Final Ghana Coutnry Report- Market Research on APS by Enterprising Schools

Final Ghana Country Report: Market Research Project on Low Income Private Schools

October, 2010 Prepared for the International Finance Corporation (IFC) by: CDC Consult Limited P. O. BOX CT. 4723 Cantonments – Accra Tel: 233 (0302) 912645 Email:info@cdcconsult.org

VOLUME 1

Final Ghana Country Report: Market Research Project on Low Income Private Schools

Table of Contents Section 0.0

LIST OF TABLES LIST OF FIGURES ABBREVIATIONS PART I EXECUTIVE SUMMARY

Page Ref.

1.0 1.1 1.2 1.3 1.4 2.0 2.1 2.2 3.0 3.1 3.2

PART II INTRODUCTION Background Objectives of the Research Focus of the Report Report Organization OVERVIEW OF RESEARCH AND METHODOLOGY Coverage, Selection, Approach and Methodology Challenges OVERVIEW OF PRIVATE SCHOOLS SECTOR Introduction Number of Schools in Ghana

3.3 3.4 3.5 3.6

Legal Requirements Establishment and Registration of Private Schools Supervision and Co‐Ordination Governance

21 22 22 22

3.7 3.8 3.9 3.10

Enrolment Fees Curricula Staff of the School

23 23 23 24

3.11 3.12 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8

Private Schools Target Market and Locations Low Income Private Schools PART III‐ RESEARCH FINDINGS FINDINGS – LOW INCOME PRIVATE SCHOOLS Introduction Spread of Low Income Schools and Survey Coverage Legal Registration, Accreditation and Establishment History Enrolment Levels, Gender Composition and Drop Out Status of School Infrastructure and Facilities ‐ Availability and Adequacy Teaching Staff, Qualification, Compensation and School Performance Financial Management Practices in Low Income Schools Demand and Need for Financing

24 24

5 6 7 8 9 16 16 16 17 17 18 18 19 20 20 20

27 27 27 27 29 30 32 35 42

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Section 4.9 4.10 5.0 5.1 5.2 5.3 5.4 5.5 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 7.16 7.17 7.18

Borrowing and Repayment Capacity of Low Income Schools Socio‐Economic Conditions of Locations FINDINGS ON PARENTS WITH CHILDREN IN LOW INCOME PRIVATE SCHOOLS Introduction Occupational Background of Parents Income Level of Parents Basis of Choice of Low Income School Estimation of Proportion of Income Spent on Education FINDINGS – FINANCIAL INSTITUTIONS SERVING LOW INCOME SCHOOLS Introduction Overview of Ghana’s Financial Sector SME Sector and Financial Institutions Institutions Interviewed Operational Capacity and Liquidity Private School Lending and Practices Barriers to Accessing Loans by Schools Requirements for Granting Loans to Low Income Schools Barriers from the Perspective of Low Income Schools FINDINGS – ADVISORY SERVICE RPOVIDERS Introduction Legal Structure of the Establishment Staff Capacity Range of Business Development Services Provided Business Development Services Provided to Schools Fees Charged for Business Advisory Service Assessment of Willingness to Provide Advisory Service to Low Income Schools Specific Areas of BDS to Offer to Low Income Private Schools Promotion of Advisory Services Ranking of Schools Business Development Needs Challenges of Low Income Private Schools Factors Considered in Choosing the Service Provider Satisfaction with Advisory Service Received Analyses of Schools that did not use Advisory Service Willingness to Pay for Advisory Services Importance of Advisory Service for your Business Need for Business Development Service Areas in Low Income Schools Conclusion on BDS for Low Income Schools

Page Ref. 45 50 51 51 51 52 53 53 55 55 55 56 56 56 57 58 59 60 62 62 62 62 63 64 64 65 66 67 68 69 69 70 70 71 72 72 73

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Section 8.0

FINDINGS – DEVELOPMENT PARTNERS AND OTHER STAKEHOLDERS

8.1 8.2 8.3 8.4 8.5 9.0 9.1 9.2

Introduction Overview of USAID Support Overview of DFID Support for Education Ghana National Association of Private Schools (GNAPS) IDP Rising Schools Programme CONCLUSIONS AND RECOMMENDATIONS Conclusions Recommendations

Page Ref. 74 74 74 75 75 77 79 79 80

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

LIST OF TABLES Table Nos. 3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 5.1 5.2 6.1 6.2 6.3 6.4 7.1 7.2 7.3 7.4 7.5 7.6 7.7

Page Ref. Total Number of Schools in Ghana per Type of School and Sector Surveyed Low Income Private Schools by Categories Legal Status of Surveyed Low Income Private Schools Grading Status of Surveyed Low Income Private Schools Years in Existence Low Income Schools Enrolment Statistics Gender Composition of Low Income Schools Enrolment Drop Out Ratios for Surveyed Schools Respondent Schools with School Facilities and Infrastructure Input Requirements and Availability Analysis of Proportions of Teachers in Qualification Groups Average Staff Turnover Analysis Average Monthly Teacher Salary for Low Income Schools BECE Pass Rate Funding Sources for Low Income Schools Schools with Bank Accounts Income Structure Analysis of Fees Charged by Low Income Schools Fee Collection Combined Common Size Ratios – 2009/2010 Asset and Liability Profile of Schools Previous Credit History Estimated Loan Demand by Surveyed Schools Application of Desired Loans Factors Considered by Parents in the Choice of Schools Parents Proportion of Income Spent on Education Category of Institutions Interviewed Surveyed Institutions Focus, Products and Services Comparative Analysis of Interest Rates Financial Institution Requirements for Granting Loans General Advisory Services Provided Advisory Services Provided to Schools by Providers Fees Ranges for Advisory Services Promotion of Advisory Services Major Business Development Needs of Schools as Perceived by Service Providers Awareness, Understanding and Usage of Business Advisory Services Low Income School Preferences for BDS

20 27 28 28 29 29 29 30 30 32 33 34 34 35 36 36 39 40 41 41 42 43 44 45 53 53 56 56 58 60 63 64 65 67 67 69 73

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

LIST OF FIGURES Figure Nos.

4.1

Gap Analysis of Adequacy of Classroom, Furniture and Core Text Books

4.2

Proportion of School Levels in the Fee Ranges

5.1 5.2 7.1 7.2 7.3

Occupational Distribution of Parents and Guardians Monthly Income Range Distribution Legal Structure of Advisory Firms Staff Capacity of Advisory Firms Service Providers Assessment of the Willingness of Private Schools to Pay for Advisory Services Basis for Choosing Service Providers Satisfaction with Advisory Service Received Reason for Not Using Advisory Service Willingness to Pay for Advisory Service Importance of Advisory Service for Your Business

7.4 7.5 7.6 7.7 7.8

Page Ref.

51 52 62 63 66 69 70 71 71 72

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

ABBREVIATION FTI

FAST‐TRACK INITIATIVE

GBF

GRASSROOTS BUSINESS FUND

GES

GHANA EDUCATION SERVICE

GET

GHANA EDUCATION TRUST

GMC

GRAY MATTERS CAPITAL

GNAPS

GHANA NATIONAL ASSOCIATION OF PRIVATE SCHOOLS

IFC

INTERNATIONAL FINANCE CORPORATION

JHS

JUNIOR SECONDARY SCHOOL

MFIS

MICRO FINANCE INSTITUTIONS

MMDAs

METROPOLITAN, MUNICIPAL AND DISTRICT ASSEMBLIES

MSME

MICRO AND SMALL SCALE ENTERPRISE

NGOS

NON‐GOVERNMENTAL ORGANIZATIONS

OSLC

OPPORTUNITY SAVINGS AND LOANS COMPANY

RCBS

RURAL AND COMMUNITY BANKS

SAT

SINAPI ABA TRUST

SFF

SCHOOL FINANCE FACILITY

Prepared for IFC by CDC Consult Limited 7 October,2010

Final Ghana Country Report: Market Research Project on Low Income Private Schools

PART I Section 1.0

Executive Summary

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

SECTION 0.0: EXECUTIVE SUMMARY Background Private Schools are playing very useful roles in the educational system in many developing countries by supporting governments in their commitment to providing quality education for all. Most of the private schools are, however, limited in their ability to provide quality education services due to their lack of access to appropriate financial and business advisory services to help them improve on their operations. The situation is even more critical for private schools located in low income areas, serving low income population. These low income private schools have not received the much needed financial and businesses advisory services support enjoyed by well‐endowed middle to upper income schools. To address this, a low income private school sector market research has been commissioned by the International Finance Corporation (IFC) and its partners, Gray Matters Capital (GMC) and Grassroots Business Fund (GBF) as part of a School Finance Facility (SFF) Programme. Overall Objective of Research and Coverage The overall objective of the research focuses on expanding access to financial and advisory services to low income private schools in Ghana. A total of 1361 schools considered as low income schools were selected and interviewed from 80 low income communities within and around the urban towns of Accra and Kumasi. A total of 18 financial institutions, 22 business advisory services providers and 105 parents were also interviewed. Private sector enrolment Summary of Findings constituted 18% of total Private schools in general are very complementary to the public enrolment from preschool schools. Out of a total 48,6882 basic schools for 2008/9 academic to Junior High School level year (made up of crèche, kindergarten, primary and junior high for 2008/2009 academic schools) 30.65% (14,925) are private schools. Total enrolment for year. Out of a total of both public and private schools up to the basic level for 48,688 basic schools, 2008/2009 academic year is 6,334,678 of which the private private sector schools schools account for 18%. We estimate that low income schools constitute 30.65%. constitute about 40% of all private schools. Private schools are (Source: Ministry of therefore key partners for the realization of the millennium Education, EMIS Statistics, development goal of achieving Universal Primary Education for March 2009). all children by 2015. Indeed available national records from the Education Management Information System indicate that private basic schools grew by 26% from 2006/2007 to 2008/2009 academic year compared to 9% growth in public schools over the same period.

73 low income schools were selected from Accra and 63 from Kumasi

Education Management Information System (EMIS), March 2009

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Enrolment in the 136 schools surveyed is 29,718 representing 4.5% of total private school enrolment in the two regions and translating into an average of 218 pupils per school. Female enrolment for the low income schools surveyed constitutes 55% compared to the national average of 49.5%, returning a significant statistical difference between female and male enrolment in private low income schools. 44% of respondent parents with children in low income schools earn below GHC150 (US$107) per month and those in this income bracket could spend as high as 48% of their declared wages and salaries on the education of one child. More than 50% of the parents are self‐employed in the informal sector including artisans, cooked food sellers and petty traders. An estimated 87% of the low income schools earn below GHC20,000 (US$14,285) per annum, 44% of which comes from tuition fees, 34% from extra classes, 20% from feeding cost and the remaining 2% from other sources. The cost structure is mainly driven by staff cost which is estimated at 42% of revenue and profit before interest and taxes could be as high as 40% of revenue generated for some of the schools.

Highlights of financial management indicators of low income private schools: • 44% of low income school revenue comes from tuition fees, 34% from extra classes and 20% from feeding; • Staff cost represent about 42% of revenue generated; • 99 out of 136 schools representing 73% have bank accounts; • Profit before interest and taxes could be as high as 40% of revenue; • Accounts are held with universal banks, savings and loans companies and rural & community banks ; • 50 out of 136 schools have taken loans averaging GHC4,963 (US$3,471) at average interest rate of 36% with repayment term of 17months.

Need for Financing; Aggregate Financing Needs and Borrowing Capacity 119 out of the 136 schools, representing 87% expressed interest in obtaining financing. Out of this number, 80% require the funds to support infrastructure expansion; repairs and maintenance to building and equipment (48% of respondents); acquisition of school bus (42% of respondents) and teaching and learning materials (16% of respondents).

