Income Share Agreement can improve access to quality education for sub-Saharan Africa


In sub-Saharan Africa, it’s no surprise that the demand for tertiary education continues to grow as countries in this region realise they must prepare their young workforce to exhibit skills that can catalyse economic growth as a means of remaining competitive in today’s globalised world.

While this growth in demand is good news for the continent, it outstrips the current supply of quality tertiary education. This imbalance has been fueled by the increase in access to education at the primary and junior secondary school levels. Although the gross enrolment ratio for tertiary education grew at an average annual rate of 1.5 percent higher than the global annual average between 1970 and 2013, the region continues to demonstrate the lowest participation rate in tertiary education in the world.

Currently, only nine percent of African youths have access to tertiary education, and 54 percent of African employers state that job seekers lack the skills that match industry needs. By 2050, nearly 50 percent of jobs will be replaced by technology and new jobs will demand different and higher-level skill sets.

There is therefore an urgent need to align outcomes between skills development and the labour market, and to ensure that all youths have a pathway to meaningful participation in socio-economic development.

One of the key factors affecting access to tertiary education programmes is financing. Traditional student loans, scholarships and grants, while helpful, have not been entirely effective or efficient at tackling the issue of limited access to a critical mass that can make a real difference to a country’s economic growth prospects. Although scholarships and government student loans don’t require collateral, budgets are often insufficient to meet more than 30 percent of demand. Bank loans require collateral and interest payments during the period of education, which makes them inaccessible to most, especially women.

Income Share Agreements (ISAs) are a refreshing approach to funding tertiary education on the continent. ISAs centre on the concept of equity investments in an individual, which allows investors to buy ‘shares’ in their future earnings while contributing to social value through sustainable empowerment.

Students receive interest-free funds to cover their tuition fees on the condition that they agree to pay the lender a specified fraction of their future earnings. By grouping these investments in individuals, lenders can offset risks as returns from higher earners hedge the potential losses from lower earners.

A unique selling point of ISAs is that they can be very student-centric in three major ways. At its core, an ISA is an unsecured loan, so youths from marginalised communities don’t need to provide collateral when accessing it.

The model assesses an individual’s future potential income instead of their current financial standing and assets. Secondly, students only make repayments when they are earning above a minimum income threshold, so there is no risk of students becoming over-indebted. Payments are always a fixed percentage of the student’s relevant income. Lastly, they are flexible and allow for pauses – for example, if someone is between periods of employment, pursuing a higher degree, or on unpaid maternity leave.

The original concept of an ISA was developed by Milton Friedman in his 1955 essay titled: ‘The Role of Government in Education’. It has since been adopted by numerous institutions across the world, one being Chancen International.

Chancen’s ISA model underwrites risk at the institutional level – only partnering with education institutions and programmes that are consistently delivering high-quality and market-relevant skills as evidenced by strong track records of employment for graduates.

Following a successful three-year pilot of ISAs in Rwanda, Chancen International launched the US$21m Future of Work Fund (FWF) to give 10,000 marginalised students access to high-quality tertiary education that leads to employment.

The expected outcomes of the fund will support Rwanda’s goal of providing universal access to high-quality education for all citizens and help actualise the country’s 2050 vision of creating 250,000 new jobs every year.

In 2021, Chancen launched operations in South Africa through a partnership with WaFunda, and will look to extend the FWF model to Kenya in 2023.

There is an urgent need for greater investment into sustainable student finance solutions as the individual and inter-generational impact of high-quality tertiary education has been well-documented. These solutions should also be regulated by ethical best practices to ensure fundamental consumer protections.

Chancen hopes to reaffirm education’s status as an economic imperative. The model is fair and innovative and seeks to establish a sustainable cycle of investment and growth in the region’s young people.

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