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School Loans, Job Creation, and the Advancement of Low-Income Communities

By Nathan Byrd, Head of Education Finance

The following post was originally posted on Edufinance.org.

In a new third-party analysis of 94 Ugandan schools accessing Opportunity EduFinance loans, the resulting school growth created an average of 18.6 additional jobs within the community.

How Schools Expand

When a school builds new classrooms, dormitories and other infrastructure, the school requires more staff to manage these facilities including teachers, dorm monitors, security guards, and cooks among others.

When a school purchases a school bus, it requires more staff such as drivers – and, as a bus often brings an increase in enrolments from students living farther away from the school, this often requires additional staffing as well.

Many school owners have great difficulty funding school growth, however, driving demand for financing support.  This is one reason why Opportunity EduFinance partners have funded more than 3,500 School Improvement Loans across eight countries, benefitting approximately 1.05 million school children.

Why A School Improvement Loan? 

Most affordable private schools make enough money to stay open, but struggle to grow quickly as profits are low.  These schools have two ways to increase income: accept more students, or raise school fees.  Each of these options comes with its own challenge, including overcrowding or pricing low-income families out of the school.

With a School Improvement Loan, the bank can provide long-term capital to a school (on average 2.75 years, though up to 5 years in some cases), which the school will use immediately to build additional capacity and facilities (classrooms, dorms, WASH facilities, etc.) for students.  The resulting increase in enrolments will produce an immediate increase in income without requiring the school to overcrowd classrooms and will prevent the school from having to increase fees.

A School Improvement Loan works wonders for a school, with past analyses in Ghana and Uganda of our School Improvement Lending suggesting that borrowers’ schools increase enrolment by an average of 19.1 - 22.5% while increasing their number of teachers by 19.8 – 36.0%.

But what, if anything, does the School Improvement Loan and resulting school growth do for the community’s employment situation?

The Impact of Lending on Job Creation

Until a recent study, any proxy figures used here have often been anecdotal.  Together with our research partner in Uganda, Friends Consult, we recently set out to discover the direct impact on employment as a result of client schools receiving loans from Opportunity EduFinance partners.

The results of this study of 94 schools funded between 2014 and 2016 confirm previous anecdotal reports relating to the impact of School Improvement Loans on job creation in their communities. The study found that school growth funded by School Improvement Loans contributed to an average of 3.9 extra jobs within the school, ranging from teachers to dormitory supervisors, drivers, and classroom support staff.  This number jumped to 4.5 when counting loans used wholly for infrastructure development.

93.6% of schools also hired temporary construction labor as a result of the loan, resulting in an average of 7.9 new, temporary construction jobs lasting an average of 2.2 months each.  Again, this number jumps to 8.9 jobs when counting infrastructure-only financing.

In addition, the study highlighted the spillover effects that School Improvement Loans are having in their communities.  More than 90% of schools participating in the study reported that new shops or people are now employed in order to directly meet the educational needs of, or sell to, the school, their students, or their students’ families.  From new food stalls to new internet cafes across from the school, new third party transport routes, or new general shops popping up, the results were direct, immediate, and powerful.  Across all 94 schools, loan-fuelled school growth resulted in an average of 6.79 new jobs in the immediate community during the course of lending.

Loans also supported the development of new local industries.  Many of the shops that opened around the growing school were the first of their kind in the community, servicing new and rising demand.  In the case of internet cafes, for many students, teachers and community members this would be their first local access to the internet.  The result is a growing local economy with the school itself as the engine and, with several community members now accessing work that is closer to home, in some cases providing businesses access to new markets.

A Rising Tide Lifts All Ships

We know that schools are powerful engines of development.  The idea of the school as simply an educational institution, however, may oversimplify the fact.  Growth in schools as a socially-positive enterprise that helps low-income families seems more to the point, not least for the economic opportunities these schools create for parents via employment, for students through longer and better schooling, and for the community as a whole with falling rates of unemployment and a better educated population.

While this research is not conclusive across all markets, it provides a reliable, data-driven benchmark and a pathway forward in placing education at the heart of a community’s short- and long-term economic and social development.

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