The aggregate financing needs of the surveyed low income schools is estimated at GH¢3,980,032 (US$2,842,880). The borrowing capacity of the schools, based on their estimated free cash flow is projected at GH¢707,395 (US$505,282) for one year loan; GH¢1,208,260 (US$863,042) for a two year loan and GH¢1,563,151 (US$1,116,536) for a three year loan. When estimated revenue was enhanced by 30%, the borrowing capacity increased to GH¢919,518 (US$656,798) for one year facility and GH¢2,032,053 (US$1,451,466) for a three year facility. The results indicate a gap of about 60% between the aggregate financing need and borrowing capacity of the surveyed schools.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Financial Institutions Ghana’s financial sector has experienced significant growth over the past 10 years. In addition to universal banks with over 700 branches, there are microfinance institutions including savings and loans companies, rural and community banks as well as financial NGOs providing services to micro and small businesses such as low income schools. 73% of the schools maintain bank accounts, about 50% of which are held with universal banks. 24% of the respondent schools have previously obtained credit to meet operational and infrastructure expansion needs. A total of 14 financial institutions (out of the 18 interviewed) that provided loans to low income schools have among them a total of 169 loans with existing portfolio of GH¢1,897,211 (US$1,335,151). Loan values range between GH¢319 (US$228) and GH¢20,000 (US$14,285) with average repayment period for the loans and interest rate returning a mean of 14 months and 51% per annum respectively. All but one of the financial institutions expressed interest in supporting low income schools with loans. For the schools to be considered for support however, they need to meet minimum requirements such as financial statements (or cashflow); Ghana Education Service accreditation and in some cases collateral. Most of the schools however complained about rigid repayment schedules and high interest rates from the financial institutions which deny them access to facilities from the financial institutions. On the issue of portfolio and institutional guarantees (underwriting), respondent financial institutions suggested 50% to 75% coverage and a fee that is not overburdening. Business Development Advisory Services As is typical of most small businesses, low income schools do not use business development advisory services. Awareness of business development services among the surveyed schools range from 33% to 70% for various types of advisory service. Usage is however, low with the highest recorded as 24% for accounting and auditing service. Utilization of advisory service is limited by cost of advisory service and access. Willingness to pay for advisory service by the schools is low with only 50.6% of respondents expressing willingness to pay, although 61% rate business advisory service as very important. Priority business advisory service areas requested by the schools are accounting; business management training and business management advisory services. Conclusion and Recommendations Ghana is experiencing growth in the private schools sector and this is expected to continue given the overall performance of private schools especially at the basic education level. Deriving from this general growth, it is expected that low income schools will also increase in number by at least 7% per annum. The low income schools, like other micro and small enterprises, could be good businesses to be financed by microfinance institutions and other formal institutions. For most of these schools, access to suitable financial products and usage of business advisory service are low. Financial institutions are not adequately meeting the needs of low income schools and loan products are not tailored to the cashflow structure of the schools. The schools on the other hand are also not well positioned to subscribe to existing products and services offered by the financial institutions due largely to inadequate record keeping practices, weak

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

management and other related operational challenges. Low income private schools however, deserve more support given the crucial roles they play in low income communities including the provision of alternative quality education, stemming child labour, as many of the pupils in low income communities could be out of school, increased enrolment of the girl child and employment generation. A concerted effort is therefore needed from all stakeholders in the sector to support the low income schools. To further expand access to financial and advisory service for low income schools three intervention models are proposed for consideration. Option 1 envisages the establishment of an expanded “Low Income Private Schools Guarantee Fund” by stakeholders to provide a wide range of guarantee products including portfolio and institutional guarantees for MFIs and finance houses interested in working with low income schools. The guarantee fund will also provide for matching grants to finance improvement of the capacity of the partner MFIs and funds to be used for improving the capacity of low income schools in partnership with accredited local business advisory service providers. The minimum amount for the guarantee fund could be pegged at US$3.0 million which is about 105% of the estimated financing needs of the surveyed schools. Such a fund will be managed by an independent fund manager or outsourced to the existing Eximguaranty Company, Ghana Limited. Option 2 envisages the creation of a “Low Income Private Schools Fund” for lending to selected microfinance institutions and other finance houses at concessionary rates for purposes of on‐ lending to low income schools within predetermined interest rate ranges. The fund will make provision for strengthening the capacity of MFIs and the low income schools through advisory service providers. Service providers could come from either within the MFI (as is practiced by Sinapi Aba Trust) or from an accredited list of Service Providers (as is done by the Mitchelle Group). Option 3 focuses on the establishment of a “Low Income School Finance Company” to be owned by different stakeholders. The proposed company will operate two main service lines on “school financing” and “school capacity building”. Under the school financing, the finance house will lend to qualifying MFIs for on‐lending to low income schools. It will on its own however, lend directly only to schools in middle to high income ranges. The school capacity building service line will provide capacity building for MFIs to undertake effective lending to low income schools as well as provide capacity building including training to the low income schools through accredited business advisory service providers. The minimum capital for setting up a finance house is GHC7, 000,000 (US$5,000,000). Other general recommendations to improve the operating environment for low income schools include:

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

• • •

•

The need for a clear policy framework for low income schools that spell out strategies to support the low income schools; Promotion of effective partnership between local microfinance institutions and low income schools through effective client relationship management and sustained discussions; Improved monitoring framework by the Ghana Education Service in partnership with the Ghana National Association of Private Schools (GNAPS), to ensure compliance with the Education Act, 2008. An improved monitoring framework especially at the metropolitan, municipal and district levels will enhance the quality of the schools and their operations. To ensure that schools are not established without the knowledge of the Ghana Education Service, the Ministry of Education should liaise with the Ministry of Justice to prevail on the Registrar General’s Department to register only schools with clearance from the Ghana Education Service. This will ensure that school locations are known to the GES to facilitate monitoring. Stakeholders in the low income private schools sector should promote information exchange among themselves to share lessons and further improve on support for the sector. Metropolitan, Municipal and District Assemblies (MMDAs) are encouraged to show more interest in the development of infrastructure to be shared by low income private schools in the respective districts on fee paying arrangements as part of efforts towards promoting public private partnerships.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

PART II

Section 1.0

: Introduction

Section 2.0

: Overview of Research and Methodology

Section 3.0

: Overview of the Private School Sector in Ghana

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

SECTION 1.0: INTRODUCTION 1.1 Background Private Schools are playing very crucial roles in the education system in many developing countries by supporting governments in their commitment to providing quality education for all. Most of the private schools are, however, limited in their ability to provide quality education services due to their lack of access to appropriate finance and advisory services to help them improve their operations. International Finance Corporation (“IFC”), the private sector investment arm of the World Bank Group, launched the Africa Schools program to respond to these needs. The program was piloted in Ghana in 2005 and has since been replicated in Kenya (2007) and Rwanda (2008). The program works with local financial institutions to expand and improve lending to schools, with a parallel advisory services program that helps schools improve their management systems and operations. As part of the IFC Program, schools in Ghana, Kenya and Rwanda have been helped to access finance as well as training though the beneficiary schools have actually remained middle income schools leaving out low income schools. Gray Matters Capital (GMC) is the charitable arm of the social investment group, Gray Ghost Ventures, and uses philanthropic capital to research and co‐create initiatives in developing countries to build sustainable, replicable business models for the benefit of underserved populations. GMC has partnered with Grassroots Business Fund (GBF), a not‐for‐profit organization with a mission to build and support high‐impact intermediary business organizations that provide sustainable economic opportunities to thousands of people at the base of the economic pyramid. GMC and GBF are, independently of IFC, collaborating on the School Finance Facility Program (SFF) as co‐investors and donors. The SFF is a demonstration investment and grant program whose objective is to encourage banks and microfinance institutions to make loans available to low‐income private school operators. An important component of the SFF is to partially fund and disseminate market research on low income private schools. 1.2

Objectives of the Research

The overall objective of the research focused on expanding access to financial services and advisory services by low income private schools in Ghana. In this respect the project conducted an overview of the contribution of the low income private school sector within the larger universe of private and government schools as well as a comprehensive survey of low income private school operators. In addition to surveying low income schools, the project conducted an assessment of financial and advisory services providers with a track record or interest in the education space and preferably with low income schools directly. The specific objectives and scope of work is presented as appendix 6.0 in Volume 2.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

1.3

Focus of the Report

The report on findings and recommendations is modeled largely on the requirements of the assignment as provided in the terms of reference. The specific areas addressed in different sections of the report are presented below.

1. What are the estimated aggregate access, demand and need for financing, and the estimated aggregate repayment capacity of low income private schools?

2. What are the characteristics of the existing low income private school financing facilities offered by financial institutions and what are the perceived obstacles to and recommended interventions for expanded lending?

3. What are the characteristics of the advisory services that low income schools need and demand, and what is their ability and willingness to pay for such support?

4. What are the characteristics of the advisory services that financial services providers perceive as necessary to advance their ability to lend to low income schools?

5. What are the recommended minimum underwriting standards for low income schools to access commercial loans and the recommended minimum eligibility criteria for low income schools to access advisory services with respect to, but not limited to school fee levels, minimum enrollment, legal status, registration status etc.;

6. What is the estimated willingness of financial institutions to lend and advisory services entities to work with low income private schools given the recommendations made in point 5? Provide a list of interested financial and advisory services providers.

1.4

Report Organization

The report is organized in 2 main volumes. Volume 1 is the main report on the findings and recommendations. Volume 2 is the appendix supporting the report.

Volume 1 is organized in four main parts: Part I

The Executive Summary presents highlights of the research findings and recommendations.

Part II

Part II has three main sections comprising Introduction and Background to the Research; Overview of the Research Approach and Methodology and Overview of the Private Schools Sector in Ghana.

Part III

Part III presents the research findings. It has five main components focusing on Low Income Private Schools; Parents and Guardians with Children and Wards in Low Income Private Schools; Financial Institutions serving Low Income Private Schools; Business Advisory Services Providers; Development Partners, School Association and other Stakeholders.

Part IV

Part IV presents the Conclusions and Recommendations.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

SECTION 2.0: OVERVIEW OF RESEARCH AND METHODOLOGY

2.1 Coverage, Selection, Approach and Methodology The research was undertaken in the low income areas within and around the urban towns of Accra and Kumasi between the period of July 7th to August 18th 2010. It covered 136 identified low income private schools; 105 parents and guardians with children and wards in the low income schools; advisory services providers and financial institutions that provide financing to private schools.

Coverage of survey: •

136 schools surveyed comprising 73 and 63 from Accra and Kumasi zones respectively;

•

Low income private schools selected from 80 communities;

•

105 parents comprising 50 and 55 from Accra and Kumasi zones respectively;

•

18 financial institutions comprising 1 Universal Bank; 4 Rural and Community Banks; 10 Savings and Loans Companies and 1 Financial NGOs from Accra & Kumasi;

The research was organized in two main segments with the first segment focusing on the schools identified in low income areas in and around the two urban areas of Accra and Kumasi. Enumerators of the research team visited the identified schools and administered the questionnaires to either school proprietors (owners) or administrators or head teachers. The school interviews also provided the opportunity to observe the status of infrastructure and the general environment of the schools. Parents who reside or work in the neighbourhood were also interviewed as part of the research process.

