Financing Investments in Young Children Globally: Summary of a Joint Workshop by the Institute of Medicine, National Research Council, and The Centre for Early Childhood Education and Development, Ambedkar University, Delhi (2015)

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The Case for Financing Investments in Young Children

Speakers reflected on the big picture of financing early childhood development. They described the various elements of the financing puzzle, including donors and recipients, contextual factors such as demographics and the political climate, and assessments of value. They highlighted challenges and opportunities; gaps in policy making, program development, and financing; and mechanisms for utilizing funds in efficient and valuable ways.

REFLECTING ON FINANCING FOR EARLY CHILD DEVELOPMENT¹

Joan Lombardi of the Bernard van Leer Foundation opened her talk by stating that financing could be considered in three parts: sources of financing, allocation of funding, and cost. She noted that there has been more discussion on costing than on sources and allocation. For example, stakeholders need to know more about public funding mechanisms, the structure of public–private partnerships, and the delivery mechanisms, including the roles of various levels of government and the ways to make funding support both quality and efficiency. In addition, improving investments in child development programming requires a harmoniza-

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¹ This section summarizes information presented by Joan Lombardi, Bernard van Leer Foundation.

tion of funding streams. Regarding allocation, she pointed out that as this field is multisectoral, the challenges in allocation are also multisectoral.

Lombardi noted that now is the time to bridge previous dichotomies in early child development—focusing on surviving as well as thriving. Funding is no longer just public or private, but can be a mix of the two. For her, child care is not just a support to families but a child development environment. Issues from education to health to social protection need to be approached from a cross-sectoral approach. Finally, she stated that children develop over time, not just in one stage or age, so promoting child development must be seen as a continuum from prenatal through the early primary years.

BUILDING AN INVESTMENT PORTFOLIO FOR EARLY CHILDHOOD²

Pia Rebello Britto, UNICEF, stated that investment is about “transferring today’s purchasing power to the future with an expectation of positive returns.” Early childhood development is similar—it provides the foundation for human and social development with economic and social gains. In exploring the need to expand investment in the field, Britto and her colleague, Lorraine Sherr of University College, London, proposed a model for analyzing the process of investment, with four guiding questions (see Figure 2-1):

1. What is investment in early childhood development?
2. Who are the investors?
3. Why do they or do they not invest?
4. What are the investment tools?

Investment in Early Childhood Development

According to the presentation by Britto and Sherr, investment is a commitment, one made with the expectation of profitable returns, and this commitment involves making choices about a set of assets that form an investment portfolio. The first consideration in creating a portfolio, they said, is fair allocation. Investments should be fairly allocated, distributed, and sustained. Second, there should be a timeline for the payoff. For some outcomes, that timeline is long, but for others, it can be short. Britto proposed that immediate and visible returns are more attractive to investors, as they feed into the short-term funding and result cycles, but

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² This section summarizes information presented by Pia Rebello Britto, UNICEF, and Lorraine Sherr, University College, London.

FIGURE 2-1 Understanding investors in early childhood development.
NOTES: Image by Adrian Cerezo. ECD = early childhood development.
SOURCE: Britto and Sherr, 2014.

long-term payoffs are difficult to secure funding for. Third, the assessment of risk is complicated in terms of assessing not only profitability but also risks related to social factors, politics, population demographics, religion, culture, and legal frameworks. Because child development initiatives are multisectoral, limited costing information is available, making it difficult to calculate risk.

Early Childhood Development Investors

Britto categorized three types of investors:

1. public sector, including governments and large national sources;
2. private sector, including corporate social responsibility and financing for social impact; and
3. civil society, including fee-for-service, charitable giving, and development agencies.

However, she clarified that these are not necessarily discrete categories when it comes to funding, as a number of public–private mechanisms are growing, and investors are starting to coordinate their approaches. Learning how and why these different actors come together could help increase investment in this area.

To Invest or Not to Invest

In examining the literature on why organizations or governments invest or do not invest, Britto and Sherr’s analysis concluded that it comes down to the perceived value of both the issue and the possible gains obtained from investment. This perception, in turn, determines willingness to pay. A huge consideration for stakeholders is the opportunity cost of funding early childhood programs—if these programs are funded, what does not get funded in exchange? Britto and Sherr’s presentation found that for investors with children as a priority, assessing returns is easy. For those with other priorities, such as economic growth, however, the value proposition is more difficult to determine because outcomes are more long term and externalities cloud the assessment. In addition, they said investment is essentially distilled to an equation of benefits exceeding costs. This means that a clear understanding of costs is necessary, but calculating those costs can be difficult because of the multisectoral nature of early childhood development. Speakers added that it is not just the cost of the intervention that matters, but the cost of quality. How to measure this quality can be difficult, particularly when some elements of quality, such as parent–child interaction, are not readily monetized. Britto and Sherr said that competing priorities often take money away from early childhood initiatives. Finally, families are not well informed about the benefits or positive externalities of early childhood development. The market has failed to educate caregivers about the need for investing in young children, thus reducing demand for programs and policies.

