While politicians in the UK continue to argue between themselves about the ethics of the profit motive in education, exciting developments in this sector are already taking place in low income communities across the developing world. While C.K Prahalad did not include an example of budget private schools as a case study in his acclaimed publication The Fortune at the Bottom of the Pyramid (2004), he did identify the global education industry as a bottom of the pyramid market which was now emerging as a major opportunity. This was confirmed in 2006 when James Tooley’s essay Educating Amaretch – Private Schools for the Poor and the New Frontier for Investors won the first prize in the International Finance Corporation (IFC) and Financial Times’ first annual essay competition titled ‘Business and Development: Private Path to Prosperity’. Building on his research over the previous decade, Tooley recommended that the development community could assist the poor by extending access to private schools through targeted scholarships and vouchers. Private investors could also contribute through microfinance-type loans, dedicated education investment funds and joint ventures with educational entrepreneurs, including the development of chains of budget private schools.
An example of such a chain is Bridge International Academies (BIA), which was launched in Kenya in 2009 with a mission to revolutionise access to affordable, high-quality primary education for poor families across Africa. By July 2012 sixty schools had been opened in the slums of Nairobi charging $4 a month and the company now plans to rapidly scale the company and expand across sub-Saharan Africa. By 2015 they hope to have a total of 1,800 schools serving more than one million families. An important initiative introduced by BIA concerns the use of a custom-built automated computerised student payment system which allows parents to pay school fees using a mobile phone. This technology is also used to manage the majority of each school’s financial transactions, helping to create a “cashless school system”. The head office therefore distributes school budgets and teacher salaries by mobile money transfers and parents are also expected to pay school fees in the same way. As no money is handled within each school, teachers are restricted from demanding extra payments and parents are also asked to report any demands for such payments to the head office.
To help fund its ambitious expansion plans BIA have also succeeded in attracting a significant amount of private investment from a new generation of impact investors such as the Deutsche Bank Americas Foundation, the Omidyar Network, Jasmine Social Investments, d.o.b foundation, LGT Venture Philanthropy, Hilti Foundation and Learn Capital. Following the lead taken by these impact investors, more established companies have since taken an interest, including Pearson who became a significant minority investor in BIA in March 2011. According to JP Morgan, the potential size of investment in the primary education market alone over the next 10 years could be $4.8–$10bn, with an estimated profit opportunity of $2.6–$11bn.
On the 2nd July 2012, Pearson also launched an Affordable Learning Fund and announced another investment in a chain of affordable private schools in Ghana. Omega Schools was set up in 2009 by Ken Donkoh (a local entrepreneur from Ghana) and James Tooley as a for-profit business with a social mission to create private schools that benefit low income families and empower the aspirations of those at the bottom of the income pyramid. By July 2012 the number of Omega schools had increased to ten, enrolling 6,000 children and following the recent investment from Pearson the company now plans to expand the chain across Ghana.
An important innovation pioneered by Omega Schools has been the introduction of the daily fee which caters for the many parents that cannot afford to pay monthly or termly fees. This fee covers tuition costs, uniform, books, transport, de-worming programmes and a hot meal. Each child also receives fifteen free school days a year and an insurance policy which guarantees that every child will complete their schooling in the event of the death of a parent. The popularity of the pay-per-use business model applied to schooling is highlighted by the fact that the demand for places at each new Omega School has been high and the same model is now being introduced by a number of competing private schools in the local area. As noted on their website, Omega Schools is now looking to introduce rapid incremental innovations that, if successful, will not only yield benefits to our students, but will also have the potential to be widely replicated, yielding benefits to learners outside our system. The Omega Schools innovative Pay As You Learn (PAYL) model combined with very low overheads allowed the company to break even in 2011, which suggests that a new sustainable model of schooling is now beginning to emerge which is not dependent on either government or international aid.
The cashless school and the daily payment of school fees are two innovations that are already beginning to address the issues of financial mismanagement and the lack of transparency and affordability which have plagued government education sectors in developing countries over the previous half century. The fact that the above two companies have developed and then put into practice these two innovations in less than two years shows how entrepreneurial talent, private investment and the profit motive can have a positive impact in this sector within a relatively short period of time. It will be fascinating to watch these for-profit education companies think the unthinkable and blaze new trails over the coming years.
Further reading: The Fortune at the Bottom of the Pyramid in Education by J.B Stanfield, published as a chapter in The Profit Motive in Education: Continuing the Revolution edited by J. B. Stanfield, Institute of Economic Affairs, 2012