Transcript International Finance Corporation K4D Presentation Ron Perkinson Investing In Private Education

International Finance Corporation
Investing In Private Education
K4D Presentation
by
Ron Perkinson
15th January 2004
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
IFC – Education Portfolio
• $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
December 2003
• Most are in lower-income countries
• World Bank: $10 billion 1995 - 2000
– $1.2 billion in 2000 – $1.5 billion in 2001/02
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
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:
World Population Growth
Year
Population
Time Per
Billion
Yr 1
250 m
–
1800
1b
1800 yrs
1930
2b
130 yrs
1960
3b
30 yrs
1975
4b
15 yrs
1988
5b
13 yrs
2001
6b
13 yrs
Source: “6 Billion Human Beings:” - Musée de l'Homme Muséum National d'Histoire Naturelle, Paris –France
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
Trends in Public & Private Financing
Education Global Estimates - All Countries
1996 to 2000
100
% of Financing Education
87%
80
82%
Public investment
60
40
20
Private investment
18% *
13% *
0
1996
Source:: OECD 2000; UNESCO 1999; IFC staff estimates 2002:
1998
* = est. – Trends in Private Investment
2000
Enrollment in Private Higher
Education (as a % of total)
84
Korea
**
76
76
75
Philippines
Japan
India
71
71
69
Dominican Republic
Brazil
El Salvador
64
Colombia
60
58
56
Indonesia
Chile
Mexico
38
Portugal
34
32
Peru
United States
0
Source IBRD; OECD 2001
10
20
30
** = Latest Internal ADB est YR 2001
40
50
60
70
80
90
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
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)
[email protected]
[email protected]
Summary
• 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
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
Design / Applications
Requirements
Teaching & Learning Drive The
Use Of Appropriate Technologies
ICT–Technical
Specification
Course
Development
Course
Induction
Course
Delivery
Tutor
Support
Student
Support
Assessment
&
Evaluation
Pedagogic Feedback & Review
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
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
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
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
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
NIIT
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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
Eduloan
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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
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
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