DQ13

International Journal of Educational Development 35 (2014) 16–24

Investing in private education for poverty alleviation: The case of the World Bank’s International Finance Corporation

Karen Mundy, Francine Menashy 1,*

Ontario Institute for Studies in Education of the University of Toronto, 252 Bloor St West, 7th Floor, Toronto, Ontario M5S 1V5, Canada

A R T I C L E I N F O

Keywords:

World Bank

International Finance Corporation

Private education

International education financing

Multilateral organization

A B S T R A C T

The International Finance Corporation (IFC), the private sector financing arm of the World Bank Group, is

currently the largest multilateral investor in private education in developing countries. Drawing from

staff interviews and programmatic data, this paper provides a brief overview of the IFC and its mandate;

examines the stated purposes of the IFC’s work in education; reviews the IFC’s portfolio of investments in

education; and looks at the linkages between the IFC and the World Bank’s lending arms. The paper

concludes by questioning the IFC’s contribution to the World Bank Group’s poverty alleviation mandate.

� 2012 Elsevier Ltd. All rights reserved.

Contents lists available at SciVerse ScienceDirect

International Journal of Educational Development

jo ur n al ho m ep ag e: ww w.els evier . c om / lo cat e/ i jed u d ev

1. Introduction

Over the past decade, the International Finance Corporation (IFC), the private sector financing arm of the World Bank Group, has gradually expanded the scope of its work in education. Although still quite modest, IFC education sector activities have grown substantially from a few small initial projects in the mid- 1990s to the adoption of education as one of the organization’s five ‘‘strategic pillars’’ in 2004. Today the IFC describes itself as the world’s ‘‘largest multilateral investor in private health care and education in developing countries’’ (IFC, 2010c, p. 23). Further- more, according to the World Bank’s recent education strategy papers, the IFC is central to the Bank’s plans for supporting educational development (World Bank, 1999, 2005, 2011a). Thus the most recent World Bank Education Sector Strategy 2020 announces:

Within the Bank Group, the World Bank and IFC will work together to improve knowledge about the private sector’s role in education and to help countries create policy environments and regulatory structures that align the private sector’s efforts with national education goals. (World Bank, 2011a, p. 9) The main focus of the IFC’s education strategy is to: finance larger network providers, who have the ability to invest across borders and go down-market to reach poorer populations. . .

* Corresponding author. Tel.: +1 416 978 0748.

E-mail addresses: [email protected] (K. Mundy),

[email protected] (F. Menashy). 1 September onwards affilation: University of Massachusetts Boston, 100

Morrissey Blvd, Boston, MA 02125 USA.

0738-0593/$ – see front matter � 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.ijedudev.2012.06.005

[and to] provide financing for education to small and medium enterprises, which typically target poor populations. . . (World Bank, 2011a, p. 50)

This paper presents one of the first published analyses of the IFC’s work in education. It provides a brief overview of the IFC and its mandate; examines the stated purposes of the IFC’s work in education; reviews the IFC’s portfolio of investments in education; and looks at the linkages between the IFC and the World Bank’s IBRD and IDA education sector activities. The paper concludes by questioning the IFC’s contribution to the World Bank Group’s poverty alleviation mandate.

The findings presented in this paper are based on interviews and programmatic data collected in the spring of 2011 from staff in the World Bank’s education sector and inside the IFC. In total, 25 interviews were conducted for this research between April and June 2011, including 19 interviews with current World Bank staff, two with retired World Bank staff (one a former consultant for the IFC), three current IFC staff, and one retired IFC/World Bank staff. An analysis was conducted of the IFC’s complete education portfolio, based on data provided by IFC staff to authors in May 2011, and available documents and websites of the organizations which have received IFC investments.

2. Introducing the IFC and its poverty alleviation mandate

Formed in 1956, the IFC is the private sector financing arm of the World Bank Group. Its overarching mandate is the same as the World Bank’s: to support a world without poverty (IFC, 2011d). However, the IFC has the task, distinct from the World Bank’s other

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–24 17

four branches, of supporting the private sector in emerging markets.2

The IFC was founded as a separate arm of the Bank, when member governments became concerned that private entrepre- neurs were not being effectively supported by multilateral lending agencies (Bell, 1981). As with the rest of the World Bank Group, the IFC is governed by a Board, which is elected by the IFC’s 182 member countries and has essentially the same composition as the Board of Governors and Directors for the World Bank’s IDA and IBRD facilities. Because voting is weighted based on paid in shares to the IFC, the United States is the largest IFC shareholder (23.6% of voting power in 2010); followed by Japan at 5.9%. Overall, rich countries hold two-thirds of the organization’s voting power (Moody’s, 2010; Bretton Woods Project, 2010).

The IFC’s business model is very much like that of any investment bank. It uses paid in capital of approximately $2.4 billion from its member governments to generate loans and debt or equity financing for private sector clients in developing countries. Profits are reinvested into the IFC (with a small share going to fund IDA/IBRD activities). An increasing share of the IFC’s portfolio involves provision of financial guarantees to banks in developing countries (Bretton Woods Project, 2011a,b). The IFC also offers advisory services to private sector clients and to governments interested in regulatory issues in specific industry sectors,3 a part of its work that has grown more than 10-fold since 2001. Advisory services are increasingly funded through special ‘‘trust funds’’ provided as grants to the IFC by rich member governments (IEG, 2011, p. xvii; Interview #4, IFC).4 Three core principals guide all IFC activities: a business principle, of taking on the full commercial risks of its investments, accepting no government guarantees and earning a profit from its operations; the principle of being an honest broker, using its unique abilities as a corporation owned by governments to ‘‘bring together invest- ment opportunities, domestic and private capital, and experi- enced management’’; and the goal of playing a catalytic role, investing only in projects for which ‘‘sufficient private capital is not available on reasonable terms’’ (IFC, 1993).

