Manila September 27 2024: The Asian Development Bank (ADB) has signed an agreement with the International Finance Facility for Education (IFFEd) that will enable at least $500 million in new concessional education funding for lower middle-income countries (LMICs) in Asia and the Pacific.
Under the financing partnership, IFFEd—a sovereign-backed Swiss foundation established in 2023 to invest in education and skills in LMICs—will guarantee $125 million of ADB’s sovereign loan exposure across all sectors, known as a synthetic portfolio, and provide an initial $50 million in grants, according to ADB press release received here.
By blending IFFEd’s guarantees to ADB with grants that will comprise 10% of every loan, the first-of-its-kind arrangement facilitates a four times leverage ratio of the guarantee, boosting the amount of capital ADB can lend while lowering borrowing costs for the bank’s developing member countries (DMCs).
“Education is the cornerstone of modern, prosperous, and inclusive societies, and we are pleased to announce this partnership with IFFEd,” said ADB Vice-President for Sectors and Themes, Fatima Yasmin.
“By pooling catalytic and concessional financing, this initiative means our lower middle-income DMCs can scale up their investments in education and skills—vital to building knowledge-based economies—along with other sectors at the same time,” she added.
LMICs face an education crisis. More than 50% of students in these countries are not able to read simple text by age 10 despite attending school, and graduates do not have the skills to find jobs, leaving employers unable to fill vacancies.
As countries move from lower to lower middle-income status, they tend to get caught in a financing “missing middle” where they are no longer eligible to receive grants but cannot afford nonconcessional financing—forcing a difficult decision of where to invest, exacerbated by limited domestic financing.
By bringing concessional or grant resources to developing countries seeking to strengthen their education systems, the ADB–IFFEd partnership’s key innovation lies in the fact that—at a time of rapid change—it will help ADB’s DMCs prepare for a future characterized by digital transformation, climate change, demographic transitions, and rapid urbanization.
IFFEd’s sovereign donors include Canada, Sweden, and the United Kingdom, while the Atlassian Foundation, Jacobs Foundation, Porticus, Rockefeller Foundation, and the Soros Economic Development Fund (the investment arm of Open Society Foundations) have provided seed capital.
IFFEd, which benefits from a strong credit rating, will initially focus on Asia and the Pacific, and Africa, in collaboration with multilateral development banks (MDBs).
“Investing in education and skills in LMICs—home to nearly half of the world’s children and youth—is key to powering long-term economic growth and making progress on global health, climate, and equity goals,” said IFFEd Founding Chief Executive Officer Karthik Krishnan.
“IFFEd has been recognized by the G20 MDB Capital Adequacy Framework Review as one of the most significant development finance innovations in the past decade and delivers seven times more impact than traditional grants. ADB played a key role in shaping the IFFEd instrument and as our first founding MDB partner, ADB is showcasing its unwavering commitment to alleviating poverty and powering economic growth in Asia and the Pacific,” added Krishnan.
The countries eligible for IFFEd funding included Bangladesh, India, Mongolia, Pakistan, Papua New Guinea, the Philippines, Sri Lanka, Timor-Leste, Uzbekistan, and Viet Nam.
IFFEd-funded education projects can support ADB programs at any level of the education system—from early childhood development and school education to technical and vocational training, skills development and tertiary education.
