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International Finance Corporation Investing In Private Education. K4D Presentation by Ron Perkinson 15 th January 2004. IFC Entry into Education. First project in 1995 Conducted Global Education Study, 1998
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International Finance Corporation Investing In Private Education K4D Presentation by Ron Perkinson 15th January 2004
IFC Entry into Education • First project in 1995 • Conducted Global Education Study, 1998 • Established Global Social Sectors Group for Health and Education (CHEPG), Yr 2000 • New IFC Strategy in Education – 2001
$140 m / 29 projects approved / 19 countries • Argentina; Brazil; Cameroon; Chile; Cote d’Ivoire; Gambia; Ghana; India; Kenya; Mexico; Nigeria; Pakistan; Peru; Senegal; South Africa; Turkey; Uganda; Uruguay; Vietnam • Most are in lower-income countries • World Bank: $10 billion 1995 - 2000 – $1.2 billion in 2000 – $1.5 billion in 2001/02 December 2003 IFC – Education Portfolio
IFC Services – Education • Loans– Preference for local currency – Fixed or floating market-rate pricing - Tailored to cash flow, typically 7 to 12 yrs - Grace periods – cover gestation phase • Equity – Seldom – except for ICT type private ventures – Passive investor – difficult to add value – Need well defined exit mechanism – Not for Profit status – difficult • Technical Assistance
The Global Market • $2.2 trillion+ total – one third of market in USA – approx 15% only in the developing world • Teachers – 5% of global labor force • Primary & Secondary Education – substantially public funded • Tertiary & Adult Education – changing landscape - free provision diminished – regulatory - governments more liberalized – private sector participation growing (est 18%) Sources: Merrill Lynch 2000; OECD 2000; World Bank; IFC:
World Population Growth Source: “6 Billion Human Beings:” - Musée de l'Homme Muséum National d'Histoire Naturelle, Paris –France
Balancing Education Sector Needs . . . . . . . . With Fiscal Realities • Economic decline – available resources for education shrink • Governments reconciling and balancing education fiscal realities and demographic trends • ‘Supplementary’ costs – shifting to parents and students • Tuition fees increasing globally
Trends in Public & Private Financing Education Global Estimates - All Countries 1996 to 2000 87% 82% Public investment Private investment 18% * 13% * Source:: OECD 2000; UNESCO 1999; IFC staff estimates 2002: * = est. – Trends in Private Investment
Enrollment in Private Higher Education (as a % of total) ** ** = Latest Internal ADB est YR 2001 Source IBRD; OECD 2001
Drivers for Increased Private Investment at Tertiary Level • Fiscal pressures on public funding – alternative sources and forms of funding needed • Unmet Supply & Demand – demographic increases – creating investment opportunities • Increased demand for knowledge / skilled workers worldwide – ‘niched’ investment opportunities • Globalization – global market for higher education and training – cross border opportunities (GATS) • Increasing tuition fee levels in public institutions
IFC Education Portfolio(Approved & Pipeline Examples) • Universities • Technical / Vocational Training • Schools • On-Line Tutoring (24hrs) • Education Portals • Distance Learning / e-Learning • Education Technology Companies • Supporting other education initiatives (eg. Loan Fund; Student Loans)
Escol@24horas.comSummary • Project:On-line tutoring services for 160,000 K-12 students across Brazil, on a 24 hr per day basis. Today – 200,000 plus students. Also, operation now being replicated in Mexico. • IFC Investment: Up to US$3.25 million in equity (25% stake) • Exit mechanism: Public Listing; Tag Along Rights • Project Cost: US$13million
Istanbul Bilgi University • Founded in 1994 as a not-for-profit HEI • Project comprised expansion and modernization of facilities to accommodate student growth – 5000 students to 7600 students over three years • Refurbishment of two campuses • Develop courseware and assist to implement the first on-line graduate program – e-MBA in Turkey • Acquisition of I.T. and technical equipment for new facilities • Introduction of proprietary student financing mechanism • US$29.0 million project
