Why investing in Education is so frustrating for the Impact investor
When I was young, my family would often visit my paternal grandparents’ home in rural Kisumu, Kenya. On one of our visits, I remember pestering my mother to let me start a school in our home, after seeing how bad the local rural district primary school was. I had stumbled upon an open field, where stones were arranged in makeshift classrooms, with no chairs, no desks, no books, and no floors. Just dusty, red dirt. The almost white blackboard was the only vestige of a school. I was floored. I was convinced that I needed to do something to help the poor access better Education, bring about change, and make an impact. I was 11.
Unfortunately, this experience is not unique to me. Stories abound of individuals who have travelled to developing nations and stumbled upon this stark need and decided upon their return to do something positive with their money.
This is your impact investor. This individual knows that if it is not for their investment in a social enterprise such as a school, the added value to social outcomes would not occur. According to Brest and Born, this is additionality. For these noble change agents, they seek an opportunity to make a difference while making money.
As a cross-registered Master’s student from Harvard Graduate School of Education, I had the privilege to take a fantastic class, Business at the Base of the Pyramid (BoP) with Senior Lecturer Michael Chu at HBS this last spring. The study of business models at the BoP (the bottom four billion members of our society who grunt through life earning less than $5 per day) and why they fail or succeed provides a lot of insights for an entrepreneurial Educator like myself to better understand poor economics and how the field could potentially attract more investors, social or otherwise, into investing in Education for the poor.
So I decided to casually engage my classmates. Their backgrounds varied from McKinsey or BCG consultants, to politicians, investment bankers, individuals with expertise working on the ground in emerging markets, and agri-business entrepreneurs. They included males and females, and were mainly from HBS and HKS.
My question to them was simple, “If you had $50K of your own money, would you be willing to invest in Education at the BoP?”
Why would anybody invest in anything?
Several responses emerged, from, “The Catholic church is crowding out my investment,” to the lackluster of accepting concessionary rates if any. Despite the unquestionable additionality, the general consensus, however, was that they wanted to invest (very badly) but they were just not ready. Two issues were salient.
First, was profitability. Schools at the BoP have not been able to categorically prove that they can be profitable enough to allow for cash flows, let alone a potential exit in a certain number of years for the investor.
We studied cases such as Omega Schools in Ghana, where they have established 38 schools since their inception in 2008 with their Pay-As-You-Learn model. Despite their successes, they still need backing from Pearson Affordable Learning Fund. It all comes down to cost containment and management, the bottom line. There is not much consensus on whether “true” economy of scale can be reached in the production of Education. Is there something structural about asset heavy schools that make it tough to scale, Subway style, especially where the poorest need access in the rural areas? Indeed, it is tough to find large chains that are successful, depending on what your definition of success is. Which brings us to the second issue – Quality.
If you stopped ten of my peers at Harvard Graduate School of Education, students or faculty, and asked them what quality of Education means and how they would measure it, you would get ten different answers. Suffice to say, developing models for schools at the BoP that are affordable with good quality outcomes is tough, especially if agreement has still not been reached on what a good measure for that quality really is. Bridges International Academies (BIA), has received many awards for the wonderful work they are doing in Kenya and other parts of Africa, with more than 400 schools established. This is no easy feat. BIA does post on their website that their students outperform those in the public schools, and while this is great, I can’t help but wonder if this is a sufficient measure of quality if the public system is so broken and standards are already so low.
The future is filled with opportunities for the innovator in the Education sector at the BoP. According to a Dalberg study, impact investing in this sector is relatively new. Unlike popularity gains seen in microfinance or agriculture, trends and patterns in Education are just beginning to emerge. The element of trust, accountability, and transparency in the entrepreneur becomes critical and rigor is more reassuring to the investor. Given the nascent activity in Education, the level of effort and work required to build this trust between the investor and entrepreneur is much higher, especially at the BoP.
The desire to make a difference and establish financial sustainable schools is still as strong in my spirit as it was when I was 11. As Educators, we are called upon to fill this void. The $3b social investment capital is still available out there and innovation is required. Investors are still looking for more proven, scaleable, profitable, Subway-style Education models in the BoP. In order to attract the commercial investor, an entrepreneur would need to have a commercial model. Such Education models are in short supply at the BoP, especially in the rural areas. Indeed, according to our case study, Omega Schools broke even with 6000 pupils and ten schools. Whether this will be an attractive model for new investors, remains to be seen. BIA conceptually positions itself as a model that will be profitable someday, but with 400 schools under their belt, this also remains to be seen. Pockets of profitable, private schools in areas like India do exist, but the ability to scale effectively, is yet to be seen. Whether actual profit margins will be enough to expand like McDonalds or Subway and attract the commercial investor, which is what BIA is trying to prove, also remains to be seen.
Akinyi Williams (HGSE ‘16) is the Founder and CEO of Hope for the Child Inc, a non-profit organization based in Minnesota, whose mission is to provide access to education to the poor in Kenya. She is Chief School Administrator at Arise N Shine Community Academy in Kisumu, Kenya. Akinyi has an MBA from the University of Minnesota and a Master of Education in International Education Policy from Harvard Graduate School of Education. She lives in Minnesota with her husband, stepson and their daughter.