Giving Compass' Take:

• Philanthropists are utilizing impact investing to improve education outcomes across the globe. Impact investing can help mobilize communities to deliver on valuable social change initiatives. 

• How can impact investing practices support community development programs that are strengthening education?

• Read about how some funders are working to increase educational equity through impact investing. 

As poor families in India increasingly turn to low-fee private schools, it’s critical that they deliver quality education and improve student learning outcomes. In a pilot initiative, we at the Michael & Susan Dell Foundation gave two leading school finance companies in India a variable interest loan, structured with financial incentives that encourage school leaders to improve learning.  We think this highly replicable approach to social impact investing is significant enough for investors in any sector to start internal conversations about applying it in their own work.

Measuring Impact

The term “impact” is frequently used in impact investing circles. But it’s not always clear just how much positive social impact investors actually achieve because the most common investment mechanisms don’t explicitly or inherently reward it. Nor do they rigorously measure it.

We sought to come up with a tool for impact investing in which the desired social results were clearly defined, incentivized, measured, and paid for by the instrument itself, with minimal overhead. This efficient, sustainable approach brings the rigor of the commercial market to social impact and can easily be replicated beyond the education sector, by following these three criteria:

  1. Clearly defined, simple, objective, measurable impact metrics
  2. Measurement costs that don’t exceed the reward amount paid out
  3. An on-the-ground partner with a last-mile network and reach, who shares the investor’s objective
Promising Results

To date, many low-fee private school entrepreneurs in India have focused more on their schools’ finances than on student learning results. However, participating schools say the new lending mechanism has brought those learning outcomes into the mainstream conversation; it is a topic of discussion between school owners and teachers. More school owners understand that better quality in education can improve their bottom line, boosting enrollment and fueling expansion.

We don’t yet know if the school rewards will trigger widespread changes in educators’ behavior. But we do know that philanthropic capital can be structured through innovative financial instruments to motivate that behavior.

Read the full article about impact investing in education by Rahil Rangwala at Stanford Social Innovation Review.