To place the survey in context, the research team adopted an operational definition of low income schools to serve as guide in selecting the locations and schools. “Low income private schools are privately funded and managed schools located in low income sub urban and rural areas (as classified by the Ghana Statistical Service) in and around Accra and Kumasi and which are classified by the GES as grade ‘C’ and ‘D’ or are unrecognized

As part of the methodology, quotas for the various levels of schools to be included in the survey were agreed with the Enumerators and adhered to as part of the field work. The low income areas were zoned into geographical areas with strict quotas provided to the Enumerators to ensure the attainment of the needed coverage that will reflect different conditions and objectivity in the sample. Screener questions were used to assess the suitability of the identified schools for inclusion in the sample of low income schools. Well‐structured questionnaires (please see Volume 2) were used for the face to face interviews which in most cases were carried out in two stages: the first stage was mainly introductory and the second focused on the collection of follow up data and validation of data.

The second segment of the research focused mainly on interview of financial institutions, business advisory service providers, selected development partners, Non‐Governmental Organizations (NGOs) supporting education, School Association Representatives and the Ghana

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Education Service (GES). The selection of financial institutions for inclusion in the survey was driven by the feedback obtained from the low income schools on sources of finance and institutions supporting the schools with credit facilities and other related financing transactions. 2.2

Challenges

The research team received cooperation and support from most of the respondents in the various respondent categories. Individuals and institutions that declined participation were in the minority. A number of challenges were however encountered and are presented.

o Poor record keeping Poor record keeping including financial and operational records in the low income private schools was a major challenge for the research team. Most of the low income schools have very poor record keeping culture. As a result, three‐year historical data on enrolment and financial performance for example were non‐existent in some of the schools. In a number of instances school proprietors had to piece data together from different documents to provide the statistics, others were unable to provide the information. The research team in a number of instances had to estimate revenue of the schools through the use of enrolment numbers and average fees charged.

o Respondent fatigue The research team noted respondent fatigue on the part of the low income schools in particular and this was attributed to several surveys that they have participated in. This is understandable given the increasing high interest in low income schools which has brought in its wake the conduct of surveys to establish issues affecting this very important segment of the education sector. The effect of this on the research is that, in a number of the participating low income schools, the enthusiasm level was low, thus causing delays in the data collection process.

o Inadequate portfolio data on schools within financial institutions In a number of the respondent financial institutions, there was either reluctance in providing portfolio data or probably non‐availability of disaggregated portfolio data to facilitate a review of the performance of school loans in the institutions. We were therefore limited in our ability to fully determine the quality and performance of private school loan portfolio. o School grading A key criteria in the adopted operational definition of low income schools is the reliance on the GES grading of ‘C’ and ‘D’. The field work established that the grading has no relevance on the field. Field Enumerators were of the view that some of the Schools which reported as Grade ‘B’ actually have infrastructure and facilities similar to those of Grade ‘D’. The research team therefore had to include 17 Schools that are reported to be Grade ‘B’ schools in the sample. The justification for their inclusion includes similar infrastructure and fee levels as the ‘C’ and ‘D’ categories.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

3.0 OVERVIEW OF PRIVATE SCHOOLS SECTOR 3.1

Introduction

Notwithstanding government’s efforts to expand and provide access to education especially at the basic level, it is clear that government alone will not be in a position to address all the requirements at the basic education levels, and the private sector is needed in the development of basic education and indeed up to the tertiary level . Private schools in general are schools which are privately managed and funded. There are two types: registered or unregistered. Registered schools are those that have met state regulations and are inspected. Unregistered private schools are those that either have not applied to be registered or have not (yet) been said to have met those regulations.3 The Ghana Education Act defines private institutions as an institution which is “maintained neither wholly nor in part from central or local government funds”. 3.2

Number of Schools in Ghana

Table 3.1 shows the type of schools within Ghana’s education system from Pre‐School to Tertiary level. The distribution of the school types are spread between public and private sectors. Available data from the Education Management Information System indicate that there are more public sector schools than private schools from the basic level to secondary level. Crèche and Kindergarten are a total of 20,594 with private sector contributing 38.8%. Private sector share in schools at the Primary, Junior High School and Senior High School is 24.5%, 25.1% and 26.4% respectively. At the Vocational school level however, the private sector has a 55% share. In the area of Teacher Training College there are no private schools. Table 3.1: Total Number of Schools in Ghana per Type of School and Sector Sector Crèche and Primary JHS SHS Vocational Kindergarten

Teacher Training College

No.

Public

12,597

61.2

13,510

75.5

7,656

74.9

493

73.5

133

44.9

100.0

Private

7,997

38.8

4,371

24.5

2,557

25.1

177

26.4

163

55.1

17,881 100.0

10,213

100.0

670

100.0

296 100.0

100.0

Total

20,594 100.0

Sources: Education Statistics, March 2009, EMIS, Ministry of Education, Ghana

Over the years however, private sector schools have experienced higher growth than public schools. Information obtained from Educational Management Information System from the Ministry of Education indicate that private sector schools in the basic sector grew by 26% from 3

James Tooley & Pauline Dixon; Private Education is Good for the Poor, A Study of Private Schools Serving the Poor in Low‐Income Countries, Cato Institute. Page 7

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

11,865 for the 2006/2007 academic year to 14,925 for the 2008/2009 academic year compared to public sector schools that recorded a growth of 9% from 30,985 to 33,763 over the same period. Industry observers believe that the number of private schools reported by the Ministry of Education is grossly understated because the schools are not known to the Ministry and Ghana Education Service and in addition not all private schools comply with the requirement to complete input forms for the system. GNAPs estimates that there are about 20,000 private schools, almost one and half times the declared figure. Actual number of private schools in Ghana is therefore difficult to estimate. 3.3 Legal Requirements Education in general including private schools is expected to operate within a well defined legal framework. The significant provisions are in The 1992 Constitution which constitute the supreme law of the land; Education Act, 2008 Act 778 and The Children’s Act, Act 560. The specific laws under which a school business structure could be registered are The Companies Code, 1963 (Act 179) for Companies; The Partnership Act 1962 (Act 152) for Partnerships and the Business Name Act, 1962 (Act 151) for Sole Proprietorships. Other rules and regulations are issued by the Ghana Education Service (GES). Legislation

Focus

Article 38 sub‐ “The Government shall within two years after parliament first meets after coming into section 2 of the force of this constitution draw up a programme for the implementation within the 1992 following ten years for the provision of a free, compulsory universal basic education”. Constitution In 1996, the Free Compulsory Universal Basic Education Programme was launched. It was a ten (10) year programme designed to establish the policy framework, strategies and activities to achieve free and compulsory basic education for all children of school going age. Notwithstanding this provision, it is still clear that government alone cannot provide Basic Education. The Children’s Section 6 (2): Every child has the right to life, dignity, respect, leisure, liberty, health, Act 1998, Act education and shelter from his parents. 560 Section 8 (1): No person shall deprive a child access to education, immunisation, adequate diet, clothing, shelter, medical attention or any other thing required for his development. Section 10 (2): A disabled child has a right to special care, education and training wherever possible to develop his maximum potential and be self‐reliant. Section 47 (1): A parent or any other person who is legally liable to maintain a child or contribute towards the maintenance of the child is under a duty to supply the necessaries of health, life, education and reasonable shelter for the child. Section 47 (2): For the purpose of this section, education means basic education. The Education The Act declared primary education to be compulsory and a parent not sending a child Act, 2008 (Act to school was liable to a fine. It also made provision for the establishment of private

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Legislation

Focus

778)

educational institutions.

The Companies Code 1963 (Act 179) The Business Names Act 1963 (Act 151)

The Act provides for the registration of businesses as companies limited by liability.

Every individual (and indeed, a company) may carry on business under a name other than his/her or its own name. Such a name is known as a business name. Under the Registration of Business Names Act, 1962 (Act 151), such names must be registered with the Registrar of Business Names.

3.4

Establishment and Registration of Private Schools

The 1992 Constitution states that “Every person shall have the right, at his own expense, to establish and maintain a private school or schools at all levels and of such categories and in accordance such conditions as may be provided by law.”4 A number of regulations have emanated from the Education Act 2008, (Act 778) which specifies requirements for the establishment of private institutions in the country. According to Section 23 (1) of this law, “A person or an institution may establish, manage and operate a private educational institution in accordance with the guidelines issued and the Regulations made in that behalf, by the Minister in consultation with the Education Service council or the National Accreditation Board”. Private schools just like all other businesses are also required to register with the Registrar General’s Department depending on the legal structure desired by the proprietor of the school.

3.5

Supervision and Co‐ordination

Private Institutions are supervised by the Regional Director of Education and the head or the proprietor of any school is required to offer an inspector or monitoring officer any assistance the inspector or monitoring officer may need in the discharge of duties. The proprietor of a private school cannot close down the school without the prior approval of the Director General of the Ghana Education Service. The schools are also required to furnish the Ghana Education Service with information and returns as will be required to ensure that they are complying with the laid down regulations. Private schools are equally required to notify the Minister of Education and GES in the event of a change in ownership or location of the private institution and closure of the institution for a period longer than one month other than in the case of regular holidays. If a private school which fails or refuses to comply with the Private Schools Regulations, the Minister of Education may take action, as the Minister considers appropriate, including the closure of the school.

1992 Constitution, Article 25, Clause 2

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

3.6

Governance

Private institutions are also required to establish the following in accordance with regulations of the GES: o A Board of Governors to direct the general policy of the school and assist the head of the institution to provide quality education in the school. o A Parent‐Teacher Association (PTA), a body consisting of the parents of the pupils, the head and teachers of the school.

3.7

Enrolment

Private institutions are required to enrol the following number of pupils or students in one class: a) Not more than forty five (45) pupils in a primary school. b) Not more than forty (40) students in a junior or senior high school.

3.8

Fees

Fees charged in private schools are regulated by the Ghana Education Service Council in consultation with the associations for private schools recognised by the Ministry of Education. Indeed section 23 (5) of the Education Act 2008 states that, “the proprietor of a private educational institution shall not set, change or raise the level of fees without the consent of the Minister”. It is however important to state that this has not been adhered to by the parties. The proprietor of a private school is not supposed to charge, determine or revise the level of school fees without applying to and receiving permission from the Ghana Education Service Council to do so. Proprietors of private schools cannot levy parents for the purposes of infrastructural development or rehabilitation of the school except the parent‐teacher association of the school decides to contribute or donate teaching and learning materials to the school. Private schools including low income school set fees that they deem appropriate. 3.9 Curricula The curricula and syllabi used in a private school is determined by the Ministry of Education and are the same as those in a public school. Pupils and students are also required to participate in the co‐curricula activities (i.e. games, sports, culture, clubs and societies) which are similar to those in the public schools.

3.10 Staff of Private Schools The Head of a private school is required to be a professional teacher who has attained at least the rank of a Principal Superintendent. This provision is however, not adhered to by the private schools and is not enforced by the Ghana Education Service.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Private basic schools employ both professional and non‐professional teachers to teach. Professional teachers should have a teacher’s certificate ‘A’ and non‐professional teachers should hold a certificate that is not lower than a General Certificate of Education or Senior High School with passes in at least five (5) subjects that include Mathematics and English.

3.11 Private Schools Target Market and Locations The target market of private schools in general are perceived to be the elite and middle classes and not the poor, there is however evidence that challenges this conception. In Ghana, there are private schools which target the poor or those in the lower income areas and these are schools in grades C and D which is the subject of this study. A number of these schools are also not recognized by the Ghana Education Service (GES). Private schools are found especially in the urban and peri‐urban areas of the country, and because the target cuts across all social classes they can be found in different locations. Notwithstanding, grade A and B schools are mostly found in high and middle income areas and grade C and D schools are found mostly in low income areas. 3.12 Low Income Private Schools

3.12.1 Introduction

The United Nations Millennium Development Goal of achieving Universal Primary Education for all children by 2015 will require the support of both public and private schools (including low income private schools) to be realized. It is clear that low income private schools need to be well understood and supported if this goal is to be attained. As part of this process, there is the need to identify what constitutes a low income school to ensure that survey results under this research assignment constitute a true reflection of what pertains in low income private schools.

