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Ed Partners

A group of school children gleefully lookout the window from a building in Kenya

Financing the future of education in East Africa

  • Case Study
  • Education
  • East Africa
  • 2021
of school owners had never accessed financing
students attended Ed Partners client schools

Ed Partners is the first lender to the low-cost private schools that form the backbone of Kenya’s education system. By embracing risk and working with borrowers, they help schools add classrooms, buses, and deliver more quality education.

The problem

East Africa’s population is young and rapidly rising. Nearly two-thirds of Kenyans are under 25, and their education and subsequent skills and competencies will determine the region’s trajectory.

Yet those opportunities are being throttled by an education system that cannot support everyone. The average classroom size in Kenya is 38 students, and in cities it can be even higher. In 2020, a stampede at a school in western Kenya killed 14 students. The school had 50 classrooms for over 3,000 students.

Affordable low-cost private schools form a critical and expanding segment of the education system in Kenya and across Africa. While low-cost private schools are accessible to roughly 30% of Kenyan youth, they serve as the dominant mode in many cities, educating 60% of students in Nairobi. Notably, the number of private schools in Africa doubled from 2014 to 2020.

These schools, often run by sole proprietors – disproportionately women – offer quality education for less than $1 per day. Yet despite their pivotal role, they remain substantially underbanked. The unmet demand for school improvement loans in Africa is $1 billion, and in Kenya, less than one in five affordable private schools have ever secured a bank loan.

Without the ability to access affordable credit, schools cannot invest in their facilities or their offerings, leaving too many students in too-small classrooms with inadequate learning environments, without access to essential resources like school transportation, learning equipment, and materials.

The solution

Ed Partners Africa is a financial institution that provides 2-6 year loans to low-cost private schools in Africa. Operating in Kenya, EdPartners empowers schools to use the loans for various needs, including building additional classroom capacity, buying school buses, and improving the sanitation facilities for their students.

Ed Partners raises funds from local and international debt providers and then disburses loans to its partner schools. Additionally, they support their school clients by providing a suite of services aimed at strengthening the financial and business management.

The origin

David FitzHerbert and Lydia Koros founded Ed Partners in 2016. They both came from a microfinance background, and saw that education was a chronically underfinanced sector. At the same time, they drew inspiration from the success of Varthana, an Indian microfinance institution that has financed more than 15,000 schools. With support from the Varthana team, they recruited professional managers and built Ed Partners to scale.

The impact

Ed Partners has disbursed loans to over 420 private schools around Kenya, who are collectively serving more than 123,801 students. 97% of Ed Partners’ clients are the most affordable private schools, those charging less than $300 USD per year in school fees (the equivalent of $1/day).

Two-thirds of Ed Partners loans have been used to build or renovate classrooms; another quarter have been used to fund the purchase of school transportation, and the rest have been used to buy supplies or cover working capital deficits.

One of the surprising findings from Ed Partners work is that entrepreneurs in this sector are more likely to be women: 56% of EdPartners clients are women-owned schools.

The investment

Acumen originally invested in Ed Partners in 2021. This was our first investment in the East Africa Education Facility, a dedicated investment initiative to build a stronger ecosystem for primary and secondary education. In 2022, we invested an additional $500,000, as we saw the company’s progress coming out of COVID, and its ability to raise more debt based on our equity. And a third tranche was invested in 2023 to fund further growth of the business.

“My school has improved because I have better infrastructure after I built more classes and renovated the existing ones. I was also able to buy more books and stationery. Due to the expanded capacity of the school, we were able to admit more students.”

Customer of Ed Partners

The story

Despite serving a significant portion of school children, low-cost private schools were historically an enigma to traditional lenders in Kenya. When Ed Partners began operating, banks did not have the specialists or benchmarks needed to evaluate the creditworthiness of a private school loan applicant. This resulted in 41% of Ed Partners’ clients having no prior access to formal credit, perpetuating a cycle of underfunding.

Breaking this cycle, Ed Partners followed the steps of other innovative finance companies: listen, experiment, learn. The only way to lend to an unknown customer segment is to make it a known customer segment. Varthana had shown that it was possible to manage credit risk while lending to Indian private schools. Why not in Kenya?

Ed Partners implemented a rigorous nine-step credit credit evaluation. Firstly, they assess a school’s registration and operational history. Established schools undergo a detailed cash flow analysis: income, expenses, and obligations. If a school is reliably cash generative then Ed Partners structures a loan ensuring repayment, while still leaving the school with a sufficient cash flow buffer to handle unexpected shocks.

The decision on whether and how much to lend is based on that financial analysis, but also embraces other critical factors, such as an entrepreneur’s background and the quality of their education. School owners with teaching experience tend to be less risky, for example. Ed Partners then evaluates data on school performance and education attainment to understand what other variables determine repayment, and could unlock more value for its clients.

Finally, Ed Partners takes important steps post-disbursement to strengthen its clients. The team constantly works with school directors to help them improve financial and operational management and fee collection. With higher collection rates and enrollment levels, schools can improve their cash flows, become less-risky borrowers, and invest in their students. Ed Partners also offers school management training to entrepreneurs in their portfolio, to help them handle the challenges of growing a small business. Recognizing that most schools they serve are family-owned, they additionally conduct training on the importance of succession planning, ensuring a smooth transition for future generations.

Ed Partners is no longer alone in this sector; success begets success. As more financial institutions start lending to low-cost schools, Ed Partners continues to grow, while maintaining a focus on portfolio quality: they have reduced their turnaround times for disbursing loans and invested in borrower support. One loan at a time, they are making it easier for children to go to school, and thrive.