By Maya Ziswiler, Head of Social Finance at UBS Optimus Foundation
A low-fee private school in Africa is not is not your typical Swiss boarding school at the shore of Lake Geneva. Electricity, safe drinking water and toilets are not uniformly provided; computers and internet access are rare. The good thing is: they provide critical access to education and are affordable even to those on the poverty line – typically charging less than USD 25 per month.
While in developed countries private schools teach the elite, they cater a much bigger share of students in developing countries. Private education has in fact played a major part in decreasing the number of children without access to education, which according to UNESCO is currently estimated at 263 million children1. For example in Abidjan, Ivory Coast, the 2,400 private schools represent almost half of all schools in the city. And new schools have opened at a rate of 7% per year for the past 20 years.
Our recently published research "Banking on education" conducted by CapitalPlus Exchange (CapPlus) highlights the market potential for private schools in Abidjan: The schools represent a USD 200 million market potential for financial institutions to extend credit. And they handle USD 153 million in cash transactions that could be captured. We've asked 150 schools in low-income districts in Abidjan, about their projections of market size and demand for finance for the private school sector. And this is what we found out:
- Low-fee private schools are large, well established, and registered: 65% of schools have been in business for over 10 years. The service spectrum spans the range from pre-primary to secondary level education; pupils enrolled in the latter make up 51% of students enrolled in private schools.
- Low-fee private schools are profitable: Approximately 70% of the sample schools are profitable, earning an average annual profit of USD 13,000. School fees in Abidjan are low compared to what CapPlus has seen in other African cities, but the schools are nonetheless profitable because of their large enrollment. Particularly the size and age of the school contribute to profitability – schools with at least 355 students as well as schools that have been founded between 1997 and 2008 are most likely to operate successfully. Since Abidjani private schools serve poor students one of their main challenges are school fees that are not paid in full or on time.
- Private schools are educating the majority of secondary students:70% of secondary students attend private school because the government has chosen to pay students’ fees at private schools rather than build enough schools to educate all the youth. For low-fee schools, the government’s standard payment is higher than their usual fees but the payment is often delayed a year or more.
- Low-fee private schools want credit to expand their capacity:Only 9% of the sample schools have ever had a loan with a financial institution, a striking contrast to the other cities CapPlus studied, especially given the maturity of the Abidjani private school market. But, similar to the other cities, 59% have transaction accounts with a commercial bank or microfinance institution. Among borrowers, the average loan amount was USD 7,000. About 87% of sample schools say they want to borrow in the next three years to add capacity allowing them to increase enrollment and ultimately income. We estimate that profitable low-fee schools could afford loans between USD 7,000 and 10,000.
Investments in education are a critical need for the Ivory Coast given its ongoing recovery from political and public health challenges in the last two decades. Indeed, the World Bank found that only 15% of children in the country achieve the minimum primary school proficiency in both reading and math.
If we want to increase the quality and enrollment of private education we need to facilitate access to credit so that private schools can grow and reap economies of scale. This is where financial institutions can play a significant role. By serving these stable and growing small businesses and the families they serve, banks can accelerate low cost private schools’ contribution to the Ivory Coast's economic development (UNSDG #8) by providing employment to locals – especially women (UNSDG #4 and #5) and reduce poverty. After all, future incomes are 12-14% higher for each additional year of completed education (UNSDG #1).