3.12.2 The Concept of a Low Income Private School

Defining what constitutes a low income school is a critical prerequisite for a successful survey. In our effort to define “low income school” we reviewed existing literature on work done in this area. Especially we have reviewed work done by Oxfam International and reported in the Oxfam Education Report; Private and Public Schooling in Ghana: A Census and Comparative Survey by James Tooley and others as well as the Cato Institute’s Publication on “Private Education is Good for the Poor” which is “a study of Private Schools Serving the Poor in Low Income Countries”.

In all of these documents, low income schools were described as private schools serving low income areas. In its efforts erase the notion that private school education is for the elite, the Ghana National Association of Private Schools (GNAPS) from about the year 2000 has encouraged some of its members to carry private school education to the rural poor. This has resulted in the initial spread of Private Schools in the Ga West District of Accra and which has now caught up with other parts of the Country.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

There are ongoing programmes to support low income private schools in Ghana. The United States

Agency for International Development (USAID), Opportunities Industrialisation Centres International, Ghana, the Ghana National Association of Private Schools (GNAPS), Opportunity International Ghana and The Mitchell Group (TMG) are working in close collaboration to support low income private schools through capacity building and lending. These organizations, with the enthusiastic backing of the Ghana Education Service (GES), have come together with the shared goal of developing and promoting private schools which provide quality education to poor populations5. The program targets ‘emerging’ and ‘underdeveloped’ private schools, which are unaccredited or have received ratings of no higher than ‘C’ or ‘D’ by the GES. Using the GES rating as a basis for identifying low income private schools, it will be logical to consider schools with the ‘C’ or ‘D’ rating as low income schools. The implied assumption is that low income earners may not be able to send their wards to private schools with grades higher than ‘C’ because of the fees charged at this level.

It can be deduced from these works that at least three elements must be considered in the description of what constitutes “low income private schools”:

1. The school must be located in a low income area;

2. Majority of pupils attending the school must be wards of people in low income category and

3. The school must be a private school with the definition of a school that is privately funded and managed.

The Ghana Statistical Service has clear clarification of low income suburban and rural areas which implies that private schools in those suburban and rural areas could potentially constitute low income schools. We are however, aware that private schools located in suburban and rural areas close to big towns such as Accra and Kumasi where the study has been undertaken do not serve only wards of those in low income group although majority of the pupils will be wards of low income earners such as casual workers including masons and artisans; subsistence farmers and factory workers among others.

It is also insightful to note that not all families located in the suburban and rural areas near Accra and Kumasi or any urban town for that matter may be in a low income bracket and therefore can afford to send their children to schools that are considered as schools for the elite which are outside the suburban and rural communities. In the same vein, some low income earners have made financial sacrifices to send their children to elite (or middle income) schools.

Supporting Private Education for the Poor: http://edufinanceghan.wordpress.com

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

PART III

Section 4.0

Findings ‐ Low Income Private Schools

Section 5.0

Findings ‐ Parents with Children in Low Income Private Schools

Section 6.0

Findings ‐ Financial Institutions serving Low Income Schools

Section 7.0

Findings ‐ Advisory Services Providers

Section 8.0

Findings ‐ Ghana Education Service, Development Partners and other Stakeholders

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

SECTION 4.0: FINDINGS – LOW INCOME PRIVATE SCHOOLS 4.1

Introduction

Section 4 presents the findings in respect of Low Income Schools surveyed in the targeted zones, Accra and Kumasi. It specifically presents findings in respect of the spread of low income schools; legal registration, accreditation and establishment history; enrolment levels and gender composition; school facilities and infrastructure; teaching staff and performance of schools; financial management practices; access, demand and need for financing; borrowing and repayment capacity of the schools; awareness and use of business advisory services. 4.2

Spread of Low Income Schools and Survey Coverage

Low income communities are spread throughout Ghana with the majority expected to be in the three northern regions of Upper East, Upper West and Northern Regions; Central and Volta Regions. In addition there are pockets of low income areas in the Greater Accra and Ashanti Regions and the remaining regions. All of Ghana’s ten regions have private schools. The three Northern Regions put together for example have a total of 698 private basic schools representing 4.67% of private schools in the Country. Ashanti and Greater Accra Regions however have the highest concentration of private schools in Ghana. The two regions have a total of 4,926 private basic schools, representing 47.8% of private schools6.

The low income private schools research covered 136 schools (terms of reference requested 100) selected from within and around the urban areas of Accra and Kumasi. The spread and quota from the two zones along school levels is presented in table 4.1. Table 4.1: Surveyed Low Income Private Schools by Categories Categories of schools Accra Kumasi Nos. % Nos. Pre‐School Only 8 11.0 6 Pre‐School & Primary Pre‐School, Primary &Junior High Sch. Primary & Junior High Sch. Total

4.3

% 9.5

Combined Nos. % 14 10.3

34.2

42.9

38.3

0.0

3.2

1.4

40 73

54.8 100

28 63

44.4 100

68 136

50.0 100

Legal Registration, Accreditation and Establishment History

The schools are registered under the main legal structures of Sole Proprietorship registered under the Business Name Registration Act; Partnership and Limited Liability Company. As noted in table 4.2 all but 5 of the surveyed schools are legally registered. 6

EMIS, 2008/2009

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

The challenges of school accreditation and grading by the Ghana Education Service notwithstanding, the low income schools included in the survey either reported the rating of grade ‘B’, ‘C’ or ‘D’. A handful of schools included in the survey said they were grade ‘B’ schools but our field staff were of the view that these schools could pass for grade ‘D’ which may be a reflection of deterioration in facilities after the initial grading. The GES explained that school grading is required to be undertaken every two years, but this is mostly not done and could be the reason for this observation. The distribution of the schools on the basis of legal registration and GES grading is presented in tables 4.2 and 4.3 respectively. Table 4.2: Legal Status of Surveyed Low Income Private Schools Legal Registration Status Number of Schools Limited Liability Company 14 Partnership 3 Sole Proprietorship 114 No Legal Registration 5 Total 136

Proportion of Schools (%) 10 2 84 4 100

The high proportion of low income schools operating as Sole Proprietorships (84%) is understandable due to how most of these schools started. 79% of the surveyed schools from Accra zone and 89% from Kumasi zone are registered as Sole Proprietor businesses. The legal registration has implications for the continuity of the business and ability to source funds from formal institutions. Table 4.3: Grading Status of Surveyed Low Income Private Schools Grade Accra Kumasi Nos. % Nos. Grade B 2 3 15 Grade C 23 32 24 Grade D 20 27 12 Unrecognized (not graded by 18 25 3 GES) Not Known 10 14 9

% 24 38 19 5 14

Combined Nos. 17 47 32 21 19

% 13 35 24 15 14

Low income schools are spread among grade C, D and unrecognized as noted in table 4.3 above. 15% of the respondent schools are unrecognized and 19 representing 14% claimed they do not know their grade although they insisted they are recognized by GES. We are of the view that most of the schools that stated they do not know are actively unrecognised schools. A total of 68 out of the 136 schools representing 50% are 10 years and above; 31 schools representing 23% are below 5 years and 35, representing 26% are between 5‐10 years. The detailed breakdown on location is presented in table 4.4.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Table 4.4: Years in Existence Below 5years Location Nos. %

5 ‐ 10 years Nos. %

Above 10 years Nos. %

Not Indicated Nos. %

Accra

53%

Kumasi

46%

Combined

50%

4.4

Enrolment Levels, Gender Composition and Drop Out

Enrolment levels in the surveyed low income private schools, based on the 2009/10 academic year statistics provided by the schools is 29,718 up by 1,694 from 2008/2009 representing a growth of 6%. Average enrolment for 2009/2010 year is computed as 218 pupils per school. The 136 schools are mapped on to ranges of enrolment in table 4.5. Table 4.5: Low Income Schools Enrolment Statistics Location Enrolment Ranges Below 50 51‐100 101‐200 201‐400 +401 Accra‐ Nos. of schools in range 7 13 26 17 10 Kumasi‐ Nos. of schools in range 6 10 20 16 11 Combined Nos. 13 23 46 33 21 % 10% 17% 34% 24% 15% Median Enrolment 40 82 150 287 482 Source: Low Income Private Schools Survey

Enrolment levels in the surveyed schools are high with about 73% of the schools recording minimum enrolment level of 100. The enrolment statistics further indicate the contribution of low income schools to keep children in school.

Analyses of the gender composition of the enrolment returned a significant statistical difference between female and male enrolment. Female enrolment for the low income schools survey constitutes 55% compared to national average of 49.5%, establishing the contribution of low income schools in enrolling and keeping the girl child in school. It is worth commenting that low income parents may have been reluctant in sending the girl child to school if the low income schools were not in the communities. The breakdown of the gender statistics is presented in table 4.6.

Table 4.6: Gender Composition of Low Income Schools Enrolment Female Proportion % Accra Low Income Schools 56 Kumasi Low Income Schools 54 Combined Low Income Schools 55 National Statistics 49.5

Male Proportion % 44 46 45 50.5

Sources: Low Income Private Schools Survey; EMIS, Ministry of Education

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Closely related to enrolment level analysis is the pupil drop out ratio. This indicator measures the ability of the surveyed schools to maintain pupils on the school roster. The indicators for the surveyed schools are presented in table 4.7. Reasons for drop‐out are varied but in recent years some private schools have lost pupils to public schools due to the introduction of programmes such as school feeding and capitation grants. Table 4.7: Drop Out Ratios for Surveyed Schools Reasons provided by the low Drop Out Ratio Accra Kumasi Combined income schools for dropout: 9 87 schools cited inability of Nos. % Nos. % Nos. % parents/guardians to pay Below 5% 48 66 27 43 75 55 fees; 5% ‐ 10% 11 15 24 38 35 26 9 86 schools cited relocation 10% ‐ 15% 6 8 3 5 9 7 of parents; Above 15% 5 17 5 8 10 7 Do not know 3 4 4 6 7 5 9 32 schools cited relocation to another school. Source: Low Income Private Schools Survey 4.5 Status of School Infrastructure and Facilities ‐ Availability and Adequacy Availability In assessing the status of infrastructure, Enumerators inspected infrastructure in the respective schools interviewed. School proprietors/managers were also asked to comment on the adequacy or otherwise of existing infrastructure. For most of the schools, Enumerators reported infrastructure that they consider inadequate for the school requirements. The responses obtained from the proprietors/managers in respect of the availability of facilities and infrastructure is summarized in table 4.8.

