11 geographical areas across low- to high-income schools. When the RSF agreement was canceled, 61 schools had accessed loans, 27 of which had a total value of $502,764 from IFC’s partner bank, while another 34 loans were approved by other domestic banks.

Private investors in education who were interviewed for this evaluation said that they offered postinvestment support to schools to promote both education and business quality.8 To address education quality, some private firms provide teacher training and coaching, while others offer enhanced curricula. Other firms engage external service providers to evaluate students’ literacy and numeracy or provide prospective parents access to students’ performance history so they are aware of the quality of education being offered. Most firms interviewed engage external education service providers to measure learning outcomes and track student performance. One firm asserted that sharing lessons learned and learning outcome data with other schools, both private and public, will lead to enhanced monitoring and evaluation practices more generally. Another firm shares its curriculum with other private providers and offers teacher training courses to public sector teachers at no cost to broaden its reach to more communities. Business supports can take the form of technical assistance to address specific issues such as software upgrades and teacher training and mentoring. School operators also receive support in expanding their management structure (for example, the creation of new staff positions in human resources, marketing, and financial management). Operational support can include identifying and securing school sites and ensuring that school buildings meet safety standards.

Interviews with key informants, and especially with local civil society organizations, indicate that the most significant policy considerations are equity and education quality rather than investment in K–12 education per se. Some key informants suggest that public (government) funding could support a privately run education network if the circumstances ensure that challenges are being overcome, quality is delivered, safeguards are in place, government regulation is fully articulated, and preferably no fees are being charged (or at least no more than the equivalent fees charged by public systems).9 In other words, even public funding could support private delivery of education if it were both inclusive and more efficient (appendix G).

The literature is broadly inconclusive on the relative quality of private education. Several studies find no effect of private education on learning outcomes (Alcott and Rose 2016; Allcott and Ortega 2009; Azam, Kingdon, and Wu 2016; Bodovski et al. 2017; Calvès, Kobiané, and N’Bouké 2013; Choi and Hwang 2017; Singh 2015). Other evidence suggests that there is no improvement in durable learning outcomes, such as problem-solving abilities (Kumar 2018), or continued or sustained improvement over time (Barrera-Osorio and Raju 2010). (See appendix H for the summary results of the SLR conducted for this evaluation.) Small but significant improvements in test scores have been linked to decentralized decision-making, including hiring and firing of teachers and the ability to create a school culture that empowers staff, students, and parents, among other things (Allcott and Ortega 2009; Aslam, Rawal, and Saeed n.d.; Singh 2015). However, studies have found that unobserved heterogeneity among students accounts for up to 100 percent of positive effects on learning, although that percentage can vary depending on the subject and school location, such as urban or rural (Azam, Kingdon, and Wu 2016; Brandt 2018; Chudgar and Quin 2012; Singh 2015; Thapa 2015; Wamalwa and Burns 2018). Other studies find that learning outcomes vary significantly according to subject, students’ ages, and geographical context. Still other studies find that improved learning outcomes associated with low-cost private schools may be driven by “teaching to the test”—that is, priming the students for aptitude and related tests. IFC is aware of the complex issues surrounding quality and access, especially in low-fee schools (see box 3.3 for an illustrative example). Therefore, its monitoring and evaluation systems need to assess continued improvements in education quality as a result of its investments.

Box 3.3. An Example of Increasing Access and Quality through Financing to Low-Fee Schools

The increasing number of low-fee schools in Punjab, Pakistan, provided the rationale for a policy experiment. The results from an impact evaluation that changed the environment in which schools operate and let schools (the market) determine school input and enrollment choices shed light on the impact of private schools on access and quality.

The experiment randomly allocated an unconditional cash grant of US$500—15 percent of schools’ median annual revenue—to low-fee private schools in 266 villages in Punjab. For context, in Punjab, the median fee in low-fee (not elite) private schools is roughly US$2 per month per child, or less than one-half of the daily minimum wage in the province. In some villages, only one private school received the unconditional cash grant (where the average village had three low-fee private schools). In other villages, all schools received the grant. The evidence compared results from control villages, one-grant villages (low saturation), and all-grant villages (high saturation).

In the one-grant villages, school owners invested in infrastructure or educational materials (for example, furniture, fixtures, and classroom upgrades or textbooks and school supplies). However, in all-grant villages, to attract students, school owners had to differentiate their school from others, which induced firms to increase infrastructure and quality-enhancing inputs, such as investing in teachers; test scores increased in these schools. The evidence suggests there may be ways to promote investments in teacher training that may directly impact learning but are risky (training may not be effective or trained teachers may leave). In this scenario, student test scores increased, but the schools raised their fees as well, quite possibly pricing out more disadvantaged students. The extent to which fees segment students in the market was not studied.

