Intl Finance Facility for Education

Published purpose

The International Finance Facility for Education (IFFEd) was created to address the global financing gap for education. Its purpose is to support the Sustainable Development (SDG) 4 goals of access to quality, safe and inclusive education for all and reaching the most marginalized children and youth in lower-middle income countries (LMICs). LMICs are home to most of the world’s poor and out-of-school children and youth. While the lowest income countries receive the highest proportion of grant aid and financing, LMICs fall into a “missing middle” category: they are “too poor” to mobilize domestic resources but have become “too rich” to access low-cost or grant financing for education from donors and multilateral development banks. Globally, 80% of the annual financing gap in education is expected to be in LMICs by 2030. By providing affordable debt financing, IFFEd fills a critical gap in the international financing architecture and has the potential to mobilize $10 billion in additional financing for education and skills by 2030. IFFEd’s mechanism is a mixture of guarantees and direct grants. It aims to multiply scarce donor resources up to 7 times. First, IFFEd aims to use donor funding in providing portfolio guarantees. This is a new form of guarantee to multilateral development banks. This allows multilateral development banks to expand their total lending capacity for education by insuring their entire portfolio against the risk of late payment. Guarantees are important tools in development finance because they reduce investors’ exposure to risks and attract additional capital to developing countries. IFFEd guarantees seeks to lower the risk for multilateral development banks in providing loans to countries investing in education. This is done by promising to pay up to the amount of the guarantees in case there are late payments on some of the loans. Second, in combination with the guarantee, IFFEd also aims to provide grants which makes the additional education finance more affordable for LMICS. This includes reducing the cost of borrowing and lowering the interest rate on the loan.