In India, low-fee private schools or Affordable Private Schools (APS), as they are popularly known, are emerging as schools of choice for poor families who want to provide education in English to their children. The APS market is growing rapidly and appears to be meeting the need of a large portion of our target segment (i.e. children living in urban poverty). However, there’s a lot of room for improvement as far as learning outcomes of students in these schools are concerned. For years, we struggled with how to improve the quality of learning for these students in this fragmented and rapidly growing market.
I drew inspiration from something that I had worked on in my previous role at Bridgewater Associates. There we were early adopters of inflation indexed bonds: bonds that give a variable return based on inflation and act like an inflation hedge for clients. Why couldn’t we use this variable rate framework for social impact by designing an instrument where the return was tied to a social objective? Well, it appears we could.
As we set out to implement this, our goal was simple — use financial incentives to nudge school owners to prioritize quality learning in their schools. In practice, this means we would offer schools a variable-rate debt instrument that ties their interest rate to social impact — in this case, improvements in student learning outcomes. With that in mind, we put our idea into action.
Today we’re piloting this model with two progressive school finance companies — Indian School Finance Company and Varthana. While there will likely be many lessons learned with this trial, we also know we had to try. And we’re very excited about the possibilities.