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Financing Models

Simon Sommer, Head of Research for the Jacobs Foundation, stated there is a certain tension between the childhood development model and the business models needed to support child development. Sommer introduced three examples from sub-Saharan Africa where public and private approaches are being integrated to achieve a common goal of investing in children and their caregivers. These efforts include business and economic perspectives to illustrate how family and community needs can be met by coordinated private- and public-sector approaches to financing. Sommer pointed out that variability occurs across how different actors mobilize financial support; what funding models look like; and how profit, value, and impacts are balanced with respect to investing in young children.

AN EXAMPLE FROM THE PRIVATE SECTOR

In Cote d’Ivoire and Ghana, the world’s first and second largest producers of cocoa, respectively, the World Cocoa Foundation developed a strategy grounded in performance-based indicators for cocoa production alongside growth-based indicators for community-driven development in contexts where small-holder farms operate as a family enterprise. Bill Guyton, President of the World Cocoa Foundation, introduced the private sector’s interest in the supply side of cocoa, and the complexity surrounding production, which includes the nexus of poverty and children. Guyton articulated that one of the major concerns of the cocoa industry lies in the next generation of farmers, particularly if they will be interested

in growing cocoa. He questioned where the motivation to grow cocoa will come from in the future.

The World Cocoa Foundation was established in 2000 by the chocolate industry to respond to sustainability issues surrounding the production of cocoa globally. There are currently 115 company members, with membership ranging from branded companies to actors in the supply chain that represent processors, traders, input suppliers, and retailers. Guyton outlined that CocoaAction is a platform by which all partnering entities agreed to a common method of measuring success meant to better align cocoa production and community development issues—such as primary education, child labor prevention, and women’s empowerment—for ultimately a greater impact. Guyton emphasized the vital role cocoa-producing governments play in the implementation of the World Cocoa Foundation’s programs.

In response to the uncoordinated program implementation that was occurring surrounding cocoa production in West Africa, CocoaAction was devised in 2013 to reach more than 300,000 cocoa farmers in Cote d’Ivoire and Ghana by 2020. Guyton stated CocoaAction is company implemented, thereby holding corporations accountable for the desired impacts on the ground; and also partnership driven, particularly linking with governments in Cote d’Ivoire and Ghana so that key performance indicators are agreed on across partners (see Figure 3-1). Implementing partners of CocoaAction provide a productivity package to cocoa farmers, which includes training, new planting material and fertilizers, and good agricultural practices to help improve the productivity or yields on the farms in conjunction with coordinated investments in community development across the areas of primary education, child labor, and women’s empowerment.

Guyton noted that to measure the different impacts on the ground, a “common results” framework was created so that there is a common key performance indicator and methodology that participating companies agreed to follow and provide publically available reporting. Each of the indicators within both the productivity package and the community development package are clearly defined so measurement and reporting can happen consistently across partners. In addition to the thematic areas on how to measure indicators across the two packages, CocoaAction also seeks to link more closely with the public sector. CocoaAction recently signed memoranda of understanding with the governments of Cote d’Ivoire and Ghana where agreement converged around the key performance indicators with the governments in these two countries so that impact could extend beyond what the partnering companies are doing through CocoaAction on the ground in cocoa-growing communities.

Guyton also introduced Transforming Education in Cocoa Commu-

nities (TRECC), which he stated is a new initiative to help strengthen CocoaAction in Cote d’Ivoire and to reach 200,000 children. TRECC, in partnership with the Jacobs Foundation, utilizes an impact-first financing model so that companies will receive resources based on whether they are achieving certain results across domains of primary education, productivity, and community development. More specifically, TRECC is a matching grants mechanism where companies will implement programs to help strengthen primary education in Cote d’Ivoire. Guyton pointed out the model creates a tool to leverage efforts around improving primary education with what companies are already investing through CocoaAction to improve productivity and community development more generally. The model is driven by the private sector and creates the space for innovation and flexibility around improvements to primary education in Cote d’Ivoire.

