The Acumen Fund invests in for-profit enterprises that provide basic services to communities and individuals at the bottom of the pyramid. Acumen Fund is, in fact, one of the pioneering forces of impact investing in a variety of areas including housing, electricity, and agriculture. The Education and Employability, or Skills Training, portfolio was launched in 2011 with a founding grant from 3W.
Why Education and Skills Training? A person’s ability to make better decisions leads to better choices, better outcomes and ultimately increased income. Developing countries typically have a poor record of ensuring education access and quality. In fact, 70% of all children not in school globally are in South Asia and Sub-Saharan Africa. Educational outcomes for those who do go to school in these geographies are abysmal. 9 of 10 children in Sub-Saharan Africa fail to complete basic education, and in rural Pakistan, only 65% of the students in Grade 3 could subtract single digits. And an education is no guarantor for employment. 88% of the 15-29 year olds in India have no vocational training at all – resulting in massive gaps in employability across sector, skill level, and location. Investing in education, with a focus on creating economic impact, is a critical lever in creating better opportunities for all.
Academic studies show that one standard deviation increase in student’s performance on math and science tests leads to a full 1% increase in annual GDP growth (equal to $10B in Kenya by 2020), and more than 10% increase in student incomes at the end of high school. While it will always be a challenge to make these claims with certainty, we believe that education is a basic tool for improving income and quality of life, and a critical platform for creating human dignity.
Why invest in the private sector? Manish Sabharwal, CEO of India’s largest temporary staffing company – TeamLease, puts it best, “There is no question that government cannot accomplish this task… the privatization of education is not an ideological debate… it is a physical imperative. We have 1 million people joining the labor force in the next 20 years, every month…the government has no capability, institutional capacity or money to train these people, educate them or employ them.”
The scale of the challenge, and the scarcity of public resources, is evident across all the countries we work in. The private sector has a critical role to play in delivering education and employability to the poor. Not only are public finances scarce, but structural barriers also exist – flexibility, innovation and accountability. Official vocational curriculum in India still teaches auto-mechanics to repair carburetors, even though carburetors are no longer found in modern cars.
‘Learning by doing’ in science, math and language, represent breakthroughs in instruction away from an emphasis on rote memorization. Finally, fees paid by students and job candidates tend to enable feedback between customers and service providers, offering accountability and higher quality.
Investment in private sector education and employability is both absolutely necessary, and positive. However, we are not market purists, and believe the public sector also must play a significant role in solving market failures and enabling scale. We’ve seen many opportunities for public-private partnership in which governments enable and subcontract successful and robust market-driven services. When designed well, this approach allows market mechanisms to build innovative, responsive, and robust companies with public resources to take these models to scale.