Over time the IFC has increasingly laid claim to reaching the ‘‘base of the pyramid’’ through its investments (IFC, 2010e). The IFC clearly positions itself as a significant contributor to the overall poverty reduction mandate of the World Bank (IEG, 2011; IFC, 2010c). Thus according to its website (IFC, 2011d):

IFC, as the private sector arm of the World Bank Group, shares its mission: To fight poverty with passion and professionalism for lasting results. To help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and private sectors.

2 The World Bank Group consists of five branches. Its lending arms are the

International Bank for Reconstruction and Development (IBRD) – which lends to

middle-income nations and creditworthy less-developed countries – and the

International Development Association (IDA) – which focuses on the poorest

nations, providing them with essentially interest-free loans. The IBRD, IDA and IFC

have educational programs. The other two branches are the Multilateral Investment

Guarantee Agency (MIGA) and the International Centre for the Settlement of

Investment Disputes (ICSID), neither of which deals directly in education. 3 Financial products from the IFC include market-rate loans; buying and holding

equity in various companies and financial institutions; syndicated loans; and trade

finance, where advisory support is given to emerging markets to help ‘increase their

share of global trade’ (IFC, 2007a, p. 8). The IFC offers financial advisory services in a

wide range of areas from environment and social sustainability, privatization,

establishing public-private partnerships, and access to finance including support to

microfinance institutions (IFC, 2007a, p. 9). 4 The IFC technical assistance trust fund (with grants primarily from OECD

governments) is the 5th largest trust fund managed by the World Bank Group,

accounting for 5% of total trust funds (IEG, 2011, p. 101).

Over time, there have been two ways in which the IFC’s poverty alleviation mandate has been addressed: first by broadening IFC investments in low income (IDA-eligible countries), which it describes as ‘‘frontier markets’’ (OEG/IFC, 2005); and second, by expanding its work in sectors that it identifies as directly addressing the needs of the poor: financial markets, infrastruc- ture, health and education, and agribusiness (IFC, 2010g,h; IFC/ World Bank, 2011). In 2004 the IFC adopted five strategic pillars, which include:

Pillar 1: strengthening the focus on frontier markets (IDA countries, fragile situations, and frontier regions in middle income countries); and Pillar 4: addressing constraints to private sector growth in infrastructure, health, education and food supply chain (IFC, 2010c, p. 15).

Among the most significant shifts in IFC work since 2000 has been the expansion of its work in health and education, which grew from less than 1% of its total investments, to 3% of the IFC’s portfolio in 2010 (IFC, 2010h). Education and health are central to the IFC’s efforts to reach the bottom billion. Thus, according to IFC’s then Director of Health and Education, Guy Ellena: ‘‘By increasing access to services to ‘Base of the Pyramid’ populations through our health and education investments, we are helping to address the unmet needs of these populations and delivering on our development mandate’’ (IFC, 2010e). The IFC’s 2011–13 Roadmap maintains this focus, noting that the ‘‘IFC’s health and education sector are expected to show the strongest relative program growth between FY09 and FY13’’ (IFC, 2010c, p. 34). The overall goal of its work in these sectors is to ‘‘continue to fill the gap left by the public sector in health and education. . .’’ and ‘‘address the needs of those at the base of the pyramid. . .’’ (p. 15).

3. Enter education

The IFC’s work in education began in the 1990s with a few small investments. A decision to create a new mechanism to fund to small enterprises opened the way for additional investment in education5 and led a former education specialist from the Bank to take on a pioneering role within the IFC. A number of small investments were provided to elite private schools in least developed countries, while larger investments began to emerge in higher education, particularly in Latin America (Maas, 2001; Interview #3, IFC). The IFC held its first regional conference on private education in 1999 in Cote D’Ivoire and conducted reviews of the business environment for private education in Kenya, Cameroon, India, Ghana and China in that same year (IFC, 1999a; Karamokolias and Maas, 1997).6 In 2001, the IFC established a Health and Education Department.7

Initially, IFC engagement in education met with considerable push back. Internally, it took some time for the IFC itself to be convinced that education was a good sector for investment. At the IBRD/IDA facility of the World Bank, there were questions about the role of the private sector in education and concerns that the IFC was intruding on Bank territory (Interview #1, World Bank;

5 In 1989, the IFC set up the Africa Enterprise Fund, and in 1996, the Small

Enterprise Fund, both intended to support small projects below the $5 million

minimum typical for IFC investments. 6 The other country cases were described in interviews as companion pieces to

the Tooley book, but were not available on the World Bank and IFC websites.

Additionally, Michael Latham from CfBT was reported to have completed four

country cases on IFC investments in West Africa in 1999. 7 Health and Education investment activities are now housed in the Manufactur-

ing, Agribusiness and Services Department (MAS); educational advisory work is

housed in the IFC’s advisory services unit.

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–2418

Interview #3, IFC; Interview #4, IFC). According to one IFC staffer, there were ‘‘big, big concerns from many of the executive directors, particularly on the part of the Canadian, the UK, were sort of ideologically opposed to private education, that it was going to create a two tier system that only serves the rich. . . And bad news all around’’ (Interview #4, IFC). The Bank’s Board of Directors also questioned the IFC’s education sector capacity (Interview #3, IFC). In 1999 the Bank’s President James Wolfensohn also sharply questioned the IFC’s work in education following a visit to an IFC funded elite school in Pakistan (Beaconhouse) (Interview #1, World Bank; Interview #3, IFC; Interview #11, World Bank).