AN EXAMPLE OF A SOCIAL ENTERPRISE

Afzal Habib, co-founder and Chief Imagination Officer at Kidogo, introduced Kidogo’s work in Kibera and Kangemi, two informal settlements in Nairobi, Kenya. Habib pointed out that in these communities parents are willing to pay for child care services, yet quality services are

largely unavailable. More specifically, working mothers who live in urban slums and informal settlements lacked suitable options for child care, so only three scenarios were viable alternatives for child care for working mothers. In one scenario, mothers were found to leave their children at home alone for up to 8 hours, and in some cases tied to furniture. According to Habib, mothers did this not out of neglect, but based on the belief that a child is safer inside the house than outside the house, specifically in the informal settlements of urban Nairobi. In other cases, older siblings (usually adolescent girls) were reportedly pulled from school to take care of their younger siblings, which increased the probability that these older siblings would not return to school if they were absent for any sufficient period of time. While providing a better alternative than a child staying at home alone, Habib pointed out this alternative care model negatively impacts two groups—the child receiving the care and the adolescent sibling providing the care. Local baby care centers were a third alternative. A subset of mothers would combine the care of their own children with the children of neighbors and friends. By charging a small amount of money for food and other expenses (30–70 shillings/0.50–1.00 USD per day) the mothers’ individual efforts when combined become an informal business. However, while this alternative provides infrastructure for parents to have a place to leave their children while they go to work for the day, the quality and conditions range, but are generally abysmal, reports Habib. It was found that in some cases where more than 25 children are cared for in a small interior space, care providers are purported to administer sleeping pills as a means of keeping children subdued for the day.

Habib stated that the child care situation in the informal settlements of Nairobi begged a business question: How to deliver higher-quality care at roughly the same price point parents already pay for informal care offerings? Kidogo turned to childhood development science to find a solution. This solution is based on four elements: safe and child-friendly spaces that ensure children have an aesthetically appealing and tactically stimulating environment where they can explore; a play-based experiential curriculum derived by integrating best practice approaches from around the world that translate and are appropriate for the local Kenyan context; certified early childhood caregivers who hold a certificate or a diploma in early childhood development issued by the government and who receive subsequent specialized training in best practices surrounding early childhood care; and integrated health and nutrition programs across the delivery platform.

The program operates on an innovative hub-and-spoke model (see Figure 3-2), in which a best-practice hub provides an exemplary model for those already providing early childhood care in the informal settlement, with the hope that through micro-franchise opportunities others

may begin to operate sustainable, small-scale quality child care centers. Habib emphasized that the Kidogo model did not aim to displace mothers who were already providing child care out of their homes. Kidogo views these homes as critical infrastructure with an income-generating, self-employment opportunity in the informal settlements. Kidogo aspires to provide a model center to illustrate what child care should and could look like in the contexts where these informal businesses are already operating. Habib noted that profit is conceived as a means and not an end in this hub-and-spoke model, which seeks to be sustainable to maintain employment among those who rely on these centers for jobs, as well as keeping children in a quality child care situation.

Kidogo currently has two centers, both operating at 75 percent capacity or higher in terms of enrollment. One of the two centers is already attaining operational break-even, where all costs to run the center, including compensation for the child care providers, are accounted for. In terms of costs, a child care center under the Kidogo model requires on average 600 USD per month to be operational (13 percent rent for the center; 42 percent for teachers/staff; 37 percent for the meal program; 8 percent for curriculum materials). Costs of materials factor in as a fixed cost, which are one-time investments in durable, sustainable materials that children can manipulate. Complicating the break-even figure Habib presented is the fact that the centers need to operate at 95 percent capacity. This means that in a center that can accommodate 40 children, it needs to have 38 children enrolled year-round just to break even. Citing a report by the Alliance for Early Childhood Finance (2010), Habib conceptualized early childhood financing by stating there is no margin for error—every dollar is needed, every day, for every child.

Drawing on some of the early lessons learned from the Kidogo model, Habib reflected on five main areas. The first is that it is challenging to sustainably operate small, independent child care centers beyond any measure of breaking even. Compounding the small margin of error is the nature of enrollment in these centers; vacation months in Kenya are for 3 months out of the year. During these months, centers have very few children enrolled, if any at all, yet many of the associated costs are still applicable, including teachers’ salaries.

