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International Finance Corporation Investing In Private Education

International Finance Corporation Investing In Private Education. K4D Presentation by Ron Perkinson 15 th January 2004. IFC Entry into Education. First project in 1995 Conducted Global Education Study, 1998

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International Finance Corporation Investing In Private Education

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  1. International Finance Corporation Investing In Private Education K4D Presentation by Ron Perkinson 15th January 2004

  2. IFC Entry into Education • First project in 1995 • Conducted Global Education Study, 1998 • Established Global Social Sectors Group for Health and Education (CHEPG), Yr 2000 • New IFC Strategy in Education – 2001

  3. $140 m / 29 projects approved / 19 countries • Argentina; Brazil; Cameroon; Chile; Cote d’Ivoire; Gambia; Ghana; India; Kenya; Mexico; Nigeria; Pakistan; Peru; Senegal; South Africa; Turkey; Uganda; Uruguay; Vietnam • Most are in lower-income countries • World Bank: $10 billion 1995 - 2000 – $1.2 billion in 2000 – $1.5 billion in 2001/02 December 2003 IFC – Education Portfolio

  4. IFC Services – Education • Loans– Preference for local currency – Fixed or floating market-rate pricing - Tailored to cash flow, typically 7 to 12 yrs - Grace periods – cover gestation phase • Equity – Seldom – except for ICT type private ventures – Passive investor – difficult to add value – Need well defined exit mechanism – Not for Profit status – difficult • Technical Assistance

  5. The Global Market • $2.2 trillion+ total – one third of market in USA – approx 15% only in the developing world • Teachers – 5% of global labor force • Primary & Secondary Education – substantially public funded • Tertiary & Adult Education – changing landscape - free provision diminished – regulatory - governments more liberalized – private sector participation growing (est 18%) Sources: Merrill Lynch 2000; OECD 2000; World Bank; IFC:

  6. World Population Growth Source: “6 Billion Human Beings:” - Musée de l'Homme Muséum National d'Histoire Naturelle, Paris –France

  7. Balancing Education Sector Needs . . . . . . . . With Fiscal Realities • Economic decline – available resources for education shrink • Governments reconciling and balancing education fiscal realities and demographic trends • ‘Supplementary’ costs – shifting to parents and students • Tuition fees increasing globally

  8. Trends in Public & Private Financing Education Global Estimates - All Countries 1996 to 2000 87% 82% Public investment Private investment 18% * 13% * Source:: OECD 2000; UNESCO 1999; IFC staff estimates 2002: * = est. – Trends in Private Investment

  9. Enrollment in Private Higher Education (as a % of total) ** ** = Latest Internal ADB est YR 2001 Source IBRD; OECD 2001

  10. Drivers for Increased Private Investment at Tertiary Level • Fiscal pressures on public funding – alternative sources and forms of funding needed • Unmet Supply & Demand – demographic increases – creating investment opportunities • Increased demand for knowledge / skilled workers worldwide – ‘niched’ investment opportunities • Globalization – global market for higher education and training – cross border opportunities (GATS) • Increasing tuition fee levels in public institutions

  11. IFC Education Portfolio(Approved & Pipeline Examples) • Universities • Technical / Vocational Training • Schools • On-Line Tutoring (24hrs) • Education Portals • Distance Learning / e-Learning • Education Technology Companies • Supporting other education initiatives (eg. Loan Fund; Student Loans)

  12. Escol@24horas.com

  13. Escol@24horas.comSummary • Project:On-line tutoring services for 160,000 K-12 students across Brazil, on a 24 hr per day basis. Today – 200,000 plus students. Also, operation now being replicated in Mexico. • IFC Investment: Up to US$3.25 million in equity (25% stake) • Exit mechanism: Public Listing; Tag Along Rights • Project Cost: US$13million

  14. Istanbul Bilgi University • Founded in 1994 as a not-for-profit HEI • Project comprised expansion and modernization of facilities to accommodate student growth – 5000 students to 7600 students over three years • Refurbishment of two campuses • Develop courseware and assist to implement the first on-line graduate program – e-MBA in Turkey • Acquisition of I.T. and technical equipment for new facilities • Introduction of proprietary student financing mechanism • US$29.0 million project