However, with support from a small cadre of World Bank (IBRD/ IDA) staff, the IFC continued to push forward an agenda for education. A study by James Tooley on the global education industry, later published jointly by the IFC and the International Association for the Evaluation of Educational Achievement (IEA), provided important justification for IFC engagement in the sector (Tooley, 1999, 2006).8 At Wolfensohn’s request, a first roadmap for IFC engagement in education was prepared in 1998 and submitted to the Board in 1999 (IFC, 1999b). The roadmap elicited considerable criticism from France, Canada, Switzerland and Australia.9 Wolfensohn thus asked for a second and more complete document explaining why the IFC should engage in the education sector (Interview #1, World Bank; Interview #3, IFC). A second (and still current) IFC education strategy was then developed by Bank staffer Harry Patrinos and IFC staffer Tanya Scobie and championed through to Board approval by then IFC Vice President Peter Woike in 2001.

The successful endorsement by the Bank’s Board of the second version of the IFC’s education strategy appears to lie in its blending of a strong business case and social case for boosting private sector investment in education, particularly in low- income countries and for children and young people currently without access. Early on, the document makes the case that private engagement in education is perhaps more needed in developing countries than elsewhere:

Few would argue against continued and increased public financing of basic education, which produces the broadest social benefits. However, there is no a priori reason for all education to be publicly provided and funded at all levels. The appropriate role for the public and private sectors in the provision and financing of education should depend on conditions specific to each country. Some have very little need for private activity, given the willingness of the taxpayers and the commitment and ability of the government to support broad-scale, largely free public education at all levels. In others (most developing and many developed countries), despite signifi-

cant investment in education reform, governments struggle to

extend quality services to their citizens. In these situations, there is

significant scope for the private sector to complement or partner

with the public sector in provision and financing (IFC, 2001, pp. 4–5, emphasis ours)

Throughout, the strategy paper emphasizes the potential contributions of the private sector to the issues of poverty, social mobility and inequality. It frames the need for greater public

8 James Tooley was then professor at University of Manchester and fellow at the

UK based Institute for Economic Affairs, IEA, and already well-known for his active

advocacy for private provision of education (see Nambissan and Ball, 2010).

Tooley’s paper resulting from this study entitled ‘Educating Amaretch: Private

Schools for the Poor and the New Frontier for Investors’ won first prize in an IFC-

Financial Times essay competition in 2006 (IFC, 2006; Tooley, 2006). 9 Furthermore, despite broader pressure from the US for a greater Bank focus on

private sector development, one informant told us that the US Executive Director

chose to remain mute about support to IFC involvement in education during this

controversial period (Interview #3, IFC).

investment in private provision of education by arguing that there is growing demand for schooling in developing countries that is not being met because of limited state capacity (IFC, 2001, pp. 3–4). Private education provision is then described as contributing to poverty alleviation in several key ways:

� First, it can release public resources to target the poor by diverting children from middle-income families to fee-paying schools (IFC, 2001, p. 5). � Second, private provision is argued to expand a country’s

capacity for service delivery when government capacity is low, especially when combined with demand-side financing that allows publicly funded students to go to private schools. � Third, competition among private and public providers is argued

to promote quality, innovation, and diversity (p. 6), as well as efficiency (in the form of lower unit costs). � Fourth, in relation to social mobility, private education is

presented as ‘‘contributing to the growth and the strengthening of the middle class’’ which is described as underserved by the public system (p. 4); and as blurring the ‘‘distinction between rich and non rich access’’ (pp. 5, 19). Instances are cited in which private education providers cross-subsidize lower-cost private services for the poor.

The strategy also makes a ‘‘business case’’ for the IFC’s education activities by demonstrating how IFC work in the education sector can be based on sound investments that play a catalytic role in building out markets. It stresses that the IFC will only invest in financially sustainable education projects – that is, services for which there is clear consumer demand, in which there is a pre-existing market, and which can be brought to larger scale through injections of capital. In other words, the IFC will only invest where there is a high likelihood of financial return on its investments – win–win scenarios in which both poverty allevia- tion and financial gain go hand-in-hand. Investments in higher education, technical and vocational education, distance education and technology education are correspondingly viewed as top IFC investment priorities. Early childhood education, primary educa- tion and secondary education are described as having ‘‘lower investment probability,’’ in part because the size of capital required for these initiatives is on too small a scale for a typical IFC investment (pp. 12–13).

The successful inclusion of education in the IFC’s mandate can also be viewed as an outcome of a specific historical conjuncture in the World Bank’s history. From its origins, the World Bank Group has held a strong general interest in strengthening the private sector of developing nations, often attributed to the worldview held by its most powerful member country, the United States. The early 2000s saw this come further into ascendance, with the election of a Republican government in the United States. Thus in 2002, the Bank’s Private Sector Development Review Group endorsed a Private Sector Development Strategy, which called for the expansion of Bank support for privately provided educational and other basic services (Alexander, 2001, p. 287; Kessler, 2003; Miller-Adams, 1999). At the same time, the IFC’s work in education was supported by the establishment of an Economics of Education Group within the central IBRD/IDA facility at the World Bank. As will be discussed later, close personal relationships between staff of this unit and those at the IFC led to joint initiatives aimed at building a transnational network of supporters in this arena. At a time when the newly agreed upon Millennium Development Goals were focusing the attention of the IBRD/IDA and the larger donor community on rapidly expanding publicly provided basic education through sector program lending, the IFC offered an alternative window for those in the Bank who believe strongly in the need for competitive markets in education.

Table 1 IFC investments in Education, 2006–2010 ($ million).

