Finance Transformation

Funding for education is more important than ever. The world is in the midst of an unprecedented global crisis as a result of COVID-19 that will be felt for generations. Before the emergence of COVID-19, the education of the world’s children and youth was already in crisis – 260 million children were out of school and more than 550 million were in school but not learning the basic skills needed to thrive.

The COVID-19 pandemic has magnified the world’s learning crisis exponentially. According to UNESCO, more than 1.6 billion children and youth – over 90 percent of the world’s student population – had their education disrupted due to school closures in more than 190 countries.The scale and speed of this disruption was unparalleled, and the worst impacts will be felt by the poorest and most vulnerable, especially girls, for years to come. Unless we act now, learning losses will translate into significant long-term challenges, including lower labor market participation and significantly lower future earnings.

The poorest and most marginalized children are at the greatest risk. The worst impacts of the crisis will be felt by the most vulnerable, especially girls, refugees, and those living in extreme poverty. A child who is out of school for more than a year is unlikely to return, and girls are 2.5 times more likely to drop out. Without being in school, millions of children could be trapped as laborers, child brides, soldiers, and victims of human trafficking and modern slavery. Without an education, an entire generation of future doctors, teachers, lawyers, and entrepreneurs will not be able to realize their full potential and contribute to the recovery and growth of their communities.

The special challenge of lower-middle-income countries (LMICs). Fifty LMICs are home to more than half of the world’s children and youth (more than 700 million), the largest number of out-of-school children, and the largest number not learning of any income group. This includes some of the most populous countries such as India, Indonesia, Kenya, Nigeria, and Pakistan. Even under the most optimistic scenarios of increased domestic budgets and more efficient spending, LMICs will face a financial shortfall to address these challenges, likely rising to 80 percent of the total global financing gap by 2030. Despite large and rising financing needs, international development assistance has not kept pace with need. Total global aid for education is currently only around US$12 billion – roughly $10 per child – barely enough to pay for a secondhand textbook. Indispensable programs such as the Global Partnership for Education (GPE) and Education Cannot Wait (ECW) are not designed to address LMICs’ large long-term financing needs and are already stretched focusing on LICs or emergency humanitarian needs. By maximizing scarce donor resources in an unprecedented way, IFFEd allows donors to better meet the financing needs of LMICs at an affordable cost, without having to reduce allocations to LICs or for humanitarian crises.

IFFEd runs on a basic set of principles:

Efficiency: Harness the power of the multilateral development banks (MDBs)  – the African, Asian, and Inter-American Development Banks, the European Bank for Reconstruction and Development, and the World Bank – to mobilize additional financing in capital markets and implement programs. IFFEd requires no new actors at the country level.

Scale: Multiply traditional aid up to seven times, double existing investments from banks, and mobilize up to US$10 billion of new investments in education in its first few years of operation.

Affordability: Soften loan terms to make them more affordable and manageable for educational investment.

Sustainable financing for results: Align investments with education sector plans, encourage countries to mobilize domestic funds for education and manage their debt responsibility, and deliver results.

IFFEd is not an implementing agency. It will work by enabling participating MDBs to increase the amount and affordability of funding for education in LMICs. The fundamental premise of the MDBs’ financing models is that they can borrow and then lend, at low rates, a multiple of their capital base to countries due to their AAA rating. The guarantees provided to IFFEd by donors, treated as quasi equity, allow the MDBs to further expand their lending to an estimated $4 for each $1 of guarantees.

IFFEd aims to mobilize up to $10 billion in additional international finance towards achieving SDG 4 by 2030. Its initial fundraising target is $1 billion for the guarantee window ($150 million in cash and $850 million in contingent commitments) and $1 billion for the grant window. This will deliver a total of $5 billion in new education finance in its first five-year programming period.

Steps are underway to establish IFFEd and its small administrative unit so it can be fully operational in 2022 as called for by the UN Secretary-General in his Our Common Agenda report.