Building a Market for Global Education: Results-based funding as a catalyst for change

By Louise Savell and Rita Perakis

Governments and donors spend billions on education in low and middle income countries each year but the link between this spending and outcomes—i.e., ensuring all children are in school and learning—is too often unclear. Numerous studies have shown that children leave school without basic skills and that increased funding for education does not necessarily lead to better outcomes. 

New approaches are needed in education which strengthen the link between spend and outcomes and demonstrate the value of investing in education. Social Finance has been exploring results-based funding (RBF) as a way to build this link and improve the impact of education spending. We welcome the new report from the Results for Development (R4D) which highlights the untapped potential for results-based funding to drive progress in global education. While RBF has been more commonly used in other sectors, particularly health, the report demonstrates that the approach can work well to drive improvements in education access and quality too. 

As we have seen in our work across other sectors in both the UK and international development context, and as highlighted in R4D’s recent report, RBF for education can:

• Give service providers space to find local solutions: Traditional, input-based development funding assumes that it’s possible to know upfront what works and how to take successful interventions to scale. Contracts tend to make it hard to change course if programmes do not have the intended effect. In reality, local needs vary and adaptation of even the most evidence-based approaches is needed to make sure children access and stay in school, and are learning.
  
  Because RBF contracts focus on outputs and outcomes, rather than inputs, space is freed-up for local autonomy and adaptation. Indeed, the degree of contractual autonomy that service providers have is proving to be a key factor in determining how successful RBF projects are. Education projects in Pakistan and Vietnam show that offering providers financial incentives, without prescribing processes or interventions, increases the effort that providers put into improving student performance. As the R4D report points out, the ability to exploit this autonomy to maximum social effect is likely to be greatest among non-state or public-private providers.
• Create incentives to reach those who are left behind: The development sector’s verdict, in 2015, was that while a lot of progress had been made on the Millennium Development Goals, too many people had been left behind. This includes the 58 million primary-school age children and 65 million adolescents who are out of school, and the millions who attend school but don’t learn basic skills. A significant proportion of these come from disadvantaged populations, including the poor, adolescent girls and children in rural, urban slum, or post-conflict settings.Projects to date have demonstrated that RBF can be effective in promoting equity in education, by offering incentives to target marginalised populations or lowering the costs of private or semi-private education for the poor. For example, in one RBF project in Vietnam, private and semi-private secondary schools—which normally charge tuition payments— covered costs for disadvantaged students and were reimbursed with donor funds if these students maintained good attendance and academic performance. 
• Strengthen the link between funding and outcomes: RBF strengthens this link by tying payments to clear measures of success that ensure programmes stay focused on outcomes. This is particularly important in education as, while much is known about what could work to improve the impact of education—including improved teacher training, school meals, deworming, better use of technology, modern textbooks and after school clubs—which of these programmes to focus where, and which will scale successfully, isoften unclear.Valuing and paying for education outcomes, on the other hand, creates space for innovation and encourages constant improvement. Over time, this revenue stream for effective models can create a market of new providers and investment to improve global education.

Of course RBF is not without risks and challenges. Contracts with service providers must be well designed and implemented to avoid perverse incentives and to ensure that the benefits of the approach are realised.  If the financial risk to service providers is too great, or contracts require reporting against pre-defined inputs, their ability to innovate may actually be constrained. Where providers are not able to take on the financing risk, Impact Bonds could be a solution: leveraging pre-financing from investors that assume some or all of the outcomes risk and are compensated if projects are successful.  Working with governments is also essential to ensure that successful approaches are integrated with education systems and taken to scale. 

An Outcomes Fund for Education—as a centre of funding and expertise around commissioning, contracting and evaluating RBF programmes in education—could have a game-changing effect on global education outcomes. More donor and government funding for outcomes-based approaches would enable the skills of private sector providers and investors to be harnessed to innovate, adapt and scale effective programmes to the benefit of children and young people across the world.

Louise Savell is a Director at Social Finance with a focus on the development and delivery of new initiatives. In this capacity, she plays a significant role in the strategic development of Social Finance. Louise helped establish the organisation in 2007 and played a key role in the development of the Social Impact Bond approach. She has also led much of Social Finance’s research, policy and financial inclusion work. Before joining Social Finance, Louise was Programmes Manager at ARK, a child-focused foundation raising money from the hedge-fund industry. There she focused on supporting Eastern European governments to reform their child welfare systems. She started her career in East Africa researching and developing youth HIV/AIDS prevention programmes.

Rita Perakis is an Associate at Social Finance. Before joining the organization, Rita was a Programme Associate working on results-based aid initiatives including Development Impact Bonds and Cash on Delivery Aid at the Center for Global Development.