Year Total Average investment

amount per loan

Investment amount by level of education Investment amount by income level of country

Higher education K-12 Other Low income Lower middle

income

Upper middle

income

High income

2010 128.392 18.342 107.094 13.399 7.900 4.000 – 94.399 29.993

2009 143.692 17.962 121.691 22.000 – 2.500 15.784 125.408 –

2008 41.295 8.259 36.505 4.789 – 6.933 20.993 13.369 –

2007 26.561 6.640 24.201 2.360 – 2.360 4.000 20.201 –

2006 40.430 6.738 22.711 2.354 15.366 2.354 10.710 27.366 –

Total 380.370 312.202 44.902 23.266 18.147 51.487 280.743 29.993

% of total to education 82.1 11.8 6.1 4.8 13.5 73.8 7.9

Source: Calculated from a list of investments provided by IFC staff to authors, May 2011.

Note: Country classification is based on the World Bank’s categorization of low, low middle, upper middle and high-income countries.

10 In a follow up to this study in June 2012, authors were informed that the IFC

plans to reduce its support for student loan facilities.

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–24 19

4. An overview of IFC investments in education

The IFC’s work in education can be divided into several categories of activities. At a corporate level, the IFC supports knowledge mobilization on the importance of private educational provision. It also provides advisory services to businesses to support their marketing, planning and development; as well as technical assistance to governments interested in piloting infrastructure PPPs in education. However, by far and away the largest component of the IFC’s education sector work is investment in education-related businesses.

4.1. The investment portfolio

As of March 2011, the IFC reported that it had made cumulative investments of over $500 million to 63 education-related projects in 31 countries (the total value of these business ventures, of which the IFC contributes only part, was estimated at $1.5 billion) (IFC, 2011c). While substantial, these investments remained a relatively modest part of the IFC’s total $3.3 billion investment portfolio in health, education and agribusiness, far smaller than IFC investments in the health sector (IFC, 2010c, p. 17).

Based on a list of investments provided for us by the IFC, we analyzed its education investment portfolio to look for geographic and sectorial trends in the period between 2006 and 2010. In this period, one can see a rather significant growth in the overall volume of IFC investments in education in 2009 and 2010. In those years, new investments rose from annual levels of $20–40 million USD, to well-over $100 million per annum (Table 1). Furthermore, the average size of IFC investments has also grown significantly in the most recent years. This is due primarily to several recent large-scale investments in higher education. Recent investment in K-12 education has remained quite low, at 10.4% of total IFC investments in education.

Geographically, the IFC’s investments in education businesses are increasingly concentrated on middle income and higher income countries (see Table 1). Over the five-year period between 2006 and 2010, only 4.8% of IFC education investments were made in low-income countries (dropping to just over 3% for the most recent year). Investments in lower middle-income countries averaged 13.5% for the same period. The majority of investments target upper middle-income countries. A notable 11 out of 15 of the IFC’s new investments in 2009 and 2010 were made in upper middle-income countries. And in 2010, 23.4% of investment dollars went to a project in a high-income country (Saudi Arabia).

In our interviews at the IFC and the World Bank, a number of explanations were provided to explain the IFC’s investment trends. First, although the IFC continues to mount a few highly publicized initiatives focused on privately provided basic educa- tion for the poor, organizational pressures ensure the IFC’s portfolio is concentrated in richer countries, and at post-primary

and secondary levels. For instance, the IFC rewards staff for investments that can make attractive commercial returns, thus producing incentives for private sector ventures that are substan- tial in size and already scaled. It is therefore much more likely to turn to higher education franchising than to private schools for the poor (Interview #2, IFC; Interview #4, IFC).

Secondly, the IFC has minimum expectations for the size of its investments, making funding for small-scale educational enter- prises unattractive. Moreover, projects must be viewed as financially sustainable to ensure a high chance of repayment at competitive rates of interest, or of good returns on IFC equity investments.

Finally based on the IFC’s founding principles (which include playing a ‘‘catalytic’’ role), investing is made in areas where there is insufficient financing available in the local market (Interview #1, IFC; Interview #2, IFC). However, according to interviews with IFC staff and staff in the World Bank, there are tensions between the catalytic/entrepreneurial approach expected of the IFC and its actual approach to investments, especially in the social sectors. The IFC generally looks for larger, already scaled investments that are profit-producing. Most social sector initiatives that target the poor are small scale and need venture/start up finance (Interview #2, IFC; Interview #14, World Bank). As a solution to this tension, the IFC has increasingly begun to explore how it might assist existing large-scale educational businesses to take on larger transnational roles in developing country education markets (Interview #2, IFC).

4.2. The IFC and post-secondary education

As noted above, IFC investments in post-secondary education dwarf its activities in any other education subsector. The IFC made its first six investments in higher education between 1998 and 2001, all but one in Latin America (IFC, 2001). Since 2001, IFC investments in higher education businesses have grown dramati- cally in size, with recent investments averaging between $20 and 35 million (Table 1). At the post-secondary level, the IFC invests in education businesses in three ways: it provides direct loans to postsecondary institutions; it holds equity in individual postsec- ondary education companies; and it also provides equity invest- ments to supports student loan facilities.10

Recent loans to postsecondary institutions have included Uniminuto in Colombia, where the IFC committed in 2009 $8 million in financing for professional and technical education that is conducted in cooperation with local authorities, on skills for local employment. According to IFC publications, Uniminuto operates in 11 municipalities and serves 35,000 students. Ninety percent of Uniminuto students are the first members of their families to go to university (IFC, 2010e). In Brazil, the IFC has made two loans of $40

Table 2 IFC investments in post-secondary education, 2006–2010 (US$ million).

