Impact Investing: Why invest in education?

Did you know that investors around the world are making spectacular investments to uncover the power of capital forever? In this article, we would like to give you the basic characteristics of investing in education.

Determining the impact of investing

The impact of investing is primarily to reconcile the beliefs and values ​​of the investor with the allocation of capital to address social and / or environmental issues. The impact of an investment refers to investments “made in companies, organizations and funds with the intent to receive measurable, beneficial social or environmental impacts along with financial returns”.

Investments with impact can be made in both emerging and developed markets and aim for a range of returns from below-market to market rates, depending on the strategic goals of investors.

The growing investment market provides capital to address the world’s most pressing challenges in sectors such as renewable energy, sustainable agriculture and affordable basic services including housing, health and education.

The Global Investment Impact Network defines the main characteristics of effective investment with the following four concepts:

  • Intentionality
    The intention of the investor to have a positive social or environmental impact through investment.
  • Investments with expectations of return
    Impact investments are expected to bring financial returns on capital or at least return on capital
  • Range of profit expectations and asset classes
    The impact of investing is on financial returns, which range from below market (concession) to market risk-adjusted rates and can be made in different asset classes such as cash equivalents, fixed income, venture capital and private equity.
  • Impact measurement
    It is the investor’s commitment to measure and report on social and environmental performance and progress of major investments, ensuring transparency and accountability, informing investment practices and field construction.

The impact of investing in education

Many will agree to recognize education as the most powerful investment in our future. Research shows that education can change people’s lives for a long time, and it’s good not only for individuals but also for nations. Investing in education is not only the right step, but also a smart economy.

Education leads to health, empowerment and employment. The data show that each additional year of education increases a person’s income by 10% and increases a country’s GDP by 18%. According to some investigations, if every child learns to read, it will mean that 170 million fewer people will live in poverty. By 2030, more than 600 million children will need to be educated in school to receive basic education for all.

So how can we attract more people to school, learning skills that will help them heal wounds and rebuild their societies?

  1. we need to invest more in education. We need another $ 26 billion to attract people to school and education
  2. we need to invest more effectively in learning by improving learning assessment. And be accountable to society for educational outcomes
  3. we need to invest more equitably to make sure that the people most in need have access to quality training

Affected by investment problems

Funding is one of the key barriers to growth in the education sector. Most of the investment is aimed at expanding school infrastructure and capacity.

Impact investors seek to strengthen the ecosystem that surrounds the developing sector to offer quality education at a sustainable level.

The goal is for institutions to be sustainable and managed independently to create market demand and foster intense competition between schools.

Investing in Education: A Review

Many low-income countries still lack the resources and capacity to provide governments with quality universal basic education.
The funding gap needed to provide basic education for all children, youth and adults has increased to $ 26 billion.

Investing in the impact of education could mobilize new funding, enable the private sector to participate in public and private education services, and introduce approaches or tools to improve service delivery, promote innovation in teaching and learning methods, and monitor outcomes and systemic effectiveness.

Investment in education is still nascent, but can bring immediate financial benefits to reach the most vulnerable beneficiaries.

Investors look at the risk and return on investment, as well as the positive and social impact they can have.

Due to the perceived lack of innovation in education, private capital can fill the gap by funding direct service delivery and fostering innovation that increases equal access, improves quality and ensures sustainability.

Impact capital differs from commercial private capital in that it seeks to reach the most vulnerable beneficiaries, and differs from private philanthropic capital in that it seeks to apply market innovations to ensure financial stability, if not financial gain.

The challenge for investors is to stimulate models and approaches that are both focused on high impact and financial sustainability.

Invest in education: recommendations

Investing in education is a matter of thinking. This is because the decision to invest in this area has a far-reaching impact: on the environment, the economy and society. Investing in education is investing in tomorrow with a proven commitment to a better world.

Sounds like a good plan? Some basic recommendations:

  1. Maintain realistic expectations – finding a high effect and high financial returns in the short term remains a challenge
  2. Establish philosophical clarity in advance – Investors should clarify their priorities and deadlines in advance, taking into account the positive social and environmental consequences
  3. Pay attention to intervening in broader educational areas ecosystem – from low-cost tablets revolutionizing the textbook industry to back office management systems to reduce teacher absenteeism
  4. Consider directing capital through funds and intermediaries to more effectively deploy large sums – special educational intermediaries with proven models that allow investors to overcome fragmentation, diversify risks and invest larger amounts
  5. Adopt a more flexible definition of success – support a model that raises the bar of quality education, pushing the public sector to this bar
  6. Focus on innovation – seek innovation through cooperation processes
  7. Measure and evaluate the impact on quality and access to education – request evidence of the effectiveness of the model

In recent years, investment with effect has become a potentially promising tool for mobilizing additional capital to achieve the goal of expanding access to quality education.

The impact of investing includes a number of financing activities in different sectors that combine financial returns with social and environmental well-being.

Impact capital can help:

  • Experiment – “Prove the concept”
  • Catalyze – “Grow and improve”
  • Scale – “Deployment of large-scale capital”

Higher-income models with higher solvency target more investment opportunities and can offer attractive or even commercially competitive returns.

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