The experiment supports a role for financial intermediaries looking to invest in private schools. Depending on the amount of financing available in a given market, supply-side capacity constraints are relaxed, and enrollment of out-of-school children increases or enrollment increases along with quality.

Source: Andrabi et al. 2020.

Similarly, the SDA found that a private school advantage is not definitive and should not be assumed in every context. Overall, the SDA found that in roughly half of the countries for which data are available, there is a substantial (standard deviation 0.25 or higher) residual private school achievement advantage in the average student scores on math and language tests, even when controlling for student background. This finding applies to what the SDA categorizes as countries with low coverage of private schools and low or medium equity of access, and it is true at both the primary and the secondary levels. However, private schools do not always outperform public schools, or the advantage is fairly small (standard deviation < 0.10), especially after taking account of student and family background. This finding is consistent with those from the SLR and, in most cases, is applicable to countries in Sub-Saharan Africa (primary schools) or Asia (secondary schools). For high-equity countries with low coverage of private schools, the results are consistent between the primary and secondary school levels—that is, small raw differences in achievement between public and private schools are generally reduced to near or below zero when controlling for student and family background. A summary of the SDA results is presented in appendix J.

Financial Sustainability of K–12 Investment Projects, IFC Additionality, and IFC Investment Returns

This section presents findings about the financial sustainability of IFC’s investments in K–12 private schools and IFC’s additionality, either in financial or nonfinancial form. The evaluation assessed financial sustainability from two angles: the project and the returns to IFC of its investments in the subsector. The evaluation also reviewed the investable market in K–12 private schools.

IFC is expected to support financially viable projects and provide unique support to private investment projects that is not typically offered by commercial sources of finance. IFC has a mandate to “support productive private enterprise…without guarantee of [government] repayment”10 and therefore selects projects that are likely to be profitable and viable. Selecting financially viable projects makes it more likely that anticipated development benefits will be realized while also contributing to IFC’s own financial sustainability.11 In the private education subsector, financial viability is important for sustained and improved operations and for supporting the schools’ delivery of expected levels of access and quality.12 In selecting projects, IFC must also provide unique support or additionality to the project and to the client or sponsor to increase the likelihood of achieving potential development impact, profitability, and sustainability.

IFC Additionality and Financial Sustainability of K–12 Private School Projects

IFC’s additionality was primarily financial in nature, as it aimed to offer loans with better terms and equity participation than those available from local or other international financiers. IFC’s investment projects attempted to help fill a gap by financing K–12 private school projects that might not have proceeded otherwise because of the lack of term financing and the reluctance of financial intermediaries to assume the high risk of investing in K–12 private schools. In the early phase of IFC’s investments in K–12 private schools (see chapter 2), lenders were still reluctant to provide long-term financing comparable to IFC. IFC offered loans with 5 to 12 years’ maturity and 2 to 3 years’ grace period, compared with short-term (1-year or less) loans from other lenders. In nearly half of the projects, IFC offered lower interest rates than local banks and other financiers. In an equity investment, a school owner sought IFC’s equity participation to increase the likelihood of a successful global initial public offering to finance the school’s planned expansion in the aftermath of the global financial crisis. In nine projects, IFC was the only lender willing to finance the expansion plans of K–12 private school owners. As a pioneer among DFIs in investing in private education, including K–12 private schools, IFC signaled to other financiers the business potential of investing in K–12 private schools.

IFC also added value to its clients and the school projects through nonfinancial means. IFC helped clients improve business or financial management, enhance corporate governance, and adopt sound environmental, health, and safety standards (in 19 of 25 projects). Schools financed by IFC were required to have proper accounting systems and independent auditors and to appoint nonfamily members in the school’s governing structure, among other sound business and governance practices. In six projects, IFC guided the owners in constructing green school buildings, and in all projects, sponsors were required to comply with IFC’s environmental, health, and safety standards (such as fire safety measures) during the life of IFC’s investment. Monitoring and supervision documents indicated improvements related to these nonfinancial additionalities in most projects.