Course Development Course Induction Course Delivery Tutor Support Student Support ICT–Technical Specification Design / Applications Requirements Assessment & Evaluation Teaching & Learning Drive The Use Of Appropriate Technologies Pedagogic Feedback & Review
Universidad Diego Portales - Chile • Partial guarantee ($7m) for 8yr local Chilean bond - face value of Bond approx US$23 million • Bond proceeds used to finance University’s expansion, modernization and to improve quality of operations – construction of 3 new buildings and refurbishing 6 existing • Additional space caters for growth from 9,300 students to 14,000 students by Yr 2010 • Project accommodates construction and refurbishment of neighborhood of downtown Santiago – preserves district’s heritage
TA Project – Norton University • University started in 1997 • Growth – 700 to 4400 students in 5 years • 29 yr old sponsor • Leased premises – max capacity about 4500 students • Purchased land – new campus – 12,000 students • Apply for ‘University’ status – new legal framework • Project not bankable without Technical Assistance
IFC Technical Assistance Initial Review – back to basics – how to start a university – template for establishing a Tertiary Institution – quality indicators, academic and governance characteristics Strategic Planning – report and recommendations – design of new curriculum framework, student & financial MIS – future phasing of academic and governance requirements Accreditation Requirements – Governing Council – QMS System & implement curriculum framework – Dip Foundation Studies – Yrs 1 – 3 courses – Application for Accreditation to GoC
Technical Assistance – Results • New Board – external representation • New Curriculum Framework • Student & finance MIS • Quality Management System – 50 KQI’s • Diploma of Foundation Studies • Application for Accreditation • Time taken – 20 months
Student Financing • Over 60 countries have student loans – mostly public schemes • Variable performance • Loan schemes important – can improve access and opportunity • Some barriers – private banking sector experience limited – cost of credit usually high – mobility of students after graduating – underwriting risk and cross border issues difficult • Access to proven systems & experience – valuable
NIIT • Approved Yr 2000 – started Yr 2002/3 • Loans on purely commercial terms • Seven year loan with partial grace period • Yr 1 to 3 – students make a partial interest payment (Rps1000/ mth - $20/ mth) • Yr 4 to 7 – student makes equal monthly payments (around Rps4000/mth - $80/ mth) • Fixed interest rates – 16% • Loans signed by student and co-borrower • For students in last 2 yrs of 4 yr program • Cover only 90% of tuition and computer costs • Citibank underwrites scheme – IFC shares risk • Scheme to scale up to $90m over 12 yrs
Eduloan • IFC – US$2.8 million convertible loan • Deductions from student payroll accounts • Students employed while studying at Universities & Technikons • Part time students are 15% of the anticipated portfolio • Universities and Technikons to extend to nursing and teaching, private industry training bodies and business studies • Delinquencies – have been low (less than 2%) • Eduloan has 50,000 users • Loan portfolio is expected to reach US$ 40 million with around 97,000 student loans by Yr 2005. • Loan amounts per student approx. US$ 280 to US$ 425 – repayable within 12 months • Standard Bank now 47% shareholder
Bankable HEI Project – 10 Success Factors • Operating in positive regulatory environment for private investment • Attractive Market conditions – unmet demand and supply • Clear strategic vision • Saleable services • Predictable revenues • Strong financial management and internal control systems • Proven education business model / concept • Relevance & coherence of the curriculum strategies • Positive cash flows with nearer term (short – medium) profitability • Strong governance and ‘administration management’ with proven track records – not always academic decision makers
Future Outlook • Mainly tertiary education projects • Primary & Secondary – still preserve of governments • Portals and Education Technologies – low/medium possibility • ‘Public goes Private’ – growth • Graduate Schools – Business, IT/Engineering and Law • Medical Schools • Bricks & Mortar – capacity building • Bond Issues – growing interest • Student Financing – ‘steady as she goes’ – strong demand