Table 4.8: Respondent Schools with School Facilities and Infrastructure Facilities / Infrastructure Respondent schools Respondent schools Respondent schools with facilities ‐Accra with facilities‐Kumasi with facilities ‐ Combined % % % 1. Classroom 100 100 100 2. Furniture 100 94 97 3. Library 11 16 13 4. Computer laboratory 44 41 43 5. Science laboratory 0 5 2 6. Teachers’ common room 21 27 24 7. Playground 63 62 63 8. Access to electricity 82 63 74 9. Access to water 70 78 74 10. School bus 0 11 5 Source: Low Income Private Schools Survey

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Infrastructure remains a key challenge for most low income private schools especially because of the absence of medium term funding facilities. The Private Schools Unit of the GES also commented on the inadequacy of infrastructure in some of the low income schools. As presented in table 4.8 all 136 low income private schools 18 out of 136 schools included in the survey have classrooms which they have library; considered adequate for their current operations although 58 out of 136 schools will admit this could be increased. 16 (22%) schools in Accra have computer and 7 (11%) in Kumasi operate from rented premises. The laboratory; main issue relates to the conditions of the building which in a 85 out of 136 schools number of the schools are wooden structures that may not have playground; be habitable under hostile weather conditions, thus exposing 100 out of 136 schools children to the hazards of the weather. There are adequate have access to sets of furniture for the available pupils in these schools as electricity and water; well. The areas of inadequacy are library, computer and 23 out of 136 schools science laboratory. Library in particular is essential in operate from rented improving the reading habits of the pupils as well as their premises. vocabulary. Out of the 136 schools only 18 representing 13% indicated the existence of a library. 43% of the low income schools have computer laboratory with various makes of computers and accessories. This is relevant especially because information technology has become indispensable in education and is an examinable subject at the BECE level. Most of the schools especially at the Junior High School level will require funding to set up computer laboratories. 32 out of the 136 schools representing 24% have teachers’ common room, 7 schools, (all in Kumasi) have school bus. School bus has become a status symbol for private schools in Ghana and could be justified by schools operating in urban areas due to poor public transportation system and distances travelled to school. For most low income schools, the buses may not be needed because pupils are normally from the community. School buses also serve as a promotion medium for the schools. Majority of the low income schools also have access to water (74%) and electricity (74%). The availability of these amenities suggest that low

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income schools with the appropriate financial support and effective management could have the same facilities that middle to upper income schools in the urban areas have. Adequacy In analyzing adequacy or otherwise of infrastructure and facilities, respondent schools provided a measure of their requirements compared to availability. Three of the requirements, classrooms, furniture and core text books have been analyzed on aggregate basis and presented in table 4.9. Table 4.9: Input Requirements and Availability Requirements Analyzed (In Units) Classrooms Furniture Core Text Books Available Required Available Required Available Required 695 924 11,619 17,432 12,896 16,120 489 589 3,719 4,988 21,330 31,513 1,184 1,513 15,338 22,420 34,226 47,633

Zone Accra Kumasi Combined Gap between Available (%)

Required

and 22%

32%

28%

The greatest need areas for the surveyed schools based on the responses obtained (please see figure 4.1) are furniture where there is a gap of 32%; core text books with a gap of 28% and classrooms with a gap of 22%. Private schools are usually provided with core text books by the government. The Private Schools Unit of the GES however explained that this has not been regular over the past 2 years due to budgetary constraints. Detailed data for each of the surveyed schools are presented in the excel spreadsheet.

Figure 4.1: Gap Analysis of Adequacy of Classroom, Furniture and Core Text Books

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4.6

Teaching Staff, Qualification, Compensation and School Performance

4.6.1 Teaching staff and qualification Private schools are generally considered to be more attractive to teachers on the basis of salary but are considered by most teachers as lacking job security. The lack of job security is even more pronounced in low income schools, over 70% of which are registered as sole proprietorships and largely controlled by one individual. Low income schools are also sometimes located in areas considered unattractive by most teachers. The schools therefore have difficulties in attracting and retaining trained and qualified teachers. The schools surveyed were asked to estimate the proportion of teachers with qualifications in Senior High School and below; Trained Post‐Secondary Teachers; Higher National Diploma (HND) as well as Degree and above at the various educational levels of Pre School, Primary and Junior High School in their respective schools.

At the Pre School level about 95% of the schools reported that they have teacher(s) with Senior High School qualification, 27% have Trained Post‐Secondary Teacher(s), 23% said they have teacher(s) with HND and 19% of the schools said they have teacher(s) with at least a First Degree.

At the Primary School level, 89% of the respondent schools have teacher(s) with Senior High School qualification and below, 28% of the respondent schools have Trained Post‐Secondary Teacher(s), 21% have HND and 17% have a minimum of First Degree. At the JHS level, 74% of the respondent schools have teacher(s) with Senior High School qualification and below, 32% of the respondent schools have Trained Post‐Secondary Teacher(s), 37% have HND and 38% have a minimum of First Degree.

The findings indicate that the proportion of schools with trained teacher(s) for example increased from 27% at Pre School level to 28% at Primary School level and 32% at the JHS level. In the same vein the proportion of schools with teachers holding Senior High School qualification decreased from 95% at the Pre School level to 89% at the Primary level and then 74% at the Junior High School level. The schools employing teachers with at least a first degree also increased from 19% at Pre School and Primary level to 31% at Junior High School level. The analysis did not cover the actual number of teachers with the qualifications but focused on the number of schools that employ teachers with the specified qualifications. The proportion of schools that employ teachers with the respective qualifications is presented in table 4.10.

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Table 4.10 : Analysis of Proportions of Schools Reporting Qualifications in School Levels School Levels and Zones Preschool Accra Kumasi Combined

Teachers’ Level of Qualification & Proportions Trained Teachers HND Degree and above 36% 17% 15% 18% 29% 23% 27% 23% 19%

SHS 96% 93% 95%

Primary Accra Kumasi Combined

SHS 87% 90% 89%

Trained Teachers 29% 26% 28%

HND 28% 13% 21%

Degree and above 19% 14% 17%

JHS SHS Accra 74% Kumasi 73% Global 74% Source: Low Income Private Schools Surveys

Trained Teachers 31% 33% 32%

HND 28% 46% 37%

Degree and above 31% 45% 38%

Low income private schools are unable to attract well qualified teachers and in a number of the cases do not meet Ghana Education Service guideline of a headteacher with at least a Principal Superintendent rank. Ghana Education Sources7 indicate that out of a total of 47,792 teachers in the total private basic schools sector, only 10,980 representing 23% are trained teachers. What the private schools lack in qualification (trained teachers) however, is compensated for in commitment on the part of most teachers. 4.6.2 Teacher Turnover Teacher turnover in the surveyed low income schools established combined turnover of 9% for Pre Schools, 11% for Primary Schools and 9% for Junior High Schools. Accra zone low income schools recorded higher staff turnover than the Kumasi zone schools an indication of more employment opportunities in Accra zone. The results are presented in table 4.11. Table 4.11: Average Teacher Turnover Analysis Category

Accra % 12

Kumasi % 6

Combined % 9

Primary School

Junior High School

Pre School

Source: Low Income Private Schools Survey

Education Statistics (EMIS) 2009.

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4.6.3 Teacher Compensation Compensation for staff in low income private schools is generally low and is a reflection of the qualification of the teachers as well as the general low income status of the areas. Our findings on the average teacher salary from the survey are presented in table 4.12. Table 4.12: Average Monthly Teacher Salary for Low Income Schools Category Accra Kumasi GH¢ GH¢ Pre‐School 70 54 Primary 80 60 Junior High School 111 78

Combined GH¢ 62 70 95

Source: Low Income Private Schools Survey

The lowest reported monthly salary level for Accra zone schools is GH¢35 and the highest is GH¢140; lowest for primary is GH¢40 and the highest is GH¢175; lowest for Junior High School is GH¢50 and the highest is GH¢300. Average salaries for Kumasi zone schools are generally lower than Accra Schools. The lowest in Pre‐School category is GH¢20 and the highest is GH¢120; Primary schools recorded a minimum of GH¢30 and a maximum of GH¢120; the Junior High School has a minimum of GH¢35 and maximum of GH¢150. The reported compensation levels of teachers in low income schools are relatively low and constitute about 25% to 40% of average salaries for teachers in public schools. As stated earlier however, most of the teachers have lower level of qualifications. For a number of the schools, the compensation levels for some members of staff are below the monthly minimum wage of about GH¢68.42 (minimum daily wage is GH¢3.11). 4.6.4 Performance of Schools The research sought to establish the academic performance of the low income private schools using the BECE results as a basis for assessing performance. The average performance of the low income schools is compared to performance of national pass rate as presented in table 4.13.

Table 4.13: BECE Pass Rate School Types

2007/2008

2008/2009

Low Income Private Schools

98%

96%

62.17%

62.4%

National Source: Low Income Private Schools Survey

Detailed analysis on subject performance could not be conducted due to the unavailability of data. 8

www.news.peacefmonline.com/education

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

4.7

Financial Management Practices in Low Income Schools

The financial management practices framework discusses findings relating to funding sources for low income schools; relationship with financial institutions; financial performance and financial position.

4.7.1 Funding sources for low income schools As is the case of most SMEs, low income school owners have not kept records on investments made in the school. The general feedback from owners on funding source is the use of personal savings and financial support from close family relations to finance the start up and operational costs of the schools.

The most recurring source of funding for school operations is internally generated fund which recorded 62% of the respondents followed by personal savings of the proprietors. The source of funding and ranking is presented in table 4.14. On financing from financial institutions, a total of 24 respondents representing 18% noted that they had received financing from financial institutions.

A tabular presentation of the surveyed schools and their funding sources is disclosed in table 4.14. Table 4.14: Funding Sources for Low Income Schools Internally Generated Funds Number of Schools Using the Source 84

Owner(s) Personal Savings 74

Source of Funding Financial Family & Institutions Friends

Others

Percentage of Schools (%)

Ranking

1st

2nd

3rd

4th

5th

Source: Low Income Private Schools Survey

4.7.2 Low income private schools’ relationship with financial institutions‐access Access to financial institutions is not a constraint to the low income schools surveyed. Ghana’s financial sector has experienced expansion over the past 10 years with significant expansion in number of universal banks, rural and community banks, savings and loans companies. Many of the rural and community banks for example operate mobile agencies in or around the communities where low income schools are located.

Respondent schools with bank accounts and financial institutional categories are presented in table 4.15. Access however, goes beyond physical access to include the availability of appropriate financial products and services refined to meet the needs of the low income schools. When the researchers asked the respondents who have not taken loans for their reasons, different responses were recorded including high interest rates and lack of collateral.

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Final Ghana Country Report: Market Research Project on Low Income Private Schools

Table 4.15: Schools with Bank Accounts Use of Bank Accounts Yes No Total

Combined Market Nos. % 99 73%

Accra Nos.

Kumasi Nos.

73%

27%

136

100%

72%

28%

Categories of Institutions where accounts are held 51 52% Commercial Bank / Universal Bank 38 31

31%

57%

12%

11%

13%

Financial NGO

Other

2 99

2% 100%

100%

Rural & Community Bank Savings and Loans Company

Did not provide Total

Contrary to expectations that low income schools will patronize rural and community banks as well as savings and loans companies, the research indicate that 52% of the schools with accounts operate with universal (commercial) banks. This however, may not be surprising given the changes that are going on in the banking industry such as the creation of SME departments in the banks and promises relating to credit extension. 4.7.3 Financial Performance and Position The assessment of financial performance and position of the low income schools focused on the earning ability of the low income schools; ability to collect fees; cost structure and profitability; asset and liability profile. The basis of effective financial management and reporting is record keeping. However record keeping has remained a continuous short coming for both private (including low income) and public schools. In a number of schools, single entries are maintained and in others, a listing of receipts and invoices on transactions.

Earning ability of low income schools Low income schools are constrained by the economic conditions of their locations in the amount of fees they can charge at the schools. In analyzing the school fees, a four block range of fees was adopted: GH¢30 and below; GH¢31‐GHC50; GH¢51‐GH¢100 and above GH¢100, The analyses (please refer to Figure 4.2 and Table 4.17) indicate that 57% of Pre Schools surveyed charge fees of GH¢30 and below per term with a median fee of GH¢20; at the Primary School level, 45% of surveyed schools charge below GH¢30 per term also with a median fee of GH¢20. At the JHS level however, the proportion of schools in the fee range of below GH¢30 per term declined to 18% and returned a lower median fee of GH¢19 per term.