Despite IFC’s emphasis on financial sustainability and financial additionality, most K–12 private school projects experienced financial difficulties that resulted in either partial or full cancellation of IFC’s investments. Cancellations corresponded to more than half IFC’s direct investment commitment amount ($88 million out of IFC’s $156 million direct investments; see table 3.1). An overwhelming 90 percent of the canceled amounts were in the form of IFC loans. Financial difficulties associated with shortfalls in expected student enrollment, high arrears in tuition payments, and the unpredictability of tuition receipts—the sole source of revenue for more than half of the schools in which IFC invested—were the main causes of the cancellations. Additionally, IFC loans were denominated in foreign currency (either US dollars or euros), whereas school revenues were in local currency. Therefore, shortfalls in revenues, especially for schools that relied fully on tuition payments, affected the sponsors’ ability to service IFC’s loans (appendix C). In the four projects supported by RSFs, the design and requirements led to the eventual cancellation of the facility by the financial intermediaries involved (box 2.2). Schools that charged higher tuition fees and whose sponsors had other revenue sources (from their other businesses) were more financially viable and could service IFC’s loans, even if the project itself was experiencing shortfall in expected revenues. By contrast, a school owner without adequate financial resources and with less business experience declared bankruptcy because of the sponsor’s inability to manage its finances. The two school projects funded by IFC equity investments showed better financial results for the project sponsors than the K–12 projects financed by loans and RSFs. These two schools are well capitalized and have sponsors with business experience, and access to financing from other investors.

IFC loans to K–12 private schools experienced higher incidence of cancellation, droppage, and overall inadequate disbursement compared with the rest of IFC’s investments in the education sector and its overall portfolio. The cancellation rate of IFC loan commitments (stock data) to K–12 private schools was 56 percent,13 compared with IFC’s overall loan cancellation rate of 15 percent. By number of projects, 19 of the 25 (76 percent) IFC direct investments projects were either fully or partially canceled, including the 8 projects in which IFC’s loans were not disbursed or were dropped, indicating that the projects were not executed as planned. The incidence of nondisbursement or droppage was also high. One-third of the projects (8 of the 25 direct investment projects) were closed without using IFC financing commitment and therefore were not monitored for their performance and outcomes. Problems with land acquisition, cost overruns, and implementation delays halted school owners’ plans to relocate, expand their existing premises, or open new school branches. In three projects, the planned acquisition of another school did not occur. Several sponsors, especially the owners of small schools, also had difficulty complying with IFC financing covenants,14 which curtailed the disbursement of IFC’s financing.

Table 3.1. IFC Commitment Amounts That Were Canceled or Not Disbursed (US$, millions)

Investment Type

Total Project Size

Original IFC Commitment

Actual IFC Commitment

Amount Disbursed

Amount Canceled













Straight senior












Senior loan with options or quasi-equity






Risk-Sharing Facility





Sources: Independent Evaluation Group’s own calculation; International Finance Corporation management information system reserve database as of August 30, 2020.

Note: More than half (56 percent) of IFC investment commitment amounts were canceled or not disbursed, indicating that projects were not implemented as planned. There was no disbursement on the Risk-Sharing Facilities because there were no claims filed by the financial intermediaries. — = not applicable; IFC = International Finance Corporation.

Optimistic assumptions and assessment of risks at appraisal, as well as weak monitoring, partly explain the high incidence of cancellation and nondisbursements. In selecting K–12 private schools in which it could invest, IFC assesses the business, education, social, and economic rationale for the investment. IFC’s appraisal covers the project’s financial structure; academic, commercial, and legal and institutional factors; management structure; market factors; national policies and regulations toward private education and the financing of private schools; and barriers and risks to investments and corresponding mitigants (IFC 1999, 2010). However, as the high incidence of cancellation and nondisbursements indicates, IFC’s appraisals have shortcomings. Of the five K–12 private school projects that have been evaluated, four were rated partly unsatisfactory for the quality of IFC’s screening, appraisal, and structuring. Although the evaluated projects represent only one-fifth of the K–12 portfolio, the experience mirrors that of other projects with canceled or nondisbursed loans. Assessing the projects from a project finance perspective, combined with an optimistic assessment of projects risks, has contributed to the high cancellation rate. Although certain factors are difficult to control, K–12 project risks can be mitigated by improving project due diligence and education systemwide assessment at appraisal and reinforcing these factors through regular and appropriate monitoring systems. For example, a lesson from an evaluated project that experienced land acquisition problems led to a recommendation that IFC take time at appraisal to understand the issues that are likely to affect land procurement, including issues related to land reform. This lesson can be also applied to another project that committed IFC to provide a loan to build a school even though the sponsors had not secured the purchase of land for the new school site—with the sponsors unaware that the land had been already sold to another party, resulting in the cancellation of the IFC loan. In another project, IFC’s appraisal of macroeconomic conditions minimized the downside risk of an economic downturn that was already becoming evident at the time of project appraisal.

