Finance Transformation


Mobilizing more and better education investments

  

The Commission is collaborating with countries, multilateral development banks, and partners around the world to mobilize more and better investment in education. The International Finance Facility for Education (IFFEd) is an innovative education financing mechanism that aims to unlock at least US $10 billion of new funding by 2030, making it possible to get every child in school and learning.

What is the International Finance Facility for Education?

The International Finance Facility for Education (IFFEd) will be a powerful new financing engine for global education. It is specifically designed to tackle the education crisis in Lower Middle Income Countries (LMICs) which are home to 80% of the world’s children.

IFFEd is a recommendation of the Education Commission, put forward in The Learning Generation report released in September 2016. IFFEd complements existing grant instruments like the Global Partnership for Education (GPE) and Education Cannot Wait (ECW) and fills a critical gap in the international financing architecture for education. By using a combination of catalytic grants and guarantees and multiplying scarce donor resources by a factor up to four, investing in IFFEd will enable international donors to help close the massive education financing gap in LMICs without reducing their existing support for education in low-income countries or humanitarian settings.

Closing the gap in education financing

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 – 250 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 1.5 billion children and youth – over 90 percent of the world’s student population – have had their education disrupted due to school closures in more than 190 countries. More than 63 million teachers and the wider education workforce are grappling with ways to ensure that learning does not stop and that the most vulnerable children are protected.

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.

Lower-middle income countries will bear the brunt of the burden. LMICs house close to half of all school-aged children and more than half of the world’s poor, along with the highest number of refugees and displaced people. Even before the COVID pandemic, 155 million children were out of school. The size and scale of the education crisis in these countries will grow dramatically as student populations continue to expand and populations of disadvantaged children (whether by sex, location, disability or level of poverty) require additional investment. 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. The sheer scale of the education financing challenge in LMICs requires new and ambitious approaches.

A new way to finance education

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 more than four times, double existing investments from banks, and mobilize 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.

Maximizing the impact of donor dollars

IFFEd offers a game-changing model. It uses guarantees and grants from contributors to generate increased education financing by the MDBs and reduce lending terms for borrowers. IFFEd has two funding windows:

Grants: IFFEd will provide grants to participating MDBs to lower the cost of their education financing to eligible countries and allow LMICs to finance education on more affordable terms. Between 2015-2017, 12 percent of concessional MDB lending for LMICs was taken up by education, compared to just 2.5 percent of non-concessional lending.

Guarantees: IFFed will guarantee loan repayments to MDBs from their client countries, effectively providing MDBs with a form of capital which they can leverage four times on the capital markets. Donors only need to provide 15 percent of total commitments to this window up front in cash, with the remaining 85 percent provided in the form of a contract to convert commitments to cash if needed to maintain the financial stability of IFFEd.

Country commitment: Countries will only be eligible to access this new financing if they can demonstrate:

  • A credible strategic framing document, such as an education sector plan;
  • A commitment to improving education opportunities for marginalized children, consistent with the ‘leave no one behind’ principle;
  • A commitment to increase its domestic education budget to meet international standards;
  • A capacity to sustain additional MDB debt, as demonstrated by a debt sustainability analysis;
  • A growing integration of results-based approaches to achieve nationally set targets (consistent with the Paris Declaration on Aid Effectiveness)

How does IFFEd work?

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 hybrid capital, allow the MDBs to further expand their lending to an estimated $4 for each $1 of guarantees.

 

IFFEd aims to mobilize at least $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 in the UK so it can be fully operational in 2020.

IFFEd at a glance

  • Substantial new financing and bold reforms are required to help lower-middle income countries (LMICs) make significant progress towards achieving SDG4. LMICs are home to 80% of the world’s learners, who are being left behind.
  • IFFEd can help countries mitigate the impacts of COVID-19 by providing a new, affordable stream of education finance in the face of declining revenues and increasing budgetary constraints.
  • IFFEd will help LMICs close the financing gap by utilizing the financial leverage of MDBs and guarantees from contributors to maximize the impact of donor dollars.
  • IFFEd offers significant value for investment. With $1 billion in contingent financing and $1 billion in grant funding invested, IFFEd could deliver a total of $5 billion in new education finance.
  • IFFEd fills a critical gap in the international financing architecture for education, complementing existing instruments like GPE and ECW.
  • Nearly 50 countries have the potential to benefit from IFFEd, including some of the world’s most populous countries with large marginalized populations, such as Bangladesh, Indonesia, Pakistan, Kenya, and Nigeria.
If we do not change the way we teach today, we will be in trouble tomorrow. The knowledge-based approach to learning of centuries ago will fail our children who will never be able to compete with machines in the workforce of the fourth industrial revolution. Children should be taught “soft skills” like independent thinking, values and teamwork — and the International Finance Facility for Education gives countries the opportunity to revolutionize the teaching and learning process to prepare the next generation to thrive in our global society. It is an effort that all who care about the future should get behind.

