The new Education Outcomes Fund: Aiming to make education investible at scale

Initiative is chaired by ex-UK PM Gordon Brown

In 1956, after Tunisia gained independence from France, its first president Habib ibn Ali Bourguiba decided to invest 20% of the national budget into education, meaning all girls and boys in the country had access to schooling.

People protested that infrastructure like roads and running water were more worthy of funding. Reflecting on the times, Dr Amel Karboul, Tunisia’s former tourism minister, who as a young girl benefitted from Bourguiba’s decision, argues that a country’s most important infrastructure is ‘educated minds’.

She is now helping lead an ambitious project seeking to create large-scale investible products focused on schooling in some of the world’s poorest regions.

Dr Karboul is CEO of the Education Outcomes Fund that is being set up by the Education Commission – an initiative focused towards Sustainable Development Goal 4 on ensuring inclusive and equality education for all.

Gordon Brown, the former UK Prime Minister who is now UN Special Envoy for Global Education, chairs the advisory board of the Education Commission, while Sir Ronald Cohen is acting as chair.

It is working with the Global Steering Group on Impact Investment, also chaired by Sir Ronald Cohen, to establish a $1bn Education Outcomes Fund for Africa and the Middle East by the end of 2019.

Impact investing pioneer Sir Ronald helped Brown launch the world’s first social impact bond during his time as Prime Minister. And whilst in government, Brown started successful initiatives to tackle child poverty and improve early education in the UK and launched the UN’s Education for All.

Writing in the FT recently, Brown” spoke of how investors can help ensure every child is in school.

The Education Outcomes Fund’s advisory board includes Jakaya Kikwete, former president of Tanzania and chair of the African Union and Jamie Cooper, founding chair and president of charitable foundation Big Win Philanthropy that is a sponsor of the project, along with the Omidyar Network, Ford Foundation, Sir Ronald Cohen and the Amersi Foundation.

Jared Lee is principal of the Fund.

Lee, who has held roles with consultancy Bain & Company and is a former head of policy of the UK’s National Advisory Board on Impact Investing, says the model for the Education Outcomes Fund will build on the approach of development impact bonds (DIBs).

Development impact bonds finance development programmes through private investors who get paid a return from ‘outcome funders’ if measured targets are met. Outcomes could include increasing educational attainment or reducing teen pregnancies.Outcome funders in DIBs to date have typically been charitable foundations motivated by catalysing innovation in the aid sector, but it is envisaged that official aid donors, corporate social responsibility teams and philanthropists will also act as outcome funders due to the perceived benefits of the DIB model. This includes improving the efficiency of donor spending, a focus on measurement and accountability and a flexible approach to the delivery of aid programmes.

“If we achieve scale we can target a broader class of investors” – Jared Lee, Principal of the Education Outcomes Fund

Lee says DIBs have shown huge potential to deliver better outcomes at better value, but have been typically stuck in the R&D and pilot stage with large design costs.

The world’s first-ever Education DIB, which released its results recently, had extremely high transaction costs relative to the relatively small pot of available outcomes funding of $270,000.

“It was fantastic to show the effects of the mechanism and the way it could be transformational for the provider and achieve some very ambitious outcomes.

“But our vision is to take the concept to scale. So the natural next step in the evolution of this market is to have it go from something that is in the pilot, R&D stage to something that is more mature.”

This initiative of the Education Commission is looking to pool donor funds into an ‘outcomes fund’, that will pay for learning outcomes once they are achieved.

Separately, impact investors will provide the working capital to pre-finance the interventions, and will be rewarded with attractive, uncorrelated returns if learning outcomes are achieved by service providers.

Lee explains: “We want to move from a project-based approach for each development impact bond to a fund-based approach. It is one of the levers to how you achieve efficiency because we will create an organisational structure of the fund that specialises in commissioning for development impact bonds.”

Lee admits that this won’t be “straight-forward” and involves a lot of complexity, for example dealing with country specifics.

But he says if successful it will realise the benefit of scale and making the projects much larger meaning transaction costs will decrease.

Investors in development impact bonds have mainly been charitable foundations to date. A report from the Development Impact Bond Working Group says: “Early schemes are likely to depend on investors who are motivated as much by social impact as by commercial returns; but as experience with these instruments grow, and the opportunities for investment diversify, they may attract a wider range of more mainstream investment capital.”

Lee says: “If we achieve the scale of the outcomes fund we can target a broader class of investors. For example development finance institutions (DFIs) are a real prime target. CDC in the UK has been looking at impact bonds for a long time, but the DIBs have been too small.

“If DFIs can provide cornerstone investment at scale then you can use a blended finance type structure and make it attractive for conventional investors like pension funds.”

Lee says the long-term ambition is for development impact bonds to be a standard tool in the development toolkit and also a standard alternative asset class for investors such as pension funds offering an attractive uncorrelated risk-adjusted return, while having a transformational impact on education in Africa at the same time.He adds the impact bond space is a pinnacle of measurable impact results amidst growing concern about ‘impact washing’ as institutional interest in the space rises and products available increase.

A similar initiative in India, also involving Sir Ronald Cohen, is being designed by Social Finance India which is looking to also raise a large scale outcomes fund. Lee says there is a concern among aid donors about a proliferation of funds focused on education so each player is exploring areas of synergy to avoid overlaps.

Fundraising for outcomes financing for the Educations Outcome Fund already under way and the fund due to launch in 2019 piloting in nine initial countries including Ghana, Jordan, South Africa, Kenya and South Africa. It will try and support educational priorities of country governments and also focus on education services for girls, children with disabilities and refugees.