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The proportion of schools in the GH¢31‐50 range declined at the Pre School and Primary level recording 33% and 40% respectively with median fees of GH¢40 and GH¢40.50. At the JHS level the proportion increased to 33% with a median fee of GH¢45. Figure 4.2: Proportion of School Levels in the Fee Ranges

Pre Schools and Primary further declined in proportion as the fee range increased to between GH¢51 and GH¢100 accounting for 8% and 12% respectively. The median fee for Pre School and Primary in this block returned GH¢68 and GH¢72.5 respectively. JHS proportion in this fee range maintained 33% with a median fee of GH¢60.

At school fee range of above GH¢100 per term, only 16 schools out of the 136, representing 12% were identified. 2% of the Pre Schools surveyed are in this range with a median of GH¢130 per term; 3% of surveyed Primary Schools are in this range with a median fee of GH¢132 per term; 13% of JHS in the survey are in this category with a median of GH¢145 per term. Statistical analysis on tuition fee for Pre Schools, Primary and Junior High Schools in Accra and Kumasi zones show statistically significant difference between the fees paid in Accra and Kumasi. The mean tuition fee at Pre School is GHC42.03 and GHC22.99 for Accra and Kumasi respectively. With a standard deviation (std) of 24.85 and 11.18 and a computed Z statistic of 5.90, the results of pre‐school tuition fee in the two towns of Accra and Kumasi show a statistically significant difference establishing that the fees charged by the schools in the two towns are not the same. The mean tuition fee at Primary school is GHC50.90 and GHC29.99 for Accra and Kumasi respectively. With a standard deviation (std) of 30.01 and 11.49 and a computed Z statistic of 5.50, the results of Primary school tuition fee in the two towns of Accra and Kumasi show a statistically significant difference establishing that the fees charged by the schools in the two towns are not the same. The mean tuition fee at JHS is GHC75.72 and GHC44.46 for Accra and Kumasi respectively. With a standard deviation (std) of 42.04 and 18.40 and a computed Z statistic of 5.75, the results of

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JHS tuition fee in the two towns of Accra and Kumasi show a statistically significant difference establishing that the fees charged by the schools in the two towns are not the same. The results from the statistical analysis indicate that location of the low income school has influence over the level of fees that is charged. On feeding fees charged at all categories, the analysis established results that are statistically significant reflecting differences in price level of foodstuff at the locations. The computations are presented:

Mean

Standard Deviation

Computed Z Statistics 10.09 3.41

Feeding Fees‐Pre School(GHC)

37.59

30.49

14.06

Feeding Fees‐Primary School (GHC)

37.76

30.59

14.99

9.93

3.33

Feeding Fees – JHS (GHC) (5% level of Significance)

40.14

34.02

15.72

10.05

2.74

Low income schools income structure Low income schools generate income from three main sources: tuition, feeding, extra classes. Tuition fees is the highest reported component of income but its definitions is not standardized among the schools. Some schools lump all fees charged into a bulk tuition fee and others have clear differences among the various categories of fees. Average composition of income over the three year period is presented in table 4.16. With the proportion of tuition and extra class fees, any change in school fee levels or enrolment will have effect on the revenue base of the schools.

Table 4.16: Income Structure

Accra

Kumasi

Combined

Tuition

48%

28%

44%

Feeding

18%

32%

20%

Extra Class

33%

39%

34%

Other Fees

53,546 (USS38,247)

32,570 (US$23,264)

73,754 (52,681)

Average Total Income (GHC Source: Low Income Private Schools Survey

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Table 4.17: Analysis of Fees Charged by Low Income Schools

School Fees

Between GH¢31 – GH¢ 50

GH¢ 30 and Below Pre School

Primary

Nos. of Schools – Accra

Nos. of Schools ‐ Kumasi

Number

57%

45%

School Category

Combined

Median in GHC

Pre School

Between GH¢ 51 and 100

Above GH¢ 100

Pre School

Primary

18%

33%

40%

33%

12%

36%

13%

40.5

72.5

130

132

145

JHS

Primary

JHS

Pre School

JHS

Primary

JHS

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School fee collection rates School fee collection remains a challenge for Proportion of fees not Nos. of most private schools including low income collected at end of schools schools. The schools have adopted different school term strategies to address this collection problem including daily fee payment where parents are below 10% 43 42 encouraged to pay fees on daily basis in small between 11%‐20% between 21% ‐ 30% 24 bits. In other cases, they are allowed to pay on 21 installment basis. An analysis of fees that above 30% Source: Low Income Private Schools Survey remain uncollected at the end each school term is presented on the right.

Proportion of schools (%) 32 31 18 15

Out of the 130 schools that reported delays in fee collections, 72 are in the Accra zone and 58 are in Kumasi zone. Low income schools in Accra have more problems with collecting fees than schools in Kumasi. The ability to collect fees on location basis is presented in table 4.18.

Table 4.18: Fee Collection Proportion of fees not Accra collected at end of school Nos. of schools Proportion of term schools (%) Below 10% 23 32 Between 11%‐20% 22 30 Between 21%‐30% 15 21 Above 30% 12 16

Kumasi Nos. of schools Proportion of schools (%) 20 32 20 32 9 14 9 14

Source: Low Income Private Schools Survey

The ability to collect fees has implications for cash flow management in low income schools and has to be understood by all, especially school management and financing institutions. This has resulted in loan repayment defaults on the part of some school that accessed credit.

Cost structure and profitability Using common size ratio analysis, the estimated costs and revenues for different revenue ranges of the low income schools surveyed is presented in table 4.19.

Table 4.19: Combined Common Size Ratios – 2009/2010 Revenue Range

Up to GHC20,000 7,982

GHC20,001 – GHC50,000 31,774

GHC50,001 – GHC100,00 74,451

Above GHC100,000 137,610

Amount

42%

3,352

Average Revenue (GHC) Staff Costs Training Costs Admin. Costs

1% 7%

Other Expense

Total Costs

80 559 479

31,269

57,796

318 2,224

745 5,212

1,376 9,633

1,906

4,467

8,257

41,693

4,470 Source: Low Income Private Schools Survey; [US$ 1: GH¢1.4]

13,345

17,793

77,062

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Based on the cost structure, profitability of low income schools before interest payment and taxes is estimated at a maximum of 40% of revenue generated. The ability of low income schools to make profit is driven by the level of revenue generated and the ability to control cost such as catering related cost. Majority of low income schools do not assess their profitability due to the nature of record keeping. For most of the schools, the ability to pay maturing obligations such as salaries and withdraw money for the needs of the owner/proprietor implies that “business is progressing”. There is however no doubt that low income schools can be profitable.

Asset and Liability profile of low income schools Accurate asset and liability profile is best done with financial statements which is lacking in most of the schools. Balances relating to assets and liabilities were therefore obtained from abridged versions of management accounts and other registers. Low income schools’ asset comprises building; furniture; teaching and learning items and debtors. The liabilities component comprises loan balances for those that have borrowed from financial institutions or friends; outstanding salaries for staff and statutory payments.

The schools have very high assets base compared to liabilities due to the land and building component of the assets. Land and building represents an estimated 60% of the total asset value. Any utilization of the assets for collateral or business merger purposes will however, require valuation to determine the true cost of the assets. Table 4.20 presents the aggregate assets and liabilities position of the surveyed schools.

Table 4.20: Asset and Liability Profile of Schools Description Mean Assets of Schools (GHC) Mean Liabilities of Schools (GHC) Asset to Liability Ratio (%) Median Asset of Schools (GHC) Median Liability of Schools (GHC) Asset to Liability Ratio (%)

2009/10 99,967 12,713 786%

Combined 2008/09 93,229 11,013

2007/08 83,010 8,943

40,000

847% 40,000

928% 31,031

2,000

2,000%

1,552%

Source: Low Income Private Schools Survey; [US$ 1: GH¢1.4]

4.8

Demand and Need for Financing

4.8.1 Schools with previous credit history 99 out of 136 schools have accounts with financial institutions. It is further estimated that all 136 schools have financial institutions available to them given the spread of rural banks and savings and loans companies in the Ashanti and Greater Accra regions where the survey took place. The challenge relates to the appropriateness or otherwise of the products and services offered by these institutions for low income schools. In analyzing the aggregate demand and need for financing we reviewed the school history on financing in respect of the number of schools that have sourced credit from financial institutions in the past; average size and the interest rate. The findings are presented in table 4.21.

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Table 4.21: Previous Credit History

Accra

Kumasi

Combined

Number of Schools operating Bank A/c

Number of Schools that obtained financing from institutions

3,594

6,333

4,963

Average Repayment Period (month)

Average Interest Rate (%)

Average Amount of loan obtained (GH¢)

Source: Low Income Private Schools Survey; [US$ 1: GH¢1.4]

The average loan obtained by the beneficiary low income Schools is GH¢4,963 (US$3,545) with an average amount of GH¢3,594 (US$2,567) for Accra Schools and GH¢6,333 (US$4,524) for Kumasi Zone Schools. A computed Z statistics gave 1.56, (at 5% level of significance) indicating that there is no statistically significant difference between the loan amount received by schools in and around Accra and Kumasi, establishing that loan amounts are not dependent on location.

4.8.2 Estimated loan demand and purpose The surveyed schools were requested to estimate their financing needs with a minimum and maximum range provided in the questionnaire. In all, 119 schools representing 88% of the 136 schools surveyed expressed their need for loan facility. Based on the analysis presented in table 4.22 on the next page, total demand as provided by the schools is estimated at GH¢3,980,032 (US$ 2,842,880).

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Table 4.22: Estimated Loan Demand by Surveyed Schools Descriptions Accra Kumasi Combined Nos. of Schools Surveyed Total Nos. 73 63 136 Number 53 45 98 Schools with Bank Accounts

Proportion

73%

71%

72%

Schools that have Accessed Loans in Number Proportion the Past

21%

29%

24%

119

82%

94%

88%

Number Schools in Need of Loan

Proportion

Estimated Financing Need by Schools

Total (GH¢) Number

GH¢10,000 and Below

Proportion

17%

20%

18%

220,000

Between GH¢ 10,001 and GH¢ 20,000

Number Proportion

10 17%

17 28%

27 23%

540,000

Between GH¢ 20,001 and GH¢ 30,000

Number Proportion

10 17%

4 7%

14 12%

420,000

Number Proportion Number Proportion

14 24% 15 25%

10 17% 17 28%

24 20% 32 26%

Between GH¢ 30,001 and GH¢50,000 GHC 50,001 and Above

1,200,000 1,600,032

Estimated Total Maximum Financing Needs of the Respondent 119 Schools GH¢ Estimated Total Maximum Financing Needs of the Respondent 119 Schools US$ Source: Low Income Private Schools Survey; [US$ 1: GH¢1.4]

3,980,032 2,842,880

The schools have multiple needs they intend to apply the desired loans to including infrastructure, school vehicle, repairs to existing building and equipment. 89 schools representing 80% of the schools in need of loan require the facilities for infrastructure expansion; 48% require financing for repairs and 50 schools require financing to acquire a school bus. The respective needs are presented in table 4.23 on the next page.

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Table 4.23: Application of Desired Loans Location

Accra

Total Schools in Need of Financing

Kumasi 59

Combined 60

119

Area of Need / Financing Need Nos. Operational/Working Capital Needs Proportion Repairs and Maintenance ‐ Building & Nos. Proportion Equipment

7 12% 23 39%

13 22% 34 57%

20 17% 57 48%

Nos. Proportion Nos. Proportion Nos. Proportion Nos.