Jack Ma | Founder and Executive Chairman, Alibaba Group

In our fast-changing world, we cannot accept 250 million children failing to learn even the most basic skills. In the coming decade, some one billion young people will enter the workforce. They all need education so they can help build a world of peace, prosperity, dignity and opportunity for all. That is why the proposed new International Finance Facility for Education can be so important.

António Guterres | Secretary-General, United Nations

Education is the key to unlocking many of the Sustainable Development Goals and requires investments from the early years through to primary, secondary and skills training for the jobs of the future. The International Finance Facility for Education offers a new way to generate resources to help those countries dedicated to achieving inclusive and equitable education for all. The international community now has a full set of financial and delivery tools at our disposal to help ensure even the most marginalized child has the opportunity to realize her potential.

Henrietta Fore  | Executive Director, UNICEF

We look forward to working with the International Finance Facility for Education to offer Latin American and Caribbean countries more options to access blended finance. This innovative mechanism will provide our borrowers greater incentives to invest in raising the quality of education, a key to higher growth and long-term prosperity.

Luis Alberto Moreno | President, Inter-American Development Bank

Greater investment in education is essential to ensure continued growth and prosperity in the Asia and Pacific Region. We look forward to working together with the International Finance Facility for Education to leverage donor funds and create new ways for countries to increase their investments in our region’s next generation.

Takehiko Nakao | President, Asian Development Bank

Education is a basic right that truly transforms lives, everywhere. Investing in inclusive, equitable and quality education empowers people, lifts them out of poverty and builds the foundation for prosperous and peaceful societies. It is an urgent imperative that we invest in the full cycle of education, SDG 4, from childhood development to youth skills and adult learning. We must reach all people, with a special focus on girls and those caught up in crisis situations and left behind. Success depends on funding that is predictable, sustainable and at scale. We look to the International Finance Facility for Education to help bridge the enormous financing gap and make quality and relevant education a reality for all.

Amina Mohammed  | Deputy Secretary-General, United Nations

I view the International Finance Facility for Education proposal as an encouraging initiative that will provide much needed additional funding for education in countries committed to reform and enhance investment in that field…Believing that it is incumbent upon the international community to seize this moment, to avoid an education crisis and create a generation of children who will transform education across the world, I am firmly convinced that greater investment in a reformed education sector is critical to Indonesia and to the world.

H.E. Joko Widodo | President, Indonesia

We are in a global learning crisis, and poorer countries especially will need more investment to improve the quality of their education systems. But we cannot depend on public finance alone—we must find new ways to fund this cornerstone of human capital. The International Finance Facility for Education is taking a lead role on innovating in education finance, and we commend their efforts to develop a full set of financial tools to invest in the skills, talents and knowledge of the next generation.

Kristalina Georgieva | Managing Director, International Monetary Fund

Tunisia is delighted to be part of this initiative and supports the International Finance Facility for Education. I strongly believe that greater investment in a reformed education sector is critical to Tunisia and to the world. Tunisia is a committed partner in achieving the Learning Generation, whose time has come.

H.E. Béji Caid Essebsi | Former President, Tunisia

Malawi is pleased with the progress of the Education Commission and offers its full support for the International Finance Facility for Education. This is an encouraging development that will provide much needed additional finance for education to countries willing to reform and increase investments in education.

H.E.  Peter Mutharika | President, Malawi

Learning levels in Africa trail behind other parts of the world. To bridge the gap, increase levels of growth and development, and connect skills to jobs of the future, we must invest heavily in the education of our young people today. The International Finance Facility for Education is a welcome and much-needed innovation that will allow us to unlock new financing and rapidly accelerate progress in human capital development.

Akinwumi Adesina | President, African Development Bank