How Microfinance Empowers Access to Education in Sub-Saharan Africa

Magdalene Sackey was in a bind. The proprietor of a low-fee private school in Ghana with ambitions to expand capacity, she had acquired land for a new campus in Mataheko, a town in greater metropolitan Accra.

By April 2016, a foundation was in place and pillars were erected. However, to make the six classrooms on the ground floor of the planned two-story building usable, Magdalene needed additional funds for roofing work, plastering, painting and fittings.

She already had a loan outstanding with Sinapi Aba, a Ghanaian microfinance institution committed to social impact, and serving the country’s economically disadvantaged communities. The loan officers admired her strong will and hands-on style. Magdalene completed a financial literacy and school-management training program administered by the bank, and demonstrated an infectious enthusiasm and optimism in guiding her expansion project and engaging with contractors.

Asked by Sinapi Aba for an estimate of the cost to complete the ground floor of the project, she consulted her contractors. A supplemental loan in the exact amount of the estimate, 55,725 cedis (approximately $11,100 based on today’s exchange rates), was disbursed in April 2016 with a 36-month repayment period.

Within two weeks of reopening Phiga School in September of that year, Magdalene had 40 new students. She has since repaid the loans for the first phase and completed the second floor of classrooms, thanks to a new loan from Sinapi Aba. Her enrollment has grown to more than 400 students in creche (nursery school) through 9th grade. What was once the site of an auto repair shop is now a vibrant hub of learning, presided over by the indefatigable Magdalene — a hero in the eyes of the community.

Phiga School is one of more than 580 private schools in Ghana that have participated in the Rising Schools Program (RSP), a partnership between the IDP Foundation and Sinapi Aba established in 2009 to apply a specially adapted microfinance model to boost access to capital along with management and training resources.

Sinapi Aba began as a microfinance trust, only lending to groups operating in trust, whereby all members mutually guarantee a loan. Although it didn’t usually make loans to individual proprietors, it jumped at the idea of developing a microcredit pilot for school owner-operators in Ghana — if the IDP Foundation would take the risk of providing funding.

Lacking financial support from governments and big donor agencies, the proprietors of these schools are used to scraping by. Typically, they lack the funding to build new classrooms or make other infrastructure improvements, buy school buses, hire skilled teachers or properly invest in learning materials, let alone their own professional development. The vast majority are run as social enterprises by dedicated, community-based sole proprietors like Magdalene.

Successfully figuring out how to lend to social entrepreneurs in the developing world is challenging in the best of circumstances. And then add that the would-be borrowers are schools whose student families are on the economic margins and whose proprietors lack not only collateral but financial literacy.

In a way, it’s a shame these schools even have to exist. Governments should educate all the children in a country, but there are significant gaps. In a report released in 2016, UNESCO estimated that it would take about 50 years for the world to achieve universal primary education under existing education systems. More than half of the world’s out-of-school children live in Sub-Saharan Africa, where around one billion children will need to be educated over the coming three decades, according to The Business of Education in Africa report, released in 2017 by Caerus Capital, an investment and advisory firm focusing on education and healthcare business in emerging markets. [2]

The report found that 21%, or one in five pupils, are educated in the private sector, compared to publicly reported figures of closer to one in 7.5. At current rates of growth, this figure is expected to rise to one in four pupils by 2021. Meanwhile, underfunded education budgets and limited accountability mechanisms constrain the capacity of governments to build new schools and improve learning outcomes for students. Even if governments dramatically increase spending, the public sector — even with donor support — lacks sufficient capital or capacity to meet the challenge of educating Africa’s youth.

The long term partnership between the IDP Foundation, a US-based foundation, and Sinapi Aba, a successful Ghanaian financial institution is what has made the Rising Schools Program so innovative and unique. The development of the program began with a grant. But, after a successful three year pilot of 105 schools, the program has grown, no longer with grants but with a series of concessionary debt investments into Sinapi Aba. The reduced cost of funds to Sinapi Aba enables the program to earn a profit on below market-rate lending to school proprietors. The program is therefore sustainable and replicable, and is actively scaling. Currently, the program has served nearly 600 proprietors and almost 140,000 children.

While lending to low-fee private schools has become more popular in the time since we embarked on this journey, no one seems to have chosen quite the same path as we have, making the IDPRSP increasingly recognized as a trailblazer in education financing in the developing world.