There is a significant funding gap for secondary and especially tertiary education in much of the world. This is unlikely to change in the near future due to donors’ other funding priorities, such as the war in Ukraine. DFIs and international finance institutions (IFIs) more broadly were under-represented at this conference, although those in attendance shared some insights about the challenges in funding girls’ education. These include the pressure to guarantee a return on investment – which is difficult when funding education rather than entrepreneurship – and the fear of being associated with sexual exploitation scandals that may occur in the education sector.
IFIs in general do not see girls/young women as ‘bankable’ because they are still in education. However, GFF’s experience suggests that young women default on loan repayments at a third of the rate of young men in Kenya but that banks are unaware of this. The example of the Grameen Bank in Bangladesh proved that, contrary to popular belief, women were bankable microfinance clients and then other financial actors stepped into that space too. The challenge is to prove that young women who have not yet finished college – and therefore have no guaranteed income or business plan – are worth taking a risk on.
The employment challenge in countries such as Kenya compounds the problem because IFIs are aware that girls/young women may not go on to earn money and therefore may be unable to repay their loan. There are anecdotal reports that students in Kenya (especially girls) are often unwilling to take out loans due to fear of defaulting on repayment. However, there is also evidence of widespread use of mobile phone loans in Kenya (and elsewhere), which suggests that there is already high demand for loans and willingness to take them out.
GFF loans have an interest rate of 18%, which is the accepted cost of capital. Grants and government loans are not sustainable due to a lack of government funding (as noted in the presentation on Kenya’s HELB scheme in Box 3 below). Even subsidised loans are equivalent to grants if the loan does not cover the full cost of capital. Whilst advocating for more government funding for grants or loans is a potential longer-term solution, there is a need to find an immediate solution for girls/young women who face sexual exploitation to pay education fees. The private sector has an essential role to play in filling this immediate funding gap.
However, often donors and NGOs think that such an interest rate is too high. It is well documented that some women microfinance clients have sold assets to pay back high interest loans. Girls and young women from low-income households may also face harassment from their husbands for taking out high interest loans. This underscores that girls and young women in need of education funding must be key stakeholders in policy design. GFF’s anecdotal experience shows that young women find 18% interest rates over a year to be acceptable because much higher monthly interest rates on other loans are common in many countries. GFF clients have also lost access to finance when their governments capped interest rates because banks refused to lend to them at low rates due to them being considered high risk clients.
Blended finance is a potential solution to the funding gap in girls’ education. For example, a bilateral or multilateral donor could guarantee the risk of a loan provided by a DFI. DFIs have also faced this pushback from some civil society actors. There has separately been pressure on US Senators from American teachers’ unions to prevent US funding going to education in developing countries because it undermines the state delivery of education.
Some DFIs are hesitant to fund education due to the fear of being associated with sexual exploitation scandals in that sector. However, this is not the case for all DFIs (for example, the World Bank is the largest funder of education globally).
Two examples of successful financing solutions were shared, as documented in the boxes below.
Box 2: Case study: Chancen
Chancen is a social enterprise that provides education funding to women in developing countries. Its clients agree to pay back 1.8 times the amount borrowed over any time period, which offers more flexibility than a loan with a fixed repayment period. The net effective interest rate using this structure is 18%. Chancen also provides mentoring to women to help them resist the advances of sugar daddies.
In a case study, 37% of Chancen clients did not go on to find employment. Chancen accepts this risk because it does not see itself as providing loans to women but is instead entering into agreements with them. This is an important distinguisher: a woman enters into the agreement on the understanding that she will only have to repay the money if she gets a job. This increases her confidence to borrow.
Chancen monitors educational institutions to see whether its clients who study there go on to get jobs. If they do not, it does not fund other clients to study at those institutions.
Women who go through the programme become alumnae and support others. This is a critical factor in its success.
There is an opportunity for impact investors, central banks, foundations, IFIs, DFIs, and other actors not present at the conference to fund organisations like Chancen.
Box 3: Case study: HELB
he Higher Education Loans Board (HELB) in Kenya provides education loans to students embarking on tertiary education within and outside Kenya. It was established by an Act of Parliament in 1995.
HELB loans cover: 1) tuition fees, 2) books and stationery, and 3) accommodation and subsistence, with an emerging focus on accelerated e-learning.
HELB loans aim to overcome the gap between the rich and poor in society, with a focus on equity rather than equality. They are particularly aimed at female students, orphaned students and students with disabilities, as well as students from low-income households generally. HELB has taken inspiration from the book Radical Inclusion by David Moinina Sengeh, which challenges readers to identify the exclusion that individuals experience. HELB staff observe that boys tend to overstate their poverty to receive greater funding whereas girls are more inclined to hide their poverty level, which results in smaller loans.
HELB is a revolving fund: it is only sustainable if clients repay their loans so that new clients can be funded. Clients tend to repay their loans because the marketing tells them that repayment will help other students receive a loan. Some funding also comes from the government Exchequer as HELB subsidizes its loans’ interest rate to 4%, which also limits its ability to provide full funding to all eligible borrowers because the government funding is limited and fluctuates due to demand for funding from other government departments.
The cost-of-living crisis, Covid and global inflation have decreased the value of loans and resulted in a large funding gap for HELB. There is an opportunity for IFIs, DFIs and commercial banks to fill this gap.
HELB-funded student nurses have gone on to work on the Covid response in Kenya and elsewhere, demonstrating the positive impacts of loans at individual, societal and global levels.