Projects were assessed based on how they fit with IFC’s and the World Bank’s country and education strategies and whether they meet parental demand due to weaknesses in the quality of public education; however, the potential negative spillover effects were not assessed and monitored. Project appraisals assessed the country’s education sector, the regulatory framework for private education and private schools, and the “fit” of the proposed investment with IFC and World Bank country and education sector strategies. The appraisals also documented inadequate provision of quality education in public schools and strong demand for quality education from middle-class parents, and in most projects, they compared the K–12 school with other private schools based on curriculum offered, academic accreditations, and tuition fees. In addition, IFC appraisals also cited the project’s contributions to the economy—such as number of jobs created, salaries and wages paid, and taxes paid to government (appendix D)—and the increased efficiency of public schools resulting from competition as project development outcomes. However, there are no indications that the appraisals assessed the potential negative spillover effects or if the projects made provisions to expand access to reach out-of-school children. Finally, in all K–12 private school projects, IFC’s monitoring and supervision emphasized the projects’ financial performance and sustainability. Private sector investors interviewed for the evaluation similarly said they undertake market assessments as part of their due diligence and monitoring. Information gathered includes current and future public sector capacity and existing private provision and whether there is unmet demand. Data on public school quality (test scores) are also sought. A private investor mentioned that before investing in an existing school, they survey current parents to ensure their satisfaction and avoid reputational risk. The investors interviewed affirmed that they survey parents of the investee school to ensure they are reaching their target market.15

Where IFC achieved success is in signaling other financiers about the business potential of investing and addressing access to financing in the K–12 private school subsector. IFC was the pioneer among DFIs and other financiers when it started investing in the subsector in 1995. Although 19 of the 25 sponsors have fully or partially canceled the IFC investment commitment, local banks, private sector investors, and DFIs continue to provide financing after IFC’s exit. In one of the Africa Enterprise Fund loans, the sponsor prepaid the IFC dollar-denominated loan after a local bank offered local currency financing when the sponsor could no longer meet payment of IFC foreign currency loan because of rapid local currency depreciation. Another sponsor received ample financing for its school expansion plan so that it no longer required IFC investment, which was not disbursed. In four projects financed by an IFC loan, school owners found alternative sources of longer-term, local currency financing from local banks, including schools that borrowed from three RSF financial intermediaries after the facility agreement with IFC was canceled. Before the COVID-19 pandemic, all of the K–12 private schools continued to operate and had expanded after IFC’s exit, even the schools that encountered financial difficulties during IFC involvement.

Returns to IFC on Its K–12 Private School Investments

The high level of cancellations among loans and RSFs and the inadequate disbursement record of the K–12 portfolio constrained IFC’s ability to cover its transaction costs or earn the expected returns on its investments. Most types of K–12 private schools financed by IFC, whether for-profit or not-for-profit, large or small, or high- or low-fee, encountered business viability challenges. This is particularly true for smaller schools financed through IFC’s SME facilities, such as the Africa Enterprise Fund. Smaller schools struggled with shortfalls in student enrollment, tuition fee receipts, and difficulties in meeting IFC’s loan covenants or requirements. Three projects had arrears or write-offs of IFC investments, indicating fragility of their operations. One equity investment had a negative equity internal rate of return for IFC as of June 2021. However, the other direct equity investment into a school network in East Asia that has expanded overseas exceeded IFC’s equity internal rate of return expectations. The company is well capitalized, has other sources of financing, and has opened overseas branches for upper-middle-class students in Australia, Canada, Malaysia, and Singapore.

Other investors in K–12 private schools have also struggled with the financial results of their investments. Private investors interviewed for this evaluation affirmed that financial sustainability is of paramount importance and that they require investments that are commercially viable—offering a return on investment from 10 percent for impact investors to 20 percent for a private equity investor. One private equity firm said it seeks to make three to five times the amount of its initial investment over the course of at least 20 years (appendix E presents the types of private sector investors financing K–12 private schools in developing countries). If we compare this with the investment result of IFC’s direct equity investment in K–12 private schools, only one of IFC’s two equity investments met similar internal rate of return expectations, although IFC’s equity investment has a shorter time horizon because its policy on equity investment requires an earlier exit than the 20-year investment horizon of the private equity investors who were interviewed.