Second, transparency in the return on investment for funders, policy makers, and supporters of service delivery organizations is important to communicate, stated Habib. Third, fee collections vary because of the economic reality parents face; namely, families in these settlements typically live on 3 to 5 USD per day. Habib noted these inconsistencies create challenges to sustainably operating child care centers.

Another challenge lies in the age variation and associative cost with providing child care to children who range in age from birth to age 6. Habib pointed out children under age 3 are significantly more expensive to serve than older children because of the necessarily low ratio of children to child care providers for children under age 3. The children ages 3 and above end up cross-subsidizing the younger children’s programs. Yet, it is equally important to invest in the younger age groups because that is where the highest return on investment and measurable impact per dollar lies, according to Habib.

Finally, Habib articulated the need to pull non-core tasks out of the centers to achieve sustainability at scale. Shared services, such as administration, management, and monitoring and evaluation, can be done centrally for a more sustainable and potentially scalable model. This allows individual centers to focus on what they do best, which Habib deemed to be caring for children.

AN EXAMPLE FROM AN ALLIANCE OF CROSS-SECTOR FUNDERS: SOUTH AFRICA

In South Africa, David Harrison, Chief Executive Officer of DG Murray Trust, stated most children miss the opportunity for quality early learning largely because of the disorganized and informal structure of early childhood education, where the poorest 40 percent of the population have very little access to any sort of formal or structured early learning experience (Richter et al., 2012). DG Murray Trust, a South African grant-making foundation working with a coalition of funders and implementing partners, created an alliance of both international and South African foundations to support early learning.

Harrison described the situation of early learning in South Africa,

stating that early learning depends largely on the services provided by micro-entrepreneurs, which he referred to as subsistence entrepreneurs. They are supported by resource and training organizations across South Africa. The state does provide some financing in the sense that there is a per capita subsidy to registered centers in South Africa, which serve about 15 percent of the eligible population of children (Richter et al., 2012).

Subsistence entrepreneurs are financed either by the per capita subsidy, user fees, or usually some combination of funding streams, noted Harrison. The reality for unregistered facilities in South Africa, which serve the majority of children, is that they do not receive any public financing.

To address issues of financing and access, DG Murray Trust identified four leverage points, drawing from basic tenets of game theory to take early learning to scale through innovative financing models together with the government (see Figure 3-3). These leverage points include changing access to information about the power of early learning; altering the way public funding is used; shifting outcomes of the private enterprise that already occur with respect to early learning; and expanding the range and diversity of people in South Africa involved in the well-being and education of young children. Harrison stated the idea behind this approach is that changes to the dynamics of the system could occur across the four leverage points.

To change access to information, DG Murray Trust brought together public demand, political pressure, and scientific evidence. Harrison said the organization interpreted what this convergence of information means and then translated it in a way that could be made public and conveyed to policy makers. To stimulate public demand, DG Murray Trust made extensive use of public radio, partnering with a public broadcaster with radio programs every week to target parents. This communication strategy is intended to disseminate the power of early learning in simple messages of love, play, and talk to which the parent audience can relate.

To alter the way public funding is used, DG Murray Trust has been working with the government to change perceptions of early childhood development to include all children who are not in early learning centers, and in doing so moving conceptually beyond just the services provided to be inclusive of the whole child. This includes developing implementation-based rhetoric on the continuum of services and care, which Harrison stated includes the type of programs that need to be supported, including visiting programs, community-based programs, and facility-based services. Harrison indicated an effort to highlight the evidence that has emerged from China and other countries, which are placing early childhood at the center of economic development strategies. Government commitment seems to exist, but Harrison referenced how these commitments

are diverted when perceivably more significant needs take resources and attention of the government away from early childhood.