50 85% 11 19% 21 36% 10

45 75% 8 13% 29 48% 17

95 80% 19 16% 50 42% 27

Proportion

17%

28%

23%

Infrastructure Expansion Teaching and Learning Aids

School Vehicle/Bus Furniture and Fittings Source: Low Income Private Schools Survey

It needs to be clarified that infrastructure expansion for example can be expensive and the estimates provided by school owners may not be adequate for the work required to be done. Each low income school will have to be assessed on its own merit to determine actual amount required. 4.9 Borrowing and Repayment Capacity of Low Income Schools Do low income schools have the capacity to borrow and service the required loan facilities? This question was analyzed from the perspective of the schools without reference to the willingness of the financial institutions to extend credit facilities to them. The analysis was based on the assumption that every business with a good cash flow has the potential to attract financing. On that basis all low income schools have the capacity to borrow and service loans that are appropriate to their cash flows. In determining the schools’ maximum one, two and three year loan size an estimated free cash flow approach was used based on a number of assumptions. These are discussed further in the subsection.

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4.9.1 Assumptions and approach used in determining potential demand for loans by low income private schools

Revenue: The low income schools were categorized into four revenue blocks on the basis of the estimated 2009 financial year performance (with input from 2009/2010 academic year) as follows: Table 4.24: Revenue Ranges of Low Income Schools Nos. Revenue Ranges GH¢

Revenue Ranges US$

Revenue of up to GH¢20,000

Up to 14,285

Revenue from GH¢20,001 to 50,000

14,286 – 35,714

Revenue from GH¢50,001 to 100,000

35,715 – 71,429

Revenue from GH¢100,001 and above

Above 71,430

Two scenarios of revenue base were created as follows:

1. Average revenue for schools built on the financial information provided by the schools or as computed by the Research team;

2. Average revenue as computed in (1) above enhanced by 30%. The enhancement is to account for possible understatement of revenue which is normally attributed to poor record keeping and other related practices. Expenses: Average expenses were also categorized into four different elements: staff costs; staff training costs; administrative costs; and other expenses. For each of these costs a derived proportion of revenue, based on the cost structure of the low income schools is used to estimate the expenses for the revenue block. Free Cash Flow: Deriving from the assumption that revenue and expenses are cash based, an estimated free cash flow was adopted for each revenue block. Estimation of Borrowing Capacity: In estimating the borrowing capacity of schools in each revenue block an average loan amount was determined for each block based on the average free cash flow and the duration of the loan. It is assumed that 75% of the estimated free cash flow in each revenue category will be available to service debt obtained including principal and interest repayments. This will ensure a minimum debt service ratio of 1.33 times (most financing institutions will demand minimum debt service coverage of 1.30 times).

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Annual Interest rate is assumed at 35%. This was determined by considering both the average interest rate of 37% at which low income private schools have obtained financing and declining bank interest rates since the beginning of 2010. Potential Demand: The potential demand for loan was determined by considering the number (frequency) of low income schools in each revenue block and the maximum loan amount obtainable for 1 year, 2 years and 3 years. 4.9.2 Estimated Capacity Based on the analysis, the capacity of low income schools to borrow under the average revenue for schools built on the given information or as computed by the research team (scenario 1) and the 30% enhanced revenue model (scenario 2) is presented below: Table 4.25: Aggregate Borrowing Capacity Borrowing Time Frame Aggregate Borrowing Capacity Scenario 1 Scenario 1 Scenario 2 (GH¢) (US$) (GH¢) 1 Year 707,395 505,282 919,518

Scenario 2 (US$) 656,799

2 Years

1,208,260

863,042

1,570,774

1,121,981

3 Years

1,563,151

1,116,536

2,032,053

1,451,466

Source: Consultant Estimation

The scenarios on the next two pages provide a framework within which the indicative maximum loan amounts of schools will be determined. This framework notwithstanding, each school will have to be subjected to a detailed appraisal to determine actual borrowing capacity.

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SCENARIO 1: COMBINED BOROWING CAPACITY OF SCHOOLS ON THE BASIS OF ESTIMATED REVENUE PROVIDED BY LOW INCOME SCHOOLS

% of Revenue

75% of Free cash flow ‐ 1 year 75% of Free cash flow ‐ 1 year 75% of Free cash flow ‐ 1 year

REVENUE RANGE Up to GHC20,000

GHC20,001 ‐ 50,000

100% 14,744 42% 6,192 1% 147 7% 1,032 6% 885

31,774 13,345 318 2,224 1,906

Average Revenue Staff Costs Training Costs Admin. Costs Other Expense Total Expense Estimated Free cash flow

GHC50,001 – 100,000

Above GHC100,000

74,451 137,610 31,269 57,796 745 1,376 5,212 9,633 4,467 8,257

8,257 17,793 41,693 77,062 6,487 13,981 32,758 60,548 75% 4,866 10,485 24,569 45,411 75% 9,731 20,971 49,138 90,823 75% 14,597 31,456 73,706 136,234

One Year Loan with No Moratorium and @ Annual Interest Rate of 35% Highest Loan Amount Total Interest Payment Total Payment DSCR

4,056 809 4,866 1.33

8,741 1,744 10,485 1.33

20,482 37,856 4,087 7,555 24,569 45,411 1.33 1.33

Two‐Year Loan with No Moratorium and @ Annual Interest Rate of 35% Highest Loan Amount Total Interest Payment Total Payment DSCR

6,928 2,803 9,731 1.33

14,931 6,039 20,971 1.33

34,987 64,668 14,150 26,154 49,138 90,823 1.33 1.33

Three‐Year Loan with No Moratorium and @ Annual Interest Rate of 35% Highest Loan Amount Total Interest Payment Total Payment DSCR Potential Demand for Loans (GH¢) Frequency Potential demand for 1‐year loan Potential demand for 2‐year loan Potential demand for 3‐year loan

8,964 5,633 14,597 1.33

119 482,719 824,465 1,066,659

19,316 12,140 31,456 1.33

12 104,893 179,178 231,794

45,260 83,656 28,446 52,578 73,706 136,234 1.33 1.33

4 1 81,927 37,856 139,949 64,668 181,041 83,656

Total Demand 136 707,395 1,208,260 1,563,151

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SCENARIO 2: BORROWING CAPACITY UNDER ENHANCED REVENUE (Base revenue increased by 30%)

% of Revenue

REVENUE RANGE Up to GHC20,000

GHC20,001 50,000

GHC50,001 – 100,000

Above GHC100,000

Average Revenue

100% 14,744 31,774 74,451 137,610

Average Revenue (increased by 30%)

100% 19,167 41,306 96,786 178,893

Staff Costs Training Costs Admin. Costs Other Expense Total Expense Free cash flow 75% of Free cash flow ‐ 1 year 75% of Free cash flow ‐ 1 year 75% of Free cash flow ‐ 1 year

42% 8,050 17,349 40,650 75,135 1% 192 413 968 1,789 7% 1,342 2,891 6% 1,150 2,478 10,734 23,131 8,434 18,175

6,775 12,523 5,807 10,734 54,200 100,180 42,586 78,713

75% 6,325 13,631 31,939 59,035 75% 12,650 27,262 63,879 118,069 75% 18,976 40,893 95,818 177,104

One Year Loan with No Moratorium and @ Annual Interest Rate of 35% Highest Loan Amount Total Interest Payment Total Payment DSCR

5,273 1,053 6,325 1.33

11,363 2,268 13,631 1.33

26,626 49,214 5,314 9,821 31,939 59,035 1.33 1.33

Two‐Year Loan with No Moratorium and @ Annual Interest Rate of 35% Highest Loan Amount Total Interest Payment Total Payment DSCR

9,007 3,643 12,650 1.33

19,411 7,851 27,262 1.33

45,483 84,068 18,396 34,001 63,879 118,069 1.33 1.33

11,652 7,323 18,976 1.33

119 627,440 1,071,842 1,386,614

25,111 15,782 40,893 1.33

12 136,361 232,930 301,332

58,838 108,753 36,980 68,351 95,818 177,104 1.33 1.33

4 1 106,503 49,214 181,933 84,068 235,354 108,753

Total Demand 136 919,518 1,570,774 2,032,053

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4.10 Socio‐Economic Conditions of Locations The survey of low income schools was undertaken in 80 communities selected from within and around the two towns of Accra and Kumasi. Although these communities are physically apart they have similar socio economic conditions. The districts in which the communities are located are predominantly rural with over 65% of the labour force engaged in agricultural activities which include: crop farming, fishing, livestock rearing, forestry and a host of non‐farm economic activities such as petty trading, transport business (mainly tro‐tro), dressmaking, quarrying and construction among others. In the communities that are peri urban, the economic activities are more formal comprising office or industrial type of work. There are also a sizeable number of people who work in the informal urban economy trading in a variety of items. The income levels of the residents in the communities are generally low, ranging from GH¢50 to GH¢300 (US$36 to US$215) a month. The relatively low income level is one of the reasons why low income schools tend to serve the interest of those in rural communities and are constrained in the level of fees to charge. The road networks in the communities on the outskirts are generally poor making it unattractive for vehicle use. The road network in the urban districts and semi urban areas however, have much better surface conditions than those found in the rural districts. The communities in which low income schools are found are also characterized mostly by uncompleted buildings and very poor environmental conditions. The uncompleted buildings are normally occupied by workmen and labourers (some have migrated from other poorer areas), some sending their wards to low income schools. Anytime these houses are completed the owners ask the occupants to relocate and children are withdrawn from the schools. Some of the areas lack electricity notwithstanding government efforts at rural electrification and water. The school structures in such low income areas generally reflect the socio‐economic status of the area and are mostly of made of wood. The schools lack basic facilities such as toilets and urinal for teachers and pupils, limited furniture and text books. A number of the schools in these communities have classroom floors that are not floored with cement. Given the socio economic conditions, low income schools are unable to attract and retain qualified and trained teachers. The socio economic conditions are not wholly one of deprivation and poverty. There is social cohesiveness and engagement of communal labour to improve on the lot of residents. Majority of the residents, both men and women are very hardworking. It is this desire to improve on one’s lot that has motivated some of the residents to send their children and wards to private schools.

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SECTION 5.0: FINDINGS ON PARENTS WITH CHILDREN IN LOW INCOME PRIVATE SCHOOLS 5.1

Introduction

The section presents findings relating to parents and guardians with children and wards in low income private schools surveyed. The analysis cover the background of parents, income level and portion of income spent on education. A total of 105 parents from the Accra and Kumasi zones were interviewed. 5.2

Occupational Background of Parents

The parents who send their wards to low income schools are mostly resident in the low income communities. A number of them work within the communities and others work outside either on permanent basis or as casuals and temporary staff depending on availability of job opportunities. The occupational distribution of those interviewed is presented in figure 5.1. 76% of the parents from the Kumasi zone are self‐employed compared to 44% self‐employed from the Accra zone. Self employment is varied and includes petty trading, hairdressing saloon, selling of phone cards and cooked food. 46% of respondent parents in from Accra zone are private sector salaried workers compared to 7% in Kumasi. Private salaried workers include those who work as shop attendants and clerks.