The K–12 Market and Implications for IFC

Despite growth in the number of K–12 private schools and associated increases in enrollment, the investable market is limited. The K–12 private education market is dominated by traditional financing, including individual and family entrepreneurs, and private equity (appendix E). Family-run K–12 private schools tend to be small, limiting investment opportunities. For example, only 10 to 20 percent of formal private education providers in Sub-Saharan Africa have a revenue scale large enough to make investment viable for large investors (Caerus Capital 2017). The small size and relative business-related immaturity of many K–12 private schools, particularly low-fee private schools, inhibit their scalability. Operators of low-fee private schools often have no financial training, lack access to capital, and rely on a single, uncertain revenue stream: tuition payments (Härmä 2021; Results for Development 2016). Because these small businesses cannot absorb large investments, private equity investments are rare and tend to be from local sources when they do occur. Some formal private schools have been able to expand into networks, but these networks typically remain small. According to the Global Schools Forum, an organization for private school networks in developing countries serving low- and middle-income students, the median Global Schools Forum member is seven years old and has grown by 1.6 schools each year (Global Schools Forum 2020). However, the average is skewed by some very large chains that have grown quickly (Caerus Capital 2017). Venture capital investments in K–12 private schools are small and tend to focus instead on educational technology start-ups rather than schools. Angel investors are rare, although some have invested in high-profile school ventures such as Bridge International Academies and SPARK Schools. Innovative, results-based financing—including impact bonds, outcomes funds, and social bonds—has recently entered the market and may grow in importance as the market evolves.

IFC and other DFIs have invested in the same schools, an indication of the limited opportunity for viable investment in the subsector. At least five of IFC’s investments have attracted financing from other DFIs. For example, Bridge International Academies attracted investment from IFC and the Commonwealth Development Corporation, and the Bill & Melinda Gates Foundation, the National Education Association, Omidyar Network, and the Chan Zuckerberg Initiative. Given the small number of schools, a network of schools or school chains supported in the overall portfolio (25), and the large number of K–12 private schools in the developing world, the fact that some schools (16 percent) have attracted multiple DFIs seems indicative of the limited bankable investment opportunities in the K–12 subsector.

Earning sufficient revenue to cover cost plus extra earnings for reinvestment is necessary for private schools to improve education quality, and expand access and equitable access, but it also presents challenges in achieving the promise of SDG 4. This is particularly challenging because the broad policy goal of most governments and many education initiatives is to lower the cost of K–12 education (Braverman 2018). This is a problem too for private schools that want to target lower-income students. IFC financed a school in Latin America that offered a scaled-down version of its upscale schools to accommodate lower-income students targeted by the school’s expansion to secondary cities. But the parents’ request for similar services and amenities offered in the upscale schools operated by the sponsors led to the project’s financial difficulties and challenges in the ability to offer lower fees. Evidence from the SLR suggests that policies that aim to make public education more accessible (abolition of fees, for example, including in public schools) may undermine public school quality by causing a “rich flight” of children of well-off parents from public schools to enroll in private schools. This phenomenon can result in an increase not only in demand for private schools but also in sorting and, potentially, greater inequality within the education system (Ganimian and Murnane 2014; Johnes and Virmani 2020; Lucas and Mbiti 2012; Manda and Mwakubo 2013). What is evident, as set out in World Development Report 2018, is that the push to increase enrollment in basic education under the Millennium Development Goals was not accompanied by increased learning outcomes (World Bank 2018).

K–12 private schools are highly localized businesses, which makes it difficult for most providers to replicate their education model across different regions and achieve economies of scale and efficiencies. Other challenges include the long-term nature of private investments in education, with returns unlikely for seven years—and even longer horizons needed to demonstrate successful academic outcomes. Individual K–12 private school operators also face expansion challenges, including lack of financial literacy and access to capital, and an uncertain revenue stream from tuition payments. In addition, because education is a long-term business, it can take considerable time for operators to demonstrate successful academic outcomes and secure longer-term viability. However, IFC’s difficulty in covering its costs and earning the expected risk-adjusted returns on its loans to K–12 private schools, in addition to the negative return of one of its two equity investments, makes it challenging to confirm a business case for IFC to resume its investments in K–12 private schools.

