Non-Traditional Financing for Education

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Aid to education is declining. Given the success of non-traditional financing in the health sector, the education sector has started to explore its potential to see if it can provide additional and alternative sources of finance to address some of the financing gap.

Non-traditional financing is about more than raising additional funds; it is also about spending resources more effectively and finding novel approaches to addressing education issues.

Instruments to raise additional funds explored in this guide include:

  • social impact investing, such as Social Impact Bonds (SIBs)
  • Development Impact Bonds (DIBs) and Social Yield Notes (SYNs)
  • access to finance for schools and families
  • debt swaps
  • bonds, such as Debt Conversion Development Bonds (DCDBs) and diaspora bonds
  • debt buy-downs
  • global solidarity levies

Mechanisms to spend funds more effectively include:

  • cash transfers
  • vouchers
  • public-private partnerships (PPP)
  • Payment by Results

Evidence on what is working is limited. Some instruments have only just been implemented. The potential of various instruments is evaluated. SIBs and DIBs, forms of outcomes-based contracts where payment is made to a service provider for the outcomes delivered by a specific intervention, have the most potential. For greater efficiency, PbR has the most potential followed by PPP’s.

The report concludes: Non-traditional financing is not a quick win, and will take time to test and evaluate. It is also unlikely to be able to fill the entire funding gap or address all education issues. Therefore, the education sector must continue to advocate for traditional finance to be raised through domestic revenue via increased allocation to education and the strengthening of tax systems. The sector must also advocate for countries to meet their overseas aid commitments and reach the target of 0.7% of gross national product so the global commitment to education for all can be supported by a global commitment to funding.

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