DG Murray Trust is tailoring a package of quality support for micro-entrepreneurs serving the poorest 40 percent, and in doing so, is building a national network of practitioners who feel like they belong to something bigger than themselves, Harrison said. Breaking the vicious cycle of exclusion and of poor quality of child care necessitates an affirmative program aimed at the poorest 40 percent of children. An example of this is the early learning social franchise called SmartStart, which has tried to reach children who do not have access to services by using play groups and increasing play group practitioners. SmartStart has been publicly financed. A public works program in place seeks to channel qualified graduates into early learning employment opportunities while at the same time lifting up the experiences and interaction of the micro-entrepreneurs who are already in place.

Incremental increases to financing and enrollment is not a scalable model, Harrison argued. Instead, to achieve scalability DG Murray Trust is trying to focus on the dynamics of change. Harrison believes the system in South Africa has been primed for change, and through this process the system has been primed for scale. Harrison concluded by remarking that every business, community, and government works program should

be seen as a platform for investing in young children. These four leverages bring the dynamics of change around supporting young children in the South African context into focus, so that the system can change and appropriately scale up.

REACTIONS TO EXAMPLES OF FINANCING MODELS

Joe Amoako-Tuffour, Director of Research at the African Center for Economic Transformation based in Ghana, provided a research reaction to the financing models presented by Guyton, Habib, and Harrison. He began by questioning why communities do not invest in early childhood when the net return is so obvious. Referring to Harrison’s presentation on leverages of change, in terms of production functions and financing, he reflected it is important to know the exact intervention points where financing should be delivered and to whom it should be delivered. Alternatively, Habib’s presentation stressed the importance of inputs across the four identified areas that define the Kidogo Way (environment, curriculum, certified teachers, and integrated health and nutrition programming). Amoako-Tuffour stressed that understanding the inputs enables the decision-making process to unfold around how the inputs are paid for to ensure the delivery of the final product—or the outputs.

In terms of financing programs and services, Amoako-Tuffour concluded that in South Africa, with DG Murray Trust, it is a function of public financing combined with donor funding; whereas in Kenya with Kidogo, it is a business model that depends on user fees. In both cases, Amoako-Tuffour argued that the challenge lies in setting the right price per child, which then determines the margins, the optimal size, and therefore the break-even point in cases where early childhood services are privately provided.

Amoako-Tuffour cautioned that whether early childhood education is publicly or privately provided, fees and price setting in general should not be a barrier to entry. The challenge is how to balance parental responsibility and social responsibility. If society were broken down into say five income groups (quintiles), Amoako-Tuffour argued this would reveal that each group demands early childhood care and services in very different ways. The top fourth and fifth quintiles (the top 40 percent of income earners) would likely voluntarily purchase early childhood services at full price. Those in the third and second quintiles (the lower middle income and those marginally above the bottom) may purchase the services at reduced prices if available, and some are likely to underconsume early childhood services because of cost and access. Those in the bottom quin-tile (the poorest 20 percent of the income group) would most likely access early childhood services in informal settings that Guyton, Habib, and

Harrison described, or not at all, largely because of cost. The challenge lies in finding ways of allocating resources to financing early childhood care and services for these different income groups. Sometimes the challenge is not the lack of funds, suggested Amoako-Tuffour, but rather how funds are allocated, having adequate information to ensure accurate targeting, and knowing who is responsible for such funds. Amoako-Tuffour rhetorically asked where funds should be allocated: through general subsidies to all, directly to service providers, or to parents through a voucher system or some form of cash transfer? The choice is not binary, he said. Each context may call for a different mix of allocating resources.

Amoako-Tuffour remarked there is a tendency to concentrate on physical infrastructure (building and amenities), yet for the private sector and the type of partnerships Guyton presented, the focus should be on soft infrastructure (curricula, learning models and tools, teachers) and providing platforms for advocacy and bringing stakeholders together to ensure early childhood issues are central to the conversation. When it comes to financing early childhood development, especially in the African context, Amoako-Tuffour suggested drawing on the vast revenues generated from natural resources (especially minerals and petroleum) exploitation and investing these to develop a highly visible (human) natural resource—the continent’s children. To do this, he proposed that sub-Saharan African countries set up an early childhood development fund, financed by all stakeholders.