Impact investment products to provide education to children are oversubscribed: how investors can help scale SDG4

Dr. Amel Karboul, CEO of the Education Outcomes Fund, calls on the financial sector to help develop the market

At the height of the Covid-19 pandemic this year, roughly half the world’s student population –  over 1.5 billion children and youth – could not attend school or university.

At the time, Angelina Jolie, actor and Special Envoy to the UN High Commissioner for Refugees, penned an article highlighting the “significant sacrifice” young students were making. Not just losing vital learning time, but reprieve from exploitation and violence, or a hot daily meal, for the most vulnerable. 

The scale and speed of closures presented an unprecedented challenge for the global education sector, and countries raced to fill the void with distance learning solutions, exposing sharp inequality between those with decent online access and those without.

This escalating education crisis was already in the making, even before Covid-19, says Dr. Amel Karboul, CEO of the Education Outcomes Fund, an ambitious project to create large-scale investible, commercial products to ensure 10 million children and youth are learning globally by 2030. 

Karboul, former Tourism Minister of Tunisia, benefited as a young girl from the decision of its first president after gaining independence from France in 1956, to provide access to education for all boys and girls.

President Habib ibn Ali Bourguiba faced protests for investing 20% of Tunisia’s national budget into education, instead of infrastructure like roads and running water. Reflecting on this during a Ted Talk, Karboul argues that a country’s most important infrastructure is “educated minds”. 

Karboul hopes that responsible investors will see the potential – and necessity – in helping to develop the outcomes funding market, like they have with climate finance, and more recently biodiversity loss.

But global efforts to build more ‘educated minds’ are largely not working, she says. “The last number I’ve seen is that 90% of the children in low-income countries will not be able to read and write at the end of primary school. So we’re spending lots of money in education but it’s not leading to learning.”

EOF was set up in 2018 by the Education Commission, a high-level body focused on developing progress towards SDG4, chaired by former UK Prime Minister Gordon Brown, and the Global Steering Group for Impact Investment, chaired by Sir Ronald Cohen. 

Its model builds on development impact bonds (DIBs), through which development programmes are financed by private investors, who get paid a return from ‘outcome funders’ if measured targets are met. According to think-tank the Brookings Institute, the impact bond market currently has $421m in upfront investment in social issues and $460m in total outcome funding committed. 

Advocates say the model improves the efficiency of funders’ spending by focusing on measurement and accountability. The focus on outcomes rather than output also gives programme deliverers high flexibility – measuring improvements in maths test scores, for example, rather than requiring all students to attend at least 80% of maths classes. 

For investors, Karboul says it provides the opportunity for uncorrelated returns, alongside measurable social impact. 

“We need to spend more on education. That is a bigger challenge,” she notes. “We are in a certain niche; a drop in the ocean. But a focus on outcomes will make sure either taxpayers, aid, CSR or philanthropic funds only pay for outcomes once they are achieved. It creates a whole lot of positive consequences, and space for learning, growth and innovation for service providers. We obviously have to make sure it doesn’t create unintended consequences, such as only teaching the easiest children to read. But that’s a matter of design.”

Last month, EOF became an independent trust and moved under the umbrella of UNICEF. Karboul says the new partnership and trust structure gives it legal status, and comfort for institutional donors, while making sure it can remain nimble, innovative and entrepreneurial. 

She says EOF can also tap into the expertise of UNICEF’s education specialists around the world. “I believe that most of their funding is still more traditional, like grant/input funding. Their new executive director has a strong focus on innovation and involving private sector players, so we fit well into that new strategy.”

Karboul envisages EOF developing a knowledge base, investment templates and outcomes contracts for other organisations to easily draw upon. She hopes a UN organisation hosting EOF will also help mainstreaming.  

The fund currently runs two education programmes. The first is a $30m deal in Ghana, lasting five years and focused on improving learning by 70% for some 100,000 children in school, and getting 70,000 out-of-school children back into education. The Ghanaian Government and the UK Foreign, Commonwealth & Development Office are the ‘outcome funders’ that will repay investors, with a targeted internal rate of return of 5-10%, if an independent evaluation shows providers have improved outcomes. There is a greater financial incentive for girls. 

That deal was four-times oversubscribed by investors. Karboul says it attracted a mix of large international NGOs using their balance sheet; charitable foundations using the model to be able to recycle grant funding through expected returns; and institutional investors such as pension funds, investing via specialist impact bond managers “who can bring in the right expertise and do the hands-on work with deals”. 

The other education programme currently being run is in Sierra Leone, and was also oversubscribed by investors. 

Looking forward, Karboul hopes that responsible investors will see the potential – and necessity – in helping to develop the outcomes funding market, like they have with climate finance, and more recently biodiversity loss.  

“I hope they will also see a role in supporting the building of the ecosystem, because that’s what we want and need. We will only be able to create more deals and have more products if people invest in R&D. And I feel it’s not happening at scale yet.

“Institutions that are systemically relevant, for example, could support the development of the whole ecosystem through knowledge building or creating a taskforce with other fiduciary investors and the ecosystem of dedicated impact bond managers. They have big capacities to bring systematic change, in advocacy and conversation with governments.

“I'd love to see more of them in the driving seat, rather than waiting for the right products to come their way.”