Institution legal name Cmt date Country Status income Subsector Orig Cmt-IFC Bal

Riyad Bank January 27, 2010 Saudi Arabia HI HE 29.993

Strathmore University June 25, 2008 Kenya LIC HE 2.143

Ashesi University College April 3, 2009 Ghana LIC HE 2.500

Socketworks Ltd February 27, 2006 Nigeria LM HE 2.500

Structured Student Financing Risk Sharing Facility September 15, 2006 Indonesia LM HE 4.872

Institute of Business Management December 19, 2006 Pakistan LM HE 3.339

Socketworks Ltd May 23, 2007 Nigeria LM HE 4.000

Bank of Palestine June 19, 2008 West Bank Gaza LM HE 16.000

Omnix International June 30, 2008 Jordan LM HE 4.993

Credit Agricole Egypt June 28, 2009 Egypt LM HE 15.784

Fundo de Educacao para o Brasil May 25, 2006 Brazil UM HE 12.000

Financiera Educativa de Mexico S.A. de C.V. March 6, 2007 Mexico UM HE 0.91

DUOC UC June 27, 2007 Chile UM HE 19.291

Banco Real Student Financing March 5, 2008 Brazil UM HE 13.369

Corporacion Universitaria Minuto de Dios September 7, 2009 Colombia UM HE 8.000

American University of Antigua Limited September 25, 2009 Antigua Barbuda UM HE 30.000

DUOC UC September 30, 2009 Chile UM HE 30.000

Ideal Invest S.A. November 9, 2009 Brazil UM HE 6.713

Anhanguera Educacional Participacoes S.A. December 23, 2009 Brazil UM HE 28.694

Ensino Superior Bureau Juridico S.A June 18, 2010 Brazil UM HE 35.000

Trustco Group Holdings September 21, 2010 Namibia UM HE 12.100

Estacio Participacoes SA December 15, 2010 Brazil UM HE 30.000

Total 312.201

Notes: Countries classified as low income (LIC), low middle income (LM), upper middle income (UM) and high income (HI) countries as per World Bank classifications.

11 Indirectly, the IFC also reports that its investments in microfinance and health

insurance schemes contribute to the ability of poor families to keep children in

school (IFC, 2010h, pp. 10, 27).

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–2420

million to Anhanguera Educational in Brazil (through Fundo de Educacao Brazil), allowing this company to expand its campus network and use of distance education. Anhanguera is one of the Brazil’s largest private post-secondary institutions and the first to list its shares through an IPO. It serves over 250,000 students, focusing on low and middle income working adults (IFC, 2010e) (Table 2).

IFC investments in student loan facilities are smaller in number. They include, for example, an investment in the Sampoerna Foundation and the PT Bank International Indonesia in 2006 to establish a facility to fund student loans for post-secondary education. Funding is provided by Sampoerna directly to the post- secondary institutions, which in turn offer loans to their incoming students for entrance fees and one year of tuition. The Sampoerna Foundation incurs the first loss on these loans, while IFC guarantees 50% of any portfolio losses in excess of these first losses, up to $10million (IFC, n.d.). In Namibia, the IFC has supported the Trustco Finance project, with a loan of $12.1 million in 2010, in order to assist the microlender in providing student loans to finance higher education costs, including tuition. The IFC also provides advisory services support to improve the capacity of Trustco Group (IFC, 2010f).

We examined the portfolio of IFC investments in education to assess whether and how the IFC might be making a contribution to poverty alleviation through its post-secondary lending. The picture here is complicated. First, many of the institutions supported by the IFC claim to target middle and lower income students, an assertion that we were unable to explore in this research. However, we did note that the geographical distribution of the IFC’s higher education projects is starkly concentrated in higher income countries. Based on our calculations of IFC investments from 2006 to 2010, only 1.5% of dollars invested targeted post-secondary education businesses in low-income countries. In total 16.5% of its investments were to lower middle income countries, and 9.6% were to one project in a high-income country. Most dollars were invested in upper-middle income countries (72.4%). This geographic concentration of lending seems likely to continue. Our interviews suggested that the IFC is increasingly looking for investments in franchises that can cross borders to provide educational services at low cost. One area within post-secondary education that staff described as a growth

opportunity for the IFC is in the internationalization of existing higher education franchises, usually located in higher income countries (e.g. University of Phoenix, Devry) (Interview #2, IFC).

In our interviews with IFC staff, we also explored the extent to which the IFC selects and monitors investments based on their potential to enhance opportunities for the poor. However, we were told that the IFC does not have mechanisms for evaluating the poverty related impacts of its post-secondary investments. Nor does it track the socio-economic status of the beneficiaries of the institutions it supports. One area of recent concern in higher education is the impact of student debt on family and student futures – particularly when these debts are incurred through direct loans for tuition from universities and colleges. In recent US instances, for example, distance education institutions have used tuition loans to expand enrolments, with little regard to whether students can finance their full degree or are likely to gain employment to repay their loans. The IFC does not assess the impact of student debt on students and families nor does it track the ultimate employment outcomes generated by its investments (Interview #2, IFC; Interview #4, IFC). Its main quality assurance focus is on the curricular content.

Though a key stated rationale for project selection by IFC is the expansion of access to postsecondary education to the ‘‘bottom of the pyramid,’’ monitoring the poverty impacts and equity implications of its lending appear to be secondary concerns in the IFC’s higher education portfolio.

4.3. The IFC and K-12 education

In K-12 education, the IFC invests directly in private schools and school franchises, occasionally provides equity investments to them, and also provides credit guarantees to local banks to encourage them to make small loans to private schools.11 Direct investments in private K-12 schools were among the first IFC ventures in education, beginning with loans to the Rainbow Academy in Kenya (1994) and Beaconhouse Schools in Pakistan

Table 3 IFC investments in K-12 education, 2006–2010 (US$ million).