  1. The 2001 education strategy of the International Finance Corporation (IFC) asserted that to enhance impact, one of its focus areas would be the expansion of educational opportunities for the middle and lower classes, which can contribute to social mobility and poverty alleviation (IFC 2001, 4, para. 6).
  2. The foreword to the strategy notes, “Learning for All means ensuring that all children and youth—not just the most privileged or the smartest—can not only go to school but also acquire the knowledge and skills that they need to lead healthy, productive lives and secure meaningful employment” (World Bank 2011, v).
  3. All key informants interviewed expressed special concern for the most vulnerable and marginalized children, especially girls, children living in extreme poverty, and children with disabilities. All interviewees also believe that these populations are not being well served either by private or public sector education in their countries and regions. However, local civil society organizations think that public systems do accommodate the needs of children with disabilities.
  4. Other development finance institutions also shifted their focus to the low-fee market. For example, in 2015, the United Kingdom’s Department for International Development (replaced by the Foreign, Commonwealth & Development Office) committed to invest up to $45 million with Global Education Management Systems (GEMS Education) for the development of GEMS Africa.
  5. At the time of project evaluation in 2004, 7.3 percent of the students enrolled received partial or full scholarships, with 3.11 percent of the students (36) enrolled receiving full scholarships. The school also had a policy that any enrolled child who is orphaned is automatically provided with free tuition through grade 12, estimated at $45,000 for the child’s entire education experience. About 10 such scholarships were planned until the end of project.
  6. Project appraisals also assessed the history of school operations, governance structure, and learning environment (including teachers’ qualifications and, in some projects, teachers’ salaries and benefits), capacity and facilities constraints, examinations and awards received, competition and competitive advantage of the supported school (including graduation rates), and project risks.
  7. IFC’s Sector Economics and Development Impact Department (CSE) is responsible for coordinating data collection and reporting on the development indicators from the Board paper. Operational (portfolio) staff are responsible for gathering the data from the client, with CSE monitoring progress. This annual exercise usually starts in February or March for data covering the previous calendar year. The first step entails identifying the list of projects that are subject to the process (for example, active and in the portfolio as of December 31 of the prior year). Portfolio colleagues then reach out to the clients, with the bulk of the data collection happening between April and June.
  8. To offer a counterfactual comparison, the private investors interviewed comprised mostly investors who have not worked with IFC but do not consider themselves as a competitor. The Independent Evaluation Group (IEG) recognizes that the suggestions here are from a very small sample of investors and that IEG has neither evaluated nor is aware of assessments of the initiatives referenced.
  9. Many local civil society organizations interviewed for this evaluation argued that public systems are not free, in any case, because families are often expected to pay for supplies, uniforms, transportation, lunch, and other hidden costs that are not obtained through taxation (another cost to many parents). In a case study for this evaluation, parents of students in public schools also pay for private tutoring because of low-quality teaching in the public schools. They also are against eliminating private provision of basic education because developing countries’ governments do not have the resources to finance improvements in the public school system.
  10. IFC Articles of Agreement. Revised 2020.
  11. IFC has a mandate to support productive private enterprises in developing markets but also needs to remain financially sustainable. Unlike most multilateral development banks, IFC does not benefit from explicit contractual callable capital support from its shareholders. Instead, IFC relies on its accumulated earnings for the majority of its capital and on maintaining a AAA rating with its two rating agencies—Moody’s and Standard & Poor’s—to raise capital in the capital markets. In case of severe capital constraint, IFC can raise additional capital from its shareholders, as it did in 2019–20.
  12. As an example, a project that experienced reduced cash generation had negatively affected sponsors’ plans for community development and social activities.
  13. IEG used fiscal year (FY)01–20 data from the IFC management information system reserve database, which reports stock data of IFC commitments. IEG also derived the stock data on cancellations and droppages of IFC investments in kindergarten through grade 12 (K–12) private schools only. IFC also shared with IEG its cancellation and droppage flow data, which differ from IEG’s calculations. First, the IFC flow data covered FY13 to FY20 only, and second, the data include other K–12 private education projects. Thus, the cancellation and droppage or nondisbursement rates differ from those of IEG. Based on IFC’s 2013–20 flow data, the tertiary education subsector has higher cancellation and droppage rates (87 percent and 60 percent, respectively) than the K–12 education subsector (13 percent and 37 percent, respectively).
  14. Examples of financing and loan covenants required by IFC include pledge of shares, evidence of proper land titles of the school sites held by the sponsor and nonviolation of government’s zoning requirements, and other loan security requirements. The covenants also include meeting agreed-on financial ratios, such as debt service coverage ratios, debt-equity ratios, and current ratios. Additionally, IFC financing covenants may include limits in salaries and allowances and increases payable and dividends paid to the school directors or to project sponsors.
  15. The parents’ survey questionnaire also included questions to determine household income and other proxies, such as whether there is a radio or television in the household.