WEM2001 EDUCATION MARKET

1
International Finance Corporation Investing In
Private Education
K4D Presentation
by Ron Perkinson 15th
January 2004
2
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

3
IFC Education Portfolio
4
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

5
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
6
World Population Growth
Year Population Time Per Billion
Yr 1 250 m
1800 1 b 1800 yrs
1930 2 b 130 yrs
1960 3 b 30 yrs
1975 4 b 15 yrs
1988 5 b 13 yrs
2001 6 b 13 yrs
Source 6 Billion Human Beings - Musée de
l'Homme Muséum National d'Histoire Naturelle,
Paris France
7
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 

8
Trends in Public Private Financing
Education Global Estimates - All Countries 1996
to 2000
87
82
Public investment
Private investment
18
13
Source OECD 2000 UNESCO 1999 IFC staff
estimates 2002 est. Trends in
Private Investment
9
Enrollment in Private Higher Education (as a of
total)

Latest Internal ADB est YR 2001
Source IBRD OECD 2001
10
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

11
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)

12
Escol_at_24horas.com
13
Escol_at_24horas.comSummary

• 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 US3.25 million in
  equity (25 stake)
• Exit mechanism Public Listing Tag Along Rights
• Project Cost US13million

14
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
• US29.0 million project
•  

15
Teaching Learning Drive The Use Of Appropriate
Technologies
Pedagogic Feedback Review
16
Universidad Diego Portales - Chile

• Partial guarantee (7m) for 8yr local Chilean
  bond - face value of Bond approx US23 million
• Bond proceeds used to finance Universitys
  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 districts heritage

17
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

18
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
19
Technical Assistance Results

• New Board external representation

• New Curriculum Framework

• Student finance MIS

• Quality Management System 50 KQIs

• Diploma of Foundation Studies

• Application for Accreditation

• Time taken 20 months

20
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

21
NIIT

• 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

22
Eduloan

• IFC US2.8 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

23
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

24
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