Opportunity EduFinance in Nigeria: Past, Present, and Future

This blog was originally published on edufinance.org.

Nigeria has more children currently out of school than anywhere else in the world, with an estimated 13.2 million not currently in any form of education. Transition rates from primary to secondary level reveal that less than half of children at this age - only 43% - have the opportunity to continue their education.

With a national fertility rate of 5.3, the demand for education access in Nigeria will only continue to grow, increasing pressure on the current system already challenged to meet the existing need. At the same time, of the 47.9 million children who are enrolled in school, 8.2 million (17%) attend a non-state school. This demand by families for non-state schools is also projected to grow.  Most of these schools are run by local sole proprietors attempting to meet the educational needs of their communities.

To better support these educators already doing the hard work to create more access to quality education, Opportunity EduFinance is working with 12 financial institutions across Nigeria. By offering technical assistance to partner institutions, we are helping local school owners access the loans they need to build new classrooms and add more seats, and parents to access school fee loans. 

We posted our first blog at the start of our work in Nigeria in mid-2019, beginning with a roadshow to present the business case for EduFinance to local financial institutions. At that time, it was one of our most successful roadshows, with a surprising number of financial institutions (FIs) indicating strong interest in lending to the education sector.

Today, we have doubled our FI partnerships from the original six in 2019 to currently 12 active partners, expected to reach 16 by year-end. The majority of these partners are microfinance organizations - both microfinance institutions (MFIs) and microfinance banks (MFBs), which are generally larger. 

To learn more, we interviewed three members of Opportunity EduFinance’s team who have worked with our FI partners in Nigeria – Mathieu Fourn, EduFinance Technical Assistance Director, and Jane Aik and Ben Harvey, EduFinance Technical Assistance Advisors. This interview presents a closer look into EduFinance’s work to get more children into better schools in Nigeria.

HOW DOES THE NIGERIA MARKET COMPARE TO OTHER COUNTRIES EDUFINANCE WORKS IN?

Mathieu: Nigeria stands out as one of the African countries with many FIs. Since most partners in Lagos are already saturated, our new strategy going forward is to reach out to FIs in different states, particularly those in smaller, poorer, and more rural regions, with smaller loan portfolios.

The Nigerian market seems to be much more ready to invest in education. In general, FIs in Nigeria are more advanced in the education sector than those in Kenya, for example. Nigeria had the first FI, which dedicated 100% of its portfolio to its EduFinance program. The reason behind the relatively fast-paced Nigerian market is due to size itself. The private school market is huge in Nigeria, and FIs have been joining this market earlier.

ARE THERE ANY MAJOR REGIONAL DIFFERENCES WITHIN NIGERIA IN TERMS OF NON-STATE SCHOOLS AND DEMAND FOR EDUCATION FINANCING?

Jane: Looking at Lagos and Abuja (Nigeria’s capital), the cost of living in Abuja is higher than in Lagos. Therefore, investments in the education sector will also be higher.

Most of our original partner FIs were in Lagos. Now we’re reaching out to other southern regions.

These new FIs are NGOs and their approach to lending is completely different, as they use a group methodology. These NGOs are focusing on improving the livelihood of the poorest of the poor, and so the collateral they require is the guarantee of another person – i.e. social guarantee – rather than traditional asset-based collateral, meaning they also offer smaller loans than microfinance banks.

WHAT WOULD YOU SAY ARE THE OPPORTUNITIES AND CHALLENGES OF LENDING TO LOW-FEE SCHOOLS IN NIGERIA?

Jane: Some of the FIs are state microfinance banks (MFBs), meaning they can only operate in a particular state. To reach out to other areas, we need to identify MFBs which operate across all the states. This is challenging because more resources need to be employed in Nigeria to make a good impact because of the market size, as well as the regulatory framework of the FIs. However, this challenge brings opportunities too, because it means the MFB will be diligent in helping their state if they choose to invest in education.

Ben: Additionally, MFBs provide opportunities for cross-sectional learning, such as comparing group lending methodologies between states with different systems. These comparisons are very helpful when developing new loan products or looking at different credit policies. The north and northwest regions are very challenging to work in because of the political unrest, but recently we have signed technical assistance agreements with two FIs in the north/northeast which is very encouraging in terms of the opportunity to expand our impact for schools in this region.

Mathieu: In Nigeria, the market is a lot more ready in terms of education funding. Bigger FIs already have established programs and platforms for teachers, such as for vocational training. So when it comes to well-established FIs such as EdFin Nigeria, there are opportunities for innovation around additional technical assistance EduFinance could offer to further benefit the education sector for students.

WHAT ARE THE KEY POINTS OF THE BUSINESS CASE FOR WHY INSTITUTIONS SHOULD LEND TO SCHOOLS AND PARENTS IN NIGERIA?

Ben: Market research showed that around 1,000 new schools were popping up in Lagos every year. Out of those, only a small percentage of schools actually made it past one year of operations, similar to any small business that is constrained by limited financing options. With the correct funding and support from FIs, we could have as many as 1,000 new schools operating successfully and increasing education access. This shows a huge demand, but we just need to provide a platform in terms of financing to schools so that they can provide education.

WHAT DO YOU HOPE EDUFINANCE WILL ACHIEVE IN NIGERIA GOING FORWARD?

Ben: In the future I hope we can expand our outreach to benefit every part of the country, and become a known resource that FIs want to approach to help them develop their socially focused EduFinance portfolios. 

Jane: If we could just see how to reach every state in Nigeria that would help a lot, as well as having more NGO lending partners that address the community more directly than the bigger banks. But we also need to invest in building a more concrete and deeper relationship with national association of MFBs, which brings all the MFBs from multiple countries together.

Mathieu: Our goal for the future is to mobilize more capital to Nigeria’s education sector, bring more value to the market, and ultimately benefit children’s opportunities for education.