What is the definition of innovative finance?
Traditional finance differs from innovative finance in that it uses a different funding method. It makes it easier for individuals who want to sponsor more diverse education to participate, and it fosters the development of innovative ideas.
NORRAG summarizes the landmarks of innovative finance with three characteristics: 1) the development of new products/methods to be used to support solving social or economic problems; 2) application of tools/methods in new markets; especially the tools that have been tried and accepted in other sectors or countries, such as issuing government lottery to raise government funds in countries where it has never implemented before; and 3) attracting new stakeholders. It might include capital market investors, the private sector, or international contributors.
What are the benefits of innovative finance?
NORRAG further summarizes the advantages of developing innovative finance in three areas: 1) mobilizing additional resources that may not have been available previously, such as Apple’s donation of profits from the sale of Product Red to charity; 2) having a fundraising intermediary to be more efficient by reducing costs and distributing risks among participants; and 3) enhancing project implementation efficiency and effectiveness by improving performance indicators, structuring the system for enhanced transparency, generating incentives matched with project goals and objectives, and having an effective coordination structure of all stakeholders.
Why is it critical to develop innovative educational finance in order to attain educational equity?
According to the National Education Accounts (NEA), the government invested the most in education in Thailand in 2018, with a total of 618,427 million baht, or 76 percent of total investment. However, the allocation of resources to address the disparity problem in the fiscal year 2018 was only 18,683 million baht, or around 3%, with a decrease in the investment of 28,000 million baht compared to the previous year. The funding allocation to address educational inequality is minimal compared to the extent of the problem, which affects up to 30% of kids who are disadvantaged by their parents’ economic position in the school system. The rate of drop-out from the rate of education has continued to increase. In addition, the disparities in the quality of education between urban and rural schools reflect that to drive the education equality agenda, reliable data and indicators are needed to support policy-making. Projects and tools aimed at achieving outcomes and change in target audiences by recognizing the importance of engaging all sectors in solving problems quickly and sustainably, some of which can lead to financial innovation to meet the above requirements.
Examples of Innovative Finance for Equitable Education
Equality scholarship (Conditional Cash Transfer: CCT) is to support living expenses, food and student development activities for underprivileged students (Economic status) and having an attendance result of more than 80% that the Equitable Education Fund (EEF), in collaboration with the Office of the Basic Education Commission (OBEC), has operated since the first semester of the academic year 2018, is an example of the application of the tool that has been effective at good abroad (The Bolsa Familia Program in Brazil). Scholarship support will depend on the student’s performance or attendance rate.
It aligns with the project goals that want students in the risk group to remain in the system for the long term. The Equitable Education Fund (EEF) also researched other financial innovations and analyzed the ongoing adoption of the mission of education equality, for example, Social Impact Investment, Crowdfunding, Guarantee, Debt for development swaps, Education Bond, etc.
Due to the variety of project/innovation contexts, financial innovations must consider the working environment context in order to meet specific needs, whether it is attracting resources from the sector, improving efficiency, or finding more precisely focused methods of project effectiveness.
The following video explains how these three examples of education finance innovations can help raise funds and meet challenges: Crowdfunding, Social Impact Investment, and Education Bond.
