UK announces contribution of £180 million to the International Finance Facility for Education during UN General Assembly SDG Summit
Photo Credit: Annie Spratt 19 Sept 2023/NEW YORK…
The scale of the global education crisis is staggering. Even before COVID-19, over half of the world’s children and youth were either out of school or in school but not learning the skills needed to thrive. COVID-19 has tragically deepened and intensified this crisis. Unless we act now, learning losses will translate into significant long-term challenges with grave economic, development, and social ramifications.
More than half of the world’s children and youth – over 700 million – live in 50 lower-middle-income countries (LMICs). These countries include some of the world’s most populous, like India, Indonesia, Kenya, Nigeria, and Pakistan. While wealthier countries are able to provide quality education using their own resources and the world’s poorest countries receive the highest proportion of bilateral grant aid and financing from existing global funds for education, LMICs fall into a “missing middle.” They are too poor to mobilize resources domestically and have become “too rich” to access the low-cost financing necessary for education.
There is a massive global funding gap. Even the most conservative estimates say the financing gap is $40 billion per year, with 80% of this gap expected to be in LMICs by 2030. Total international aid for education is currently only around $16 billion, falling far short of global needs. Targeted action is needed urgently to help these countries unlock investments in education and skilling, train the future’s entrepreneurs, engineers, doctors, artists, and activists, and build a better, more resilient world.
The International Finance Facility for Education – IFFEd – is a new and powerful financing engine for global education that multiplies donor resources so governments can invest urgently in quality education and skills in lower-middle income countries.
IFFEd is a public-philanthropic partnership to transform education and help fill the financing gap in lower-middle-income countries. At its heart is a bold and innovative financing mechanism that aims to unlock at least $10 billion of new education funding over the next 5 years. IFFEd was proposed by the Education Commission in its landmark 2016 report and has been endorsed by diverse global leaders from the public and private sector, donor and beneficiary countries, civil society, and youth.
IFFEd is specifically designed to help LMICs. It complements other funding mechanisms and bodies, such as UN agencies and specialised global funds like the Global Partnership for Education (focused on the poorest countries) and Education Cannot Wait (focused on emergency humanitarian situations) by raising more funds in a new way.
Many of these countries are eager to develop and improve their education systems but just don’t have the budgets to do so. LMICs can afford to borrow for education, but not at commercial rates. IFFEd is designed to address this critical need. By maximising scarce donor resources in an unprecedented way, IFFEd allows donors to better meet the financing needs of LMICs, without having to reduce allocations to low-income countries or for humanitarian crises.
IFFEd provides a new, affordable stream of finance that will result in millions more young people going to school and acquiring the knowledge and skills they need for future work.
The IFFEd mechanism – a mixture of direct grants and guarantees – is a game-changer that can multiply scarce donor resources up to seven times across its guarantee and grant windows combined. It harnesses the power of the existing multilateral development banks (MDBs), such as the African Development Bank and the Asian Development Bank, and does not create new parallel structures.
IFFEd uses donor guarantees to provide a new form of portfolio guarantee to MDBs. This allows them to raise additional financing in capital markets and provide funding to countries for education. For every $1 in guarantees, donors only need to provide $0.15 in cash as paid-in capital, with the remaining $0.85 in the form of a commitment to disburse should loans not be repaid. For every $1 of the portfolio guarantee provided through IFFEd, MDBs are able to provide an additional $4 in financing to LMICs.This means $0.15 paid-in capital triggers $4 in MDB lending – a 27x leverage. Just $40 million in paid-in capital mobilizes $1 billion in new financing.
Donors also provide grants to IFFEd. These grants are disbursed alongside the loans to effectively buy down the interest rates charged by the MDBs and lower the cost of education financing for eligible countries. These grants allow countries to borrow for education on more affordable terms and encourage them to invest in education. For every $1 billion in MDB financing, we propose $100 million in grants to soften the terms of the financing provided.
IFFEd’s unique combination of guarantees and grants creates a dedicated pool of concessional capital for education which is more affordable than existing MDB or commercial financing.
This innovative way of working will allow IFFEd to unlock at least $10 billion in new education financing over the next 5 years.
IFFEd financing will be available to LMICs with access to non-concessional financing from the MDBs. To be eligible, countries must meet the four key criteria below and demonstrate a commitment to providing quality education for all, especially the most marginalised children and youth. This includes increasing their domestic education budget to meet international standards.
Photo Credit: Annie Spratt 19 Sept 2023/NEW YORK…
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