Innovative financing in education: mobilizing resources to transform learning for African children and youth

In response to the critical state of education in sub-Saharan Africa - where over 30 percent of school-aged children are out of school and nine out of ten children cannot read and understand a simple text by age ten - the African Union (AU) has declared 2024 as the Year of Education to mobilize efforts toward achieving Sustainable Development Goal (SDG) 4. The Association for the Development of Education in Africa (ADEA) is partnering with the Education Finance Network to shed light on promising solutions to address these challenges, including the use of innovative financing mechanisms in education.

As part of its roadmap for the 2024 Year of Education, the AU has emphasized the need for "increased sustainable financing and systematic investment in education". According to the Education Finance Watch 2023: Special edition for the African Union Year of Education 2024, African governments' mean spending on education as a share of GDP has stagnated at 3.7 percent since 2012, and aid to education in sub-Saharan Africa fell by 23 percent from 2020 to 2021. This makes finding additional sources and more efficient funding strategies urgent, including through innovative financing.

What is innovative financing in education?

The term innovative financing is broad and encompasses a wide range of financing models, including blended finance, debt swaps, guarantees, results-based finance (including impact bonds and other outcome-based financing mechanisms), and public-private partnerships (PPPs). 

These mechanisms aim not only to leverage additional funds and tap into new sources of funding, but also to transform the education sector by mobilizing more domestic resources, using development aid more effectively, encouraging innovation, and improving performance. 

What is the evidence around innovative financing in education?

A recent study conducted by ADEA in Kenya, Rwanda, and the Gambia provides valuable insights into the current state and challenges of innovative financing methods pertaining to Technical and Vocational Skills Development (TVSD), while highlighting a significant gap in rigorous evidence supporting these methods. Similarly, a review of the Education Finance Network’s Non-State Actors in Education: Evidence Gap Map reveals that the evidence around the impact of innovative financing in education is limited and is mainly centered around impact bonds¹ and other types of results-based finance. Emerging methods of innovative financing, such as social impact incentives and social impact guarantees, have not yet been subject to rigorous research.

Insights from innovative financing in education learning group

To foster learning around the use of innovative finance in education, the Education Finance Network and the Education Outcomes Fund co-facilitated a learning group in 2023-2024. Key insights from this group, particularly regarding outcome-based financing (OBF) mechanisms and blended finance, include the following: 

• OBF programs can generate evidence of effective interventions

While the evidence around the cost-effectiveness of OBF in education is still emerging, these programs can effectively generate and promote the use of evidence because of their frequent use of rigorous evaluation approaches such as randomized controlled trials (RCTs). For instance, the Sierra Leone Education Innovation Challenge is an outcomes-based fund through which five different implementing partners implement five unique education interventions across five distinct geographical lots that cover all the districts in the country; it aims to improve literacy and numeracy of 134,000 children over three years. Through this set-up, which uses an RCT to measure learning gains and other research designs to identify the mechanisms impacting student learning, the program aims to collect data on 'what works' to improve learning in Sierra Leone. By working closely with the government, the program seeks to integrate these findings into public policy, thereby enhancing education delivery.

• Bridging education and employment through Income-Share Agreements

The Future of Work Fund (FWF) uses a blended finance model combining philanthropic grants and development finance with private capital. Managed by Chancen International, FWF provides tertiary education financing for students in Rwanda, South Africa, and Kenya through Income Share Agreements (ISAs), focusing on women and traditionally excluded populations. Students receive education funding in exchange for committing to repay a percentage of their income above a specified threshold post-graduation.

To date, FWF has financed over 4,100 students, of whom 65 % are women, 92 %  unemployed, and 60 % are from rural areas. The employment rate for students at 12 months post-graduation is above 98 %, and FWF graduates earn five times the national average. 

Chancen International has started to roll out an RCT to strengthen the evidence of its impact. Over time, it aims to create a sustainable commercial model that can be scaled up as investors recognize its potential for financial returns and social impact. 

Leveraging the strengths of both traditional and innovative financing

While innovative financing mechanisms such as OBF and blended finance show promise in addressing challenges in the education sector in sub-Saharan Africa and beyond, they cannot replace the need for robust domestic funding and traditional grant-based development aid. Innovative financing instruments are still relatively new and require further evidence to determine their impact and efficiency. However, they offer valuable tools for experimentation and innovation, providing new ways to mobilize resources and improve the effectiveness of interventions. 

Emphasizing equity and inclusion is critical, particularly for children and youth with disabilities, to ensure that these innovative approaches benefit all segments of the population. By leveraging the strengths of both traditional and innovative financing, we can work towards a future where quality, relevant education is accessible to all.

To dive deeper into the insights from the learning group on innovative finance in education, explore the following blog posts and video: Piecing together the measurement puzzle: Experiences from Outcomes-Based Finance programs in education,  Many paths up the mountain of strengthening systems through Outcomes-Based Finance, and Experiences of blended finance in education.  

For a detailed analysis of alternative financing mechanisms for TVSD in Africa, see Association for the Development of Education in Africa (ADEA). (2023). Alternative financing mechanisms for technical and vocational skills development (TVSD) in Africa: The case of Kenya, Rwanda, and The Gambia.