Institution legal name Cmt date Country Status income Subsector Orig Cmt-IFC Bal

Kenya School Financing Facility December 7, 2006 Kenya LIC K-12 0.854

Brookhouse Schools Limited December 7, 2006 Kenya LIC K-12 1.500

Ghana School Finance Facility May 17, 2007 Ghana LIC K-12 2.360

Banque Rwandaise De Developpment May 22, 2008 Rwanda LIC K-12 4.789

First Education Holding B.S.C. (c) June 25, 2009 MENA Region UM K-12 22.000

Curro Holdings PTY Limited March 31, 2010 South Africa UM K-12 9.399

Braeburn Schools Limited December 16, 2010 Kenya LIC K-12 4.000

Total 44.902

Notes: Countries classified as low income (LIC), low middle income (LM), upper middle income (UM) and high income (HI) countries as per World Bank classifications.

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–24 21

(1996). Over the last decade, IFC investments continued to focus primarily on elite private schools, financing construction, educa- tion materials and other capital needs, either at the initial phase of development or for expansion of an established school (Table 3).

IFC investments in K-12 education include franchises or chains of schools. For example, a project was approved in 2005 for $8 million USD, where the IFC is assisting the SABIS Group (which runs 27 schools in several countries) to build and establish an elementary and secondary school, able to accommodate 1700 students (IFC, 2008). According to IFC reports:

the new facilities. . . have become both the flagship school and international headquarters of the SABIS Group of Schools. The state of the art facilities, housed on a 75,000 square meter campus, include science and computer laboratories, dedicated music and art rooms, and extensive sports facilities such as a semi-Olympic swimming pool and an indoor basketball/tennis court, as well as a performance hall. (IFC, 2007b)

More recently, in 2010, the IFC provided a long-term loan of approximately $9.4 million USD to allow Curro Schools in South Africa, a chain of private schools, to expand (the company ultimately plans to operate 40 schools serving 40,000 children by 2020). According to the IFC Press release, the rationale for this investment is to ‘‘ease the burden on an already over-stretched public education system and improve the quality of high school graduates that go into the job market’’ (IFC, 2010e). Another direct investment in K-12 includes Braeburn Schools in Nairobi and Tanzania, which currently operates a network of 13 schools in 7 campuses, serving over 2500 students; tuition ranges by grade from 114,000 to 234,000 Kenya shillings (USD 1302.78–2674.12).12

Clearly, each of the above investments is meant to target middle or upper-middle income students. However, the IFC has increasingly attempted to make investments in low-fee private schools in low- income countries. The most widely publicized among these initiatives is the ‘‘IFC Africa Schools Program’’ which grew out of initial risk sharing agreements with private banks in Ghana and Kenya (Nyagah, 2009). As a mechanism, such risk sharing arrange- ments allow the IFC to support small private enterprises that would otherwise be too small to meet the minimum project size expected by the IFC. Approved by the IFC Board in 2007, the Africa Schools Program set aside $50 million in IFC credit guarantees to local African banks, with initial investments in Ghana and Kenya. In addition to the credit guarantees, the IFC Board agreed to provide $5 million in advisory services to support the business development of the schools themselves and technical advice to the Banks. Significant funding for the advisory side was secured from the Dutch government, allowing the IFC to contract CfBT13 to develop a suite of training materials and workshops to support the business plans and managerial capacities

12 As described on the Braeburn Schools Website, http://ww.braeburn.com/

(accessed 04.04.11). 13 The Centre for British Teachers, a not for profit education consultancy and

service organization.

of the small proprietary schools and their operators (Interview #4, IFC). As of July 31 2009, 67 schools serving 88,109 students had received loans with support from this program. More recent announcements have been made announcing expansion of this program to Liberia (IFC, 2011b, secondary education and technical vocational education); Uganda (IFC, 2010d) and Rwanda (IFC, 2008).

The IFC promotes its financing of K-12 schools as a central contribution to the World Bank Group’s overarching poverty mandate. However, our analysis of the IFC’s K-12 investments also presents a mixed picture. As noted in Table 1, the overall share of IFC investments in K-12 education is dramatically lower than in post-secondary education, at just over 10% of its total education sector investments. However, in contrast to postsecondary education, a much larger number of IFC investments at the K-12 education level are indeed in low-income countries (five of the seven investments since 2006). Nonetheless, since 2006 approxi- mately 69% of the total IFC dollars for K-12 education have been invested in businesses in upper middle-income countries.

Furthermore, when examining the tuition fees charged at IFC supported institutions, the IFC’s claim to be reaching the bottom billion through its K-12 education investments is untenable. As we have seen the majority of investments in K-12 schools have been targeted to elite institutions. Even the African Schools Program – the IFC’s flagship initiative in low fee private schooling – supports schools with tuitions well beyond the means of low income children in low and middle income countries. Here there is a clear case of obfuscation. Outright claims are frequently made by IFC that schools supported by the Africa Schools initiative charge tuitions ‘‘as little as $50 per term’’ (see for example, interview with Guy Ellena; Nyagah, 2009). However, a recent World Bank impact evaluation of the Africa schools program in Kenya cites average fees per term of $284 (elementary) and $275 (secondary) in schools funded by this program (Barrera-Osorio and Zable, 2011, p. 10).

Thus the IFC’s claim of reaching the bottom billion through its investments in K-12 education must rest primarily on the notion that by diverting children from middle and high income families to private schools, it is helping to free up public resources to target schooling for the poor.

4.4. Other IFC education activities

The IFC’s activities in education include not only financial investments in private sector initiatives, but also efforts to mobilize knowledge and build a larger network of investors and entrepreneurs in the education sector; and to provide advisory services to private sector clients and governments interested in establishing public private partnerships in education.

