Innovative financing for education: A systematic literature review
Working Paper #11

Innovative financing for education: A systematic literature review

July 2020

by Marina Avelar, Arushi Terway, Marina Dreux Frotte, NORRAG

Since the 1970s, government commitments to global development have soared. Education has been at the forefront, particularly when targeting development in low- and middle-income countries. Yet budgets, which governments underfund, are increasingly under strain as these same governments aim to achieve the targets set out in the United Nations Sustainable Development Goals, thus requiring the mobilisation of resources through existing and new financial sources. 

In parallel, the role of the state and how it should manage the public sector have also experienced a shift, with management teams instituting new public management approaches that take their cues from the private sector: opening the way for increases in privatisation and public-private partnerships, and a focus on outcomes instead of processes and inputs and on the pre-eminence of efficiency. This has enabled private actors themselves to actively provide and finance public services. As a result, new ways of funding development are emerging. Termed “innovative financing”, this approach looks for non-traditional ways to raise new funds and to spend existing funds in more efficient and effective ways through the use of market-like practices. 

The innovative financing for education narrative connects the need for more funding for the education sector to proposals for new ways of sharing responsibilities between public and private actors. The solutions include identifying new sources, engaging new actors, and sharing costs and risks with these new stakeholders. While many say that innovative financing for education is not about privatisation, the overall narrative does indeed indicate greater private actor involvement and new relationships between the public and the private realms. Innovative finance for education involves a reform of the state according to market practices, such as a focus on measurable outcomes and a combination of financial and social returns, offering the possibility of private actors profiting from underfunded social and educational initiatives. Despite agreement in the sector about the need for more funding and to find new ways to mobilise resources, the explanation for the lack of funds – and thus the argued solutions – differ. While innovative financing proponents and enthusiasts do not discuss the reasons for a lack of funds, critics argue this is a political choice in the context of neoliberal and austere policies. 

As a whole, the field of innovative financing for education remains fragmented in concept and practice. The diverse mechanisms that have been used for education have their own logic, history and internal contradictions, and a lack of empirical data as to the claimed benefits and reported challenges and issues. Three fundamental tensions lie in evaluating the potential benefits and challenges claimed in the use of innovative
 financing mechanisms: 

  1. The lack of empirical research supporting the claim that innovative financing mechanisms can address the education funding gap; 
  2. Availability of data and evidence on the cost-effectiveness of innovative financing mechanisms given that international and national regulations make implementing them for education difficult, such that it can result in no additional funding or could even further weaken the structures that are in place and replace them with novel ones that rely on market preferences;
  3. The contradiction between the claim of promoting improvements and innovation in education and the risk of the harmful side-effects of increasing inequality and damaging the right to education, creating tension between financial risks, such as returns on investment for investors, and social risks, such as harming social justice and exacerbating social and education inequality.

Further research into innovative financing for education is required to empirically examine the potential benefits that proponents of innovative financing for education envision, with a focus on monitoring the impact on equity and financial additionality leveraged by the solution studied. Advancing innovative financing for education will require studies that can tackle these tensions and evaluate both financial and development (including ethical and equity) aspects.