July 8th, 2019

Education presents an opportunity for poor households to break out of the poverty cycle in future. What are some of the interventions and finance solutions that have made a difference in education finance?

Education presents an opportunity for poor households to break out of the poverty cycle in future. It allows their children to acquire knowledge and skills to make them more productive in future. It is thus a top investment priority among poor households. In our previous blog, we looked at how low-income households are financing their children’s education based on research that was undertaken through a partnership between Dignitas and the Future of Learning. Challenges in paying school fees result in poor education quality due to absence of both students and teachers from school. In any given term, many children are sent away from school due to inability to pay fees in good time. Consequently, private schools cannot employ enough teachers and pay them promptly to keep them in school. Although the challenge is more prevalent in private schools, it also occurs in public schools.

What are some of the interventions and finance solutions that have made a difference in education finance? Informed by the fact that most low-income households pay schools fees in instalments, FSD Kenya designed and piloted a Flexipay solution whose aim was to tap into social networks for payment of school fees. The partner, a public secondary school, introduced a mobile Paybill number for payment of school fees. Each student was given a unique identifier – an account number – and registered a number of contacts to whom sms messages on school fees balances and receipts for payment were sent. Based on the findings, the parents loved the introduction of the mobile Paybill as a fee payment option. 66% of student accounts had at least one Paybill payment during the term when Flexipay was piloted. Parents were also able to make much smaller payments than the average bank and cash payments. Students whose accounts had more frequent small payments cumulatively recorded more fees than those who had fewer and larger payments. This triangulates the findings from the Dignitas and Future of Learning research that parents and guardians find it more convenient, and less costly and embarrassing to pay school fees in much smaller amounts digitally. Additionally, the school was able to completely eliminate cash payments which previously accounted for about 9% of the fees payments.

In Uganda, Fenix, an off-grid solar company in 2016 designed the ReadyPay school fees loan. The solution is layered onto its Pay-as-you-go (PayGo) solar energy finance solution. Fenix uses customer data from its solar loans to appraise and provide the longer-term school fees loans. The loans are disbursed directly to the customers’ mobile wallets and cover both tuition and non-tuition related school expenses. Repayment for these education loans is made alongside that for solar energy, with continued connection to the system being the incentive and collateral for ensuring repayment. The World Bank Groups’ Consultative Group to Assist the Poor (CGAP) (insert website link) helped Fenix to develop an unstructured supplementary data (USSD) channel which enables the customers to access services such as checking their loan eligibility and applying for loans digitally. The impact of this USSD channel which was launched nationally at the start of 2018 has been remarkable. 7,400 loans had been disbursed by end of June 2018 following the launch. The USSD cost 75% less than use of the applications and accounted for 93% of the loan applications that were received.

The high cost related to joining secondary school is the biggest barrier to transitioning from primary to secondary school for most poor households in Kenya. Providing the right savings solution for them can make a difference. Innovations for Poverty Action (IPA) partnered with one of the telecom operators in Kenya to evaluate the impact of commitment savings through an account dubbed High Hope Lock-Savings Accounts on usage, savings and loans, and enrolment into secondary school. The account was marketed in 340 primary schools to parents of students in their final year to help them save through the telecom’s mobile money system. To incentivise savings, the account had an interest rate bonus for amounts held up to a date set by the client. On the other hand, premature withdrawals were discouraged by a 48-hour waiting period. The participants in this research were randomly grouped into three: commitment savings group, regular savings group, and the comparison group.  The findings were that usage increased by about 25% and savings three to four times between those who used the accounts compared to the comparison group. There was a 5-6 % increase in secondary school enrolment among all participants who were offered a mobile savings account. The increase was significantly higher for those who actually opened accounts at 18-24%.

While these three examples present valuable insights on what could make a difference in education finance, a lot remains to be done. What would an optimal education finance solution look like? What would be the key consideration to make? The optimal solution(s) would need to be comprehensive and tailored to specific needs at each of the links within the school education value chain. There is need for solutions that meet both the schools’ and households’ finance needs and not necessarily targeted at just one of these links. The ultimate goal should be to keep both the children and teachers in school, awaiting the full payment of the fees by the parents and guardians. A solution that reflects low-income households cash flows and enables them to pay small frequent amounts, like their other expenditures rather than a lumpsum as is currently the case, would be valuable. The schools’ ability to access financing tailored around the typical fees payment pattern would be equally valuable. This would enable the school to keep running awaiting fee collection.

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