One Funder Intrigued by New Ways to Finance Education in Poor Countries: Gates

The Gates Foundation’s Financial Services for the Poor program has the broad goal of providing access to digitally based financial products and services for the millions of unbanked adults in the world. In doing so, the foundation hopes to help give poor households “the opportunity to move out of poverty or absorb a shock without being pushed deeper into debt.” Gates’ financial inclusion model isn’t solely about getting poor countries to transition from a cash-based society to electronically based financial systems. There is also a big microfinance component of the foundation’s giving in this space.

Microfinance is a comparatively small component of Gates’ financial inclusion portfolio, which has awarded close to $950 million in grants since 2005. But we’re talking about Gates, so its microfinance grants still amount to a pretty good chunk of change. Of those investments, though, very few have gone to support microfinance models related to education.

This isn’t really that surprising, since the Gates Foundation has long focused on its education work in the United States and has plenty of other fish to fry with its global funding. On the other hand, given Gates's goals in the global development space, it would seem only a matter of time before education became a bigger focus, especially given how much action there is in this area in poor countries, including interesting new models for expanding low-cost schools and financing higher education, as we've reported.

Along these lines, we were intrigued to see that the Gates Foundation recently awarded Opportunity International $1 million to support its education finance program.

Opportunity International has been on a serious education kick for some time now. It's committed to educating over 124 million out-of-school children, setting its initial sights on helping 2 million children by 2017. One way in which it is working toward achieving that goal is through its education finance model.

This program set out on a path to use microfinance as an integral tool in the “critical first step in sending and keeping kids in school.” The program offers loans for school improvements, school fees and supplies, and an insurance program that pays children’s school fees if their parents or guardians become ill or die.

Since 2012, Opportunity International has reached more than 1.5 million children across 10 least-developed countries and made 130,000 education loans totaling over $72 million. In fact, its education portfolio has grown in value by around 300 percent since then. A matter to which Gates has certainly taken notice, given its recent $1 million investment in Opportunity International’s education finance model.

To be clear, the Gates Foundation already has an established funding relationship with Opportunity International. Including this latest give, the foundation has written over $16.5 million in grants to Opportunity beginning in 2005. While all of those grants—the largest being an $8 million award to expand savings and agricultural finance in Africa—were associated with financial inclusion and microfinance, none went toward education finance. So this is new ground.

The $1 million grant is dedicated to the expansion of Opportunity International’s Education Finance initiatives “in Uganda and beyond.” Why the focus on Africa? One reason is because around half of those 124 million out-of-school children live in sub-Saharan Africa.

The Gates grant will fund “the first open platform credit model for education lending.” Opportunity’s financial technology partner, MyBucks, is developing credit and credit-scoring algorithms that will hopefully provide more families access to education loans while at the same time offering increasingly cost-effective models for financial institutions. This all adds up to more kids in class and more financial institutions participating in the education finance market.

Nathan Byrd, lead of the education finance program at Opportunity, explains further, saying, “This project will create fully responsive and flexible credit models. That will in turn give families and school administrators in low-income communities access to financial services that have been typically reserved for middle and upper income communities.”

Is this the beginning of a new flow of Gates grants into the burgeoning global development education space? Stayed tuned.