As noted above, much of the knowledge mobilization and network building in education sponsored by the IFC has occurred in cooperation with the World Bank’s Economics of Education Group. In 1999, staff from the IFC and key figures in the Economics of Education division in the World Bank’s education anchor launched biannual conferences on public private partnerships

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–2422

(PPPs) in education. These conferences on PPPs regularly invite key advocates for increased private provision (e.g. James Tooley, Michael Latham); as well as governments and private sector providers (for proceedings see Patrinos and Sosale, 2007; Chakrabarti and Peterson, 2008). As well, the IFC and Economics of Education staff together established EdInvest, initiated in 1998 as an ‘‘. . .on-line investment information forum on private sector development in education.’’ It began with initial funding from the World Bank Development Marketplace as a joint venture between CfBT and IFC’s Health and Education Department.14 It has subsequently received financial and in-kind support from both IFC and CfBT (World Bank, 1999, p. 35).15

In 2001 the IFC and the World Bank together published the Handbook on Public Private Partnerships as a tool to help guide Bank education sector staff and others to understand the role that the private sector can play alongside public educational systems (EdInvest/IFC, 2001). Subsequent joint activities have included the publication of ‘‘The Evolving Regulatory Context for Private Education in Emerging Economies’’ (Fielden and Lar- ocque, 2008), the recent impact evaluation of the Africa Schools Program in Kenya (Barrera-Osorio and Zable, 2011); and a conference on public private partnerships in education in India (World Bank, 2011b).

While there is no publicly available database of all the advisory services provided by the IFC, in interviews staff suggested that advisory work in education is still on quite a small scale, and mainly focuses on business effectiveness and risk management. Private sector clients must pay to access advice, though the IFC subsidizes the cost of its advice when it is launching major new initiatives. The Africa Schools Program, for example, utilizes resources from the Dutch government and other trust-funds to allow the IFC to provide business advice to the local banks making loans to schools. In addition, the IFC hired CfBT to develop a suite of training materials and workshops to support the business plans and managerial capacities of the small proprietary schools and their operators. The IFC has produced various policy documents and resource materials to assist private education providers – as for example, its 2010 Education Investment Guide (IFC, 2010b); and guides that address the question of facility safety and money management for parents (IFC, 2010a,e). A more recent initiative (launched in collaboration with the World Bank), the Education for Employment program in the Middle East and North Africa, utilized trust funds for the development of a strategic plan and conference to launch IFC work in skills and training in this region (World Bank, 2011a, p. 61; IFC, 2011a). The IFC’s regional offices and investment units are sometimes involved in the preparation of analytic reports on markets for private education in specific countries, but these are generally used to guide internal IFC investment strategy and are often not publicly available (see for example, CDC Consult, 2010).

Advice to governments about private sector markets in education has remained on quite a small scale. Through the IFC’s Infrastructure Advisory Services Department, governments can receive advice to help them structure contracts with the private sector for the design, construction, delivery and management of public services. Most of the IFC’s PPP advisory activities have focused on ‘‘Private Finance Initiatives’’ (PFIs) – which ‘‘limit private involvement to the management of infrastructure, while keeping the delivery and management of core services in the public domain’’ (IFC, 2009). According to interviews conducted in May 2011 the IFC currently has three major advisory mandates on PFI’s: two in higher education (Botswana, Gujarat) and a large K-12 project in Brazil (Interview #4, IFC).

14 CfBT is the Centre for British Teachers, a not for profit education consultancy

and service organization. 15 See http://www.ifc.org/edinvest/.

Notably, the IFC does not collaborate closely with the World Bank at the level of country investments. Our recent study shows that few IFC loans are linked to World Bank country lending to education; indeed, the IFC is rarely mentioned in World Bank project documents (Mundy and Menashy, 2012). Despite effusive claims to cooperation across the last three Bank Education Sector Strategies, in interviews, both Bank and IFC staff reported very little collaboration between the two organizations. Thus one IFC staff described the IFC/Bank relationship at the country level in these terms: ‘‘integrated certainly not. Coordinated only as required’’ (Interview #1, IFC), while a senior education sector manager of the World Bank described the relationship as still at a ‘‘very nascent stage’’ (Interview #8, World Bank). This may reflect what Miller-Adams notes is a major challenge of coordinating across the two different cultures of the Bank and IFC (1999, p. 62). Thus as one interviewee reported to us: ‘‘the objectives of the IFC are sustainability in business. The objective of the World Bank is quite different. The objective of the World Bank, for instance, is creating access for poor populations. So those two objectives can be compatible, but not necessarily’’ (Interview #5, World Bank).

5. Discussion and Conclusions

This paper has provided an introduction to a new multilateral actor in education, the International Finance Corporation. As a part of the World Bank Group, its investments in education are relatively small (totalling about $500 million over 11 years, as contrasted to total lending of $5 billion for education from IBRD/ IDA in the single 2010 fiscal year). Nonetheless, understanding the IFC is important for two reasons. First, the IFC is clearly considered by the World Bank Group as playing an increasing and central role in the overall approach to education taken by the organization. Secondly, the IFC is a publicly funded organization whose work is intended to contribute to the World Bank’s poverty reduction mandate. It is important to ask whether the IFC’s education sector activities meet this objective.