Investment Tools

Investing in early childhood is about more than making and losing money, Britto and Sherr asserted. It is about creating change. Social investment tools can make a difference in this area as they move beyond an expectation of return toward achieving impact and sustainability. One of these tools, microfinance, has proved successful for small businesses and households in achieving poverty reduction and financial inclusion. Another tool, social impact bonds, allows partnerships between the private sector and government. Social impact bonds are a useful financing mechanism because governments pay for programs—administered by innovative private companies—on the basis of their performance. Programs receive funds only if they have reached previously defined targets and outcomes. This arrangement can result in a cost savings for the public sector.

Through this exploration of the literature, Britto and Sherr noted that investment in early childhood as a statement of values is not a priority for public, private, or civil society investment. This is partly because child development stakeholders have not fully made a compelling case for the value of this investment. The presenters concluded that although much progress has been made, additional work is necessary to raise the profile of investing in children.

BUILDING A FRAMEWORK WITH THE SUSTAINABLE DEVELOPMENT GOALS³

Jan van Ravens, a consultant affiliated with the Yale School of Medicine, spoke about the global community’s commitment to promoting the health and development of children. He stated that as the Millennium Development Goals (MDGs) reach their deadline, the post-2015 agenda has moved toward the creation of a series of more long-term Sustainable Development Goals (SDGs). The last draft SDG is “Strengthen the means of implementation and revitalize the global partnership for sustainable development.” Van Ravens pointed out that among the themes listed under this SDG, the first is finance, with five subgoals⁴:

1. strengthen domestic resource mobilization, including through international support to developing countries to improve domestic capacity for tax and other revenue collection;

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³ This section summarizes information presented by Jan van Ravens, a consultant affiliated with the Yale School of Medicine.

⁴ See http://sustainabledevelopment.un.org/focussdgs.html (accessed September 4, 2014).

2. developed countries to fully implement their Official Development Assistance (ODA),⁵ including to provide 0.7 percent of Gross National Income (GNI) in ODA to developing countries of which 0.15–0.20 percent to least-developed countries;
3. mobilize additional financial resources for developing countries from multiple sources;
4. assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief, and debt restructuring, as appropriate, and address the external debt of highly indebted poor countries (HIPCs) to reduce debt distress; and
5. adopt and implement investment promotion regimes for less-developed countries (LDCs).

Through these five subgoals, van Ravens proposed a framework of the three elements highlighted therein: domestic funding, foreign aid, and alternative resources. He started with domestic resources, such as tax revenue, which come from numerous sources and are channeled through the treasury. From there, he indicated, funds are allocated and dispersed across all government sectors, including the sectors related to early childhood development, such as social services, health, and education. To allocate a greater proportion of government funding for early childhood programing, van Ravens argued, either other sectors will lose funding or tax levels will have to increase, neither of which are popular approaches. More promising, he notes, is economic growth, which tends to be higher in low-income countries than in high-income countries (see Figure 2-2). With economic growth, tax levels can remain the same, but tax revenue will increase.

Van Ravens pointed out that countries can increase efficiency in government spending by reducing leakage and combating tax evasion. According to him, in many instances, public funds are available for early childhood development, but they do not reach children. In a costing exercise for one country, he calculated the amount needed to universalize essential services across health, education, and social protection and found the country was already spending that amount. Funds did not

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⁵ ODA is defined by the Organisation for Economic Co-operation and Development (OECD) as “flows to countries and territories on the Development Assistance Committee List of ODA Recipients and to multilateral institutions” that are provided by official agencies and administered to promote economic development and welfare of developing countries and that are “concessional in character, and convey a grant element of at least 25 percent.” For more information on ODA, see http://www.oecd.org/dac/stats/34086975.pdf (accessed September 30, 2014).

FIGURE 2-2 Global gross domestic product growth projections.
SOURCE: Van Ravens, 2014. Data reused by permission of the Economist Intelligence Unit.

reach children due to inefficient spending, leakages in the system, and poor governance.

Finally, van Ravens suggested that countries can promote private provision for some segments of the population, while reserving public money for the services to the poorest, as long as systematic coherence is maintained. He championed public–private partnerships, but cautioned against relying too heavily on private funds. For him, relying on private funding threatens the longevity of early childhood development programs and removes the burden of service provision from governments, who are ultimately responsible to their citizens.

In terms of foreign assistance, a demographic shift in many countries indicates that there are more working-age people supporting the population. This has implications for focusing ODA in pretransition countries with high fertility. And in terms of alternative sources, van Ravens differentiated between sources and mechanisms; some programs are financed via domestic funding but funneled through outside mechanisms. To conclude his remarks, van Ravens reiterated that while foreign and alternative sources of funding are important, most crucial is funding from sustainable, domestic public sources, particularly promising in countries with lower fertility and higher growth.

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