  15. Course Development Course Induction Course Delivery Tutor Support Student Support ICT–Technical Specification Design / Applications Requirements Assessment & Evaluation Teaching & Learning Drive The Use Of Appropriate Technologies Pedagogic Feedback & Review

  16. Universidad Diego Portales - Chile • Partial guarantee ($7m) for 8yr local Chilean bond - face value of Bond approx US$23 million • Bond proceeds used to finance University’s expansion, modernization and to improve quality of operations – construction of 3 new buildings and refurbishing 6 existing • Additional space caters for growth from 9,300 students to 14,000 students by Yr 2010 • Project accommodates construction and refurbishment of neighborhood of downtown Santiago – preserves district’s heritage

  17. TA Project – Norton University • University started in 1997 • Growth – 700 to 4400 students in 5 years • 29 yr old sponsor • Leased premises – max capacity about 4500 students • Purchased land – new campus – 12,000 students • Apply for ‘University’ status – new legal framework • Project not bankable without Technical Assistance

  18. IFC Technical Assistance Initial Review – back to basics – how to start a university – template for establishing a Tertiary Institution – quality indicators, academic and governance characteristics Strategic Planning – report and recommendations – design of new curriculum framework, student & financial MIS – future phasing of academic and governance requirements Accreditation Requirements – Governing Council – QMS System & implement curriculum framework – Dip Foundation Studies – Yrs 1 – 3 courses – Application for Accreditation to GoC

  19. Technical Assistance – Results • New Board – external representation • New Curriculum Framework • Student & finance MIS • Quality Management System – 50 KQI’s • Diploma of Foundation Studies • Application for Accreditation • Time taken – 20 months

  20. Student Financing • Over 60 countries have student loans – mostly public schemes • Variable performance • Loan schemes important – can improve access and opportunity • Some barriers – private banking sector experience limited – cost of credit usually high – mobility of students after graduating – underwriting risk and cross border issues difficult • Access to proven systems & experience – valuable

  21. NIIT • Approved Yr 2000 – started Yr 2002/3 • Loans on purely commercial terms • Seven year loan with partial grace period • Yr 1 to 3 – students make a partial interest payment (Rps1000/ mth - $20/ mth) • Yr 4 to 7 – student makes equal monthly payments (around Rps4000/mth - $80/ mth) • Fixed interest rates – 16% • Loans signed by student and co-borrower • For students in last 2 yrs of 4 yr program • Cover only 90% of tuition and computer costs • Citibank underwrites scheme – IFC shares risk • Scheme to scale up to $90m over 12 yrs

  22. Eduloan • IFC – US$2.8 million convertible loan • Deductions from student payroll accounts • Students employed while studying at Universities & Technikons • Part time students are 15% of the anticipated portfolio • Universities and Technikons to extend to nursing and teaching, private industry training bodies and business studies • Delinquencies – have been low (less than 2%) • Eduloan has 50,000 users • Loan portfolio is expected to reach US$ 40 million with around 97,000 student loans by Yr 2005. • Loan amounts per student approx. US$ 280 to US$ 425 – repayable within 12 months • Standard Bank now 47% shareholder

  23. Bankable HEI Project – 10 Success Factors • Operating in positive regulatory environment for private investment • Attractive Market conditions – unmet demand and supply • Clear strategic vision • Saleable services • Predictable revenues • Strong financial management and internal control systems • Proven education business model / concept • Relevance & coherence of the curriculum strategies • Positive cash flows with nearer term (short – medium) profitability • Strong governance and ‘administration management’ with proven track records – not always academic decision makers

  24. Future Outlook • Mainly tertiary education projects • Primary & Secondary – still preserve of governments • Portals and Education Technologies – low/medium possibility • ‘Public goes Private’ – growth • Graduate Schools – Business, IT/Engineering and Law • Medical Schools • Bricks & Mortar – capacity building • Bond Issues – growing interest • Student Financing – ‘steady as she goes’ – strong demand

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