As plans for the establishment of the Education Outcomes Fund develop, Keith Lewin reviews the fund’s design and, highlighting various critical issues, questions the central claim that it will be a gamechanger for education outcomes.
The Education Commission and The Global Steering Group for Impact Investment are planning to develop a $1 billion new financing facility in education, the Education Outcomes Fund for Africa and the Middle East (EOF), with its placement memorandum to be completed later this year.
EOF will use development impact bonds to finance non-state education services, with grant-backed returns to investors and service providers based on the achievement of outcomes. Its proponents claim that such a model means that it will represent a “game changing initiative to drive results in education”. However, according to Keith Lewin, Emeritus Professor of International Education and Development at the University of Sussex, this is a highly debatable claim.
In his comprehensive review of EOF’s concept note, Lewin justifies this skepticism with thought-provoking comments and questions that show that EOF’s design leaves a great deal to be desired, both logically and ethically. For instance, hehighlights four key critical issues:
1. First, he questions the EOF’s assumption that past aid has failed to achieve results because it did not focus on payments by results. In fact, he asserts, results based financing has been used for over ten years but have not yielded the desired results.
2. Second, he reminds us that development investment bonds utilize money that is lent, and that “new money is not being generated if all that is happening is spending forward future aid by borrowing until the aid is paid when outcomes are achieved”.
3. Third, he asks why an additional financing mechanism is necessary and what the added value of the EOF is.
4. And fourth, he highlights the fact that the EOF “has little or nothing to say about the central financing issues of sustainable educational development”. The fund does not address the long term problem of how to develop methods of financing the recurrent costs of education systems from domestic revenue.
Indeed, domestic spending on education is still too low. Pointing out that his modelling shows that with feasible cost saving reforms equitable access to education can be achieved with 6.6% of GDP on average in LICs and 6.1% of GDP in LMICs, Lewin shows that this level of spending is far from the reality. Currently 48% of African countries spend lessthan 4% of GDP on education.
Lewin continues his review by considering various aspects of the fund’s proposed modalities including its scale, returns on investment, transaction costs, non-state actors, systemic risks, results based finance and DIBs. The points made are summarized below.
Though the expected USD $ 1 billion seems a sizeable sum, once it is spread out between 20 countries over three years, the DIB loans of 17 million per year per country amount to approximately only 1% of the average education budget for a typical LMIC.
Returns on investments
The rationale of DIBs assumes that the additional costs associated with using such a model are justified by the increased efficiency of non-state providers motivated by outcomes based payments. However, Lewin points out that the truth of such a rationale is asserted by potential service contractors who will profit from the model, but not corroborated with clear evidence. He also raises the questions of whether the rates of return of the EOF will be attractive enough to entice investors, and whether using the DIB model has added value over simply creating an endowment fund with the adventure capital and grants raised, for use in a grant programme.
The EOF aims to reduce the normal DIB transaction costs by using standardization and economies of scale. However, this clashes with fund’s own recognition of the importance of context specific solutions in education.
Among other issues, Lewin points out the difficulty in monitoring, regulating and assuring quality from non-state actors, especially over time.
Lewin argues that, problematically, systemic risks are not taken into account in the EOF’s proposal. Numerous risks are important to consider (through independent risk assessments), such as, for instance, the “casualisation of the teaching cadre and a contravention of employee rights”. It appears that it is the state that will shoulder such risks.
DIBs and results based financing
Lewin describes how results based financing (RBF) has failed in the past and highlights numerous difficulties with this model. For instance, in rewarding school that perform highly, RBF ignores the reality that it is too often a lack of resources that leads to poor school performance – therefore should it not be these schools that receive additional resources, not those that are already doing well? Ultimately, he suggests, the RBF model does not respond to the aspirations of the sustainable development goals, as it values results in the short term rather than long term sustainable development.
In his conclusion, Lewin reminds us that the EOF proposal is ultimately a solution based on a misdiagnosis of a problem. He says:
“the core problem of educational financing remains how to ensure the development of “Fiscal States” that are able to generate sufficient domestic revenue to finance nationally defined educational goals delivered through predominantly publicly financed systems. DIBs do not address this critical problem and may end up being a distraction with high transaction costs and limited impact. This may be the reason why impact investing has had limited traction and mixed results in financing rich world mass education systems and why the strongest advocates of the approach are themselves service providers. ”
Not only is this a good reminder that no so-called ‘innovative’ solutions in the education sector will succeed unless they are based on a robust analysis of the evidence, but an important warning that some innovations may masquerade as relevant solutions whilst in fact serving other interests.