The IFC describes its work in education as contributing to poverty alleviation, supporting the ‘‘bottom of the pyramid’’ and achieving the Millennium Development Goal for basic education (IFC, 2010c, p. 32, 2010e). However, our analysis suggests that the geographical distribution of the IFC’s educational investments is not targeted towards low-income countries. Its K-12 investments appear to primarily support opportunities for the children of middle or higher-income families. Furthermore, while projects are screened for the quality of their academic services and environ- mental impacts, the IFC does not have a formal mechanism for assessing and evaluating the poverty impact of its investments. In its project appraisals, performance reporting, program evaluations and strategic planning, success is measured by the IFC in terms of direct financial returns on investment or quality of curriculum, not in terms of poverty impacts, risks to individual student borrowers, or creation of opportunities for those with the lowest incomes. The IFC has acted as an ideal vehicle for experimenting with private sector provision in education, outside of the typical oversight by governments that shapes the Bank’s core country level lending in education. Yet as a vehicle for advancing the notion that private provision improves opportunities for the poor, it has proven a disappointment even to the most forceful advocates of such policies inside the Bank: ‘‘. . .they [the IFC] don’t really want to do anything at the bottom of the pyramid. I remember about two or three years ago, we brought this up with one of the vice presidents. He said basically, you make money selling to rich people. That was his view on it. Well, if that’s your view, you’re not going to get very far in terms of addressing the poor’’ (Interview #12, World Bank).

These findings echo those of other recent studies of the IFC, which have raised significant concerns about the contributions the

K. Mundy, F. Menashy / International Journal of Educational Development 35 (2014) 16–24 23

IFC makes to poverty alleviation. The Bank’s Independent Evaluation Group (IEG), for example, has recently suggested that the relative shares of IFC investment in areas likely to reach the poor (infrastructure, agribusiness, health and education) have not changed significantly over the last decade. Instead investments in global trade finance have come to dominate IFC lending (IEG, 2011, p. 20). Furthermore, individual IFC investments pay limited attention to poverty and distributional issues in their design and their performance outcomes measures (IEG, 2011, p. xi). Thus ‘‘. . .most IFC investment projects generate satisfactory economic returns but do not provide evidence of identifiable opportunities for the poor’’ (p. 6).

Appendix A. Complete list of IFC investments in education, 2006–

Institution legal name Cmt date

1. Socketworks Ltd February 27, 2006

2. Fundo de Educacao para o Brasil May 25, 2006

3. Structured Student Financing Risk Sharing Facility September 15, 2006

4. Financiera Educativa de Mexico S.A. de C.V. November 22, 2006

5. Kenya School Financing Facility December 7, 2006

6. Brookhouse Schools Limited December 7, 2006

7. Institute of Business Management December 19, 2006

8. Financiera Educativa de Mexico S.A. de C.V. March 6, 2007

9. Ghana School Finance Facility May 17, 2007

10. Socketworks Ltd May 23, 2007

11. DUOC UC June 27, 2007

12. Banco Real Student Financing March 5, 2008

13. Banque Rwandaise De Developpment May 22, 2008

14. Bank of Palestine June 19, 2008

15. Strathmore University June 25, 2008

16. Omnix International June 30, 2008

17. Ashesi University College April 3, 2009

18. First Education Holding B.S.C. (c) June 25, 2009

19. Credit Agricole Egypt June 28, 2009

20. Corporacion Universitaria Minuto de Dios September 7, 2009

21. American University of Antigua Limited September 25, 2009

22. DUOC UC September 30, 2009

23. Ideal Invest S.A. November 9, 2009

24. Anhanguera Educacional Participacoes S.A. December 23, 2009

25. Riyad Bank January 27, 2010

26. Curro Holdings PTY Limited March 31, 2010

27. Ensino Superior Bureau Juridico S.A June 18, 2010

28. Harmon Hall Holding, S.A. de C.V. August 11, 2010

29. Trustco Group Holdings September 21, 2010

30. Estacio Participacoes SA December 15, 2010

31. Braeburn Schools Limited December 16, 2010

Source: List provided to Authors by IFC Staff, June 5, 2011.

Note: The country categorization by income level uses the World Bank definition for low in

(HI) countries.

We must then ask: Why does the IFC present education as one of its core ‘‘pillars’’ and a central arena for reaching the bottom billion? And why do public statements from the World Bank stress the contributions the IFC makes to poverty alleviation and learning for all? Perhaps the answer to this has more to do with legitimation than impact: a focus on educating the poor presents the IFC as a development-friendly organization, worthy of the growing num- ber of trust funds it receives for education and other social sectors by OECD governments. As one interviewee suggested to us, the IFC can see ‘‘the propaganda value of an investment bank investing in something good. . . that has social good kind of ramifications, like education’’ (Interview #1, World Bank).

2010 (US$ millions)

Country Status income Subsector Orig Cmt-IFC Bal

Nigeria LM HE 2.500

Brazil UM HE 12.000

Indonesia LM HE 4.872

Mexico UM Other 15.366

Kenya LIC K-12 0.854

Kenya LIC K-12 1.500

Pakistan LM HE 3.339

Mexico UM HE 0.91

Ghana LIC K-12 2.360

Nigeria LM HE 4.000

Chile UM HE 19.291

Brazil UM HE 13.369

Rwanda LIC K-12 4.789

West Bank Gaza LM HE 16.000

Kenya LIC HE 2.143

Jordan LM HE 4.993

Ghana LIC HE 2.500

MENA Region UM K-12 22.000

Egypt LM HE 15.784

Colombia UM HE 8.000

Antigua Barbuda UM HE 30.000

Chile UM HE 30.000

Brazil UM HE 6.713

Brazil UM HE 28.694

Saudi Arabia HI HE 29.993

South Africa UM K-12 9.399

Brazil UM HE 35.000

Mexico UM Other Ed 7.900

Namibia UM HE 12.100

Brazil UM HE 30.000

Kenya LIC K-12 4.000

come (LIC), lower middle income (LM), upper middle income (UM) and high income

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