Figure 5.1: Occupational Distribution of Parents and Guardians on Location 0.763636364

0.8 0.7 0.6 0.46

0.5

0.44

0.4 Accra

0.3

Kumasi

0.2 0.1

0.02 0.018181818

0.08 0.072727273 0.054545455

0.090909091 0

0 Student

Public/Civil Service Salaried Worker

Private Sector Salaried Worker

Private Unemployed Sector Self Employed

Parents and guardians of pupils attending low income private schools cut across all levels of the social and occupational ladder although majority of them are self‐employed in the informal segment of the private sector or work for other informal and small businesses. Some of the respondent parents have not benefitted from formal education and others dropped out of school

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but are determined to provide their wards with quality education that they never had or failed to take advantage of. 5.3

Income Level of Parents

Disclosure of income level is one difficult area of interview conduct and most respondents are not specific on their income levels. The research team made efforts to ascertain the income level of parents and guardians with children and wards in low income schools using a range approach to make respondents more comfortable to provide indications on their earnings. As noted, majority of respondent parents are private sector self‐employed. This group is largely made up of artisans including carpenters, masons and traders. The monthly income range distribution is presented in figure 5.2 for the Accra and Kumasi zones. Figure 5.2: Monthly Income Range Distribution

One needs a good understanding of the occupation of the respondent parents to understand the income levels. A number of the respondents are on daily wages and not monthly salary. Most artisans for example work on what is termed “by day” (daily basis) and sometimes do not have work to do for a full month. For most of these people, they have to do other menial jobs on the side to enhance their earnings. 53% of the respondents from Accra zone reported that they earn below GH¢150 on monthly basis compared to 38% of respondents from Kumasi. We have established that there is statistically significant difference between towns and income range with the p‐value (0.022) less than the level of significance of 0.005. Parents in Accra earn more than parents in Kumasi.

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5.4

Basis of Choice of Low Income School

Given the availability of public schools in or close to most of the communities in which the low income schools are established and with lower school fees, there should be good reasons why low income parents will opt for private schools. Respondents gave various reasons for the choices they have made. Forty‐four (44) parents representing 42% of respondents cited the performance of the schools as the main factor in selecting the schools. Performance is linked to the effort and commitment by teachers, level of discipline and genuine interest in the development of the pupils. Most of these attributes are nonexistent in the public schools located in low income communities thus convincing parents to send children to low income private schools, the financial commitment notwithstanding. Other considerations include proximity and quality of teachers. 25% of the respondents however, could not give any reason for their choice. To them it may be the issue of availability and access.

The factors provided are presented in table 5.1.

Table 5.1: Factors Considered by Parents in the Choice of Schools Factors Accra Kumasi % % No reason 16 33 Level of School Fees 2 0 Proximity 22 15 Quality of Teachers 16 4 Performance of School 42 42 Others 2 7

5.5

Combined % 25 1 18 10 42 5

Estimation of Proportion of Income Spent on Education

Parents with wards in low income schools incur expenses related to the education of children in various areas including school fees (tuition), textbook cost and transport cost in some cases. However majority of parents do not keep records on these expenses but were able to provide estimates on education related expenditure. In estimating the proportion of income spent on education, the research team adopted an approach that determined the median of the education related expenditure. The median was thereafter applied to the monthly income ranges to estimate the proportion of monthly income spent on education. The results of the analysis are presented in table 5.2.

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Table 5.2: Parents’ Proportion of Income Spent on Education Income Range Below Between GH¢150 GH¢150 and GH¢250 Median Amount Spent on Education Per 72 72 Child (GHC) Proportion of Income on Education Per 48% Between Child and 29% and above 48% Number of Respondent Parents in Income 46 41 Category Percentage of Respondents in Category 44% 39% Mean: ‐1.252

Standard deviation: 1.281

Between GH¢251 and GH¢350 72

Between Above GH¢351 GH¢500 and GH¢500 72 72

Between 14% and 14% and less 21% 3 2

Between 21% and 29%

10%

P‐value: 0.22

44% of parents surveyed earn less than GHC 150 per month and spend about half of the declared

amount (48%) on the education of one child. In the event of more than one child the proportion of income spent on education is expected to increase. The analysis established that there is statistically significance relation between a parent’s income level and how much he/she spent on school fees per term. This is supported by a p‐value of 0.022. The general conclusion on the income proportion is that those parents in higher income bracket will pay less of their income on education and vice versa. The estimated proportion of income spent on education could be one of the reasons for default and withdrawal of pupils by some of the parents who are unable to pay their fees.

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SECTION 6.0: FINDINGS – FINANCIAL INSTITUTIONS SERVING LOW INCOME SCHOOLS 6.1

Introduction

The section on findings from financial institutions presents a brief overview of Ghana’s financial sector with a focus on the microfinance subsector. It discusses the experiences of the surveyed institutions in dealing with low income private schools bringing out the challenges, constraints and expectations. It further assesses the willingness or otherwise of the financial institutions to finance low income private schools in the Accra and Kumasi zones. 6.2

Overview of Ghana’s Financial Sector

Ghana’s financial sector has seen a lot of expansion in the number of institutions, branch network, technology deployment as well as products and services over the past ten years. There are 29 universal banks currently operating in Ghana. The branch network of the universal banks is concentrated in the Greater Accra and Ashanti Region, with 63 percent of all branches (total: about 700 as of December 2009) concentrated in these two regions. In addition to the universal banks, there are 135 Rural and Community Banks (RCBs) which are special small‐scale banks, established and managed mainly by members of the community. The number of branches within the RCB group is around 560. In addition to the RCBs and of relevance to the low income schools are Ghana’s microfinance Savings and Loans Companies and Financial NGOs which together with the sector comprises RCBs form the nucleus of Ghana’s microfinance sector. The Savings and formal institutions such Loans Companies serve as deposit taking institutions which also extend as rural banks and credit to most of the operatives in the Micro and Small Scale Enterprise savings and loans (MSME) sectors. The Financial NGOs provide credit to small businesses companies; semi including schools. Examples of FNGOs include Sinapi Aba Trust, ECLOF and formal institutions ADRA Microfinance Programme. Most of the FNGOs until recently had including financial access to significant grants, and are normally the first choice to manage NGOs and informal grants on behalf of grant providing institutions and foundations with sector comprising Susu commitment towards social interventions. Collectors. The main challenges confronting the financial institutions include poor quality loan portfolios resulting from a combination of inappropriate products and multiple borrowing on the part of clients; reliance on customers’ deposits most of which are short term in nature and hence can only finance short term requirements and poor understanding of some sectors of the economy such as schools and agriculture which need financing. 6.3

MSME Sector and Financial Institutions

Low income private schools fall in the category of micro, small and medium sized businesses. It is encouraging to note that almost all financial institutions in Ghana have made statements to suggest

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they are SME focused. Most financial institutions especially the universal banks have designated either specific departments or desks as SME contact and service point. There are however, numerous complaints relating to the extent to which the financial institutions are able and willing to support small businesses which by extension will include low income schools. 6.4 Institutions Interviewed A total of 18 financial institutions were interviewed to determine their involvement and or willingness to lend to low income private schools. A summary of the institution categories interviewed is presented in table 6.1. Table 6.1: Category of Institutions Interviewed Category of Financial Institutions Number of Institutions in Category 1 Universal Banks 4 Rural & Community Banks 10 Savings and Loans Companies 1 Financial NGOs

Proportion of Institutions in Category (%) 6 22 56 5

100%

Others (Finance House/Susu Company) Total Source: Low Income Private School Survey

The surveyed financial institutions are located in and around Accra and Kumasi with operations spread through branches in towns in the regions. Details on the respective institutions are presented in appendix 3.1. A review of the focus of the institutions, products and services provided are further summarized in table 6.2. Table 6.2: Surveyed Institution Focus, Products and Services Category of financial institutions Focus of operations Rural & Community Banks Savings and Loans Companies Financial NGOs

6.5

SME and individual operations SME and Individual operations Micro enterprises, groups and individuals

Products & Services Savings; Loans; Money transfers. Savings; Loans; Money transfer Loans only; Training

Operational Capacity and Liquidity

Respondent financial institutions were asked to comment on their operational capacity to address the challenges of lending and monitoring to low income schools. All of them stated they have adequate operational capacity. The capacity includes the availability of adequate staff with experience in lending to SMEs including low income schools; existence of operational policies and procedures that guide work of the staff of the institutions and general SME experience.

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With respect to capacity building, personnel of most of the respondent institutions especially the rural banks and savings and loans companies have received training and other capacity building intervention through development programmes. Capacity building including training has been in areas such as general product development, risk management and credit administration. The major challenge with capacity building for most MFIs has been the truncated nature of most of the training programmes and absence of sector specific training. Lending to low income schools is a specialized transaction that has to be understood by staff of the institutions if the needed support is to be extended to low income schools. A number of the financial institutions that attended validation workshops to present the draft findings on this research admitted that, they do not have a good understanding of the business model of low income schools and this has affected their capacity to reach out to the schools with unique products purposely developed or refined for low income schools. It was agreed that offering the same products available to general businesses to low income schools will not change the structure of the low income schools. Liquidity Surveyed institutions were asked about the adequacy of their liquidity position to carry out general lending. All of the institutions responded that they have the desired liquidity to extend credit. However the liquidity position does not debar the financial institutions from seeking funding for purposes of on lending to low income schools. About 69% of the institutions stated they have enough funds to on‐lend on medium to long term basis. 31% noted they do not have enough funds to on‐lend. About 60% stated they could source funds for purposes of on lending and suggested that these funds could be underwritten as part of a guarantee system. The current challenge relating to liquidity is the potential mismatch between the assets and liabilities. The structure of deposits held by deposit taking MFIs does not favour medium to long term funding which is what is needed by schools including low income schools. 6.6 Private School Lending and Practices Experience with lending to private schools 94% of the institutions have experience in dealing with private schools in general and 89% have experience in dealing with low income schools described as schools with GES grading C and D. In the case of 13 institutions including Sinapi Aba Trust (SAT) and Opportunity Savings and Loans Company (OSLC), low income schools constitute a special sector of the institutions’ operations for which separate departments and desks or designated officers have been established to support the reach out process. These institutions explained they have a good understanding of low income private schools and provide support through the development of appropriate products and capacity building to meet the needs of the schools. The preferred methodology for lending to the school is individual lending methodology. The experience of the financial institutions especially Sinapi Aba Trust and Opportunity Savings and

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Loans Company (which are partnering with other stakeholders such as IDP Foundation) is relevant for the documentation of lessons on what works and what does not work in this segment of the schools market. The findings on the involvement of financial institutions with low income schools further indicate that financial institutions generally do not avoid low income schools.

Number and Value of loans The 14, institutions that provide loans to schools have among them a total of 169 loans with a total portfolio value of GH¢1,897,211 (US$1,335,151). The minimum and maximum loan values are GH¢319 (US$228) and GH¢20,000 (US$14,286) respectively. Repayment period for the loans and interest rate recorded a mean of 14 months and 51% per annum. With the exception of the Financial NGO group (in this case Sinapi Aba Trust), interest on private school loan facilities is higher than other business categories. Analysis of interest rates charged by the institutions is presented in table 6.3. Table 6.3: Analysis of Interest Rates Universal Banks Financial NGOs Rural and Community Banks Savings and Loans Companies Other Lending Institutions

Overall Average 28% 36% 28% 56% 80%

All Enterprises 28% 40% 27% 56% 72%

SMEs 28% 40% 28% 52% 72%

Private Schools 28% 29% 30% 60% 96%

The interest rates for the school sector as presented in table 6.3 is rather high for most of the institutions and this is attributable to the perceived risk posed by the low income schools and indeed other private schools. In addition interest rates of MFIs are generally higher than universal banks for various reasons including the source of funding from MFI perspective. If the funding sources for the financial institutions remain unchanged, the cost of lending to the schools will remain high compared to other businesses. 6.7 Barriers to Accessing Loans by Schools Respondent financial institutions and those which participated in the validation workshops agreed that they have not done enough to support low income private schools. Various reasons were provided to explain the current situation including barriers that work against lending to low income private schools. The barriers are listed: 1. Schools do not possess standing collateral such as land and building: most financial institutions will only lend on the basis of collateral. The fact that most of the low income schools do not have the collateral implies that these institutions cannot access loans. In a number of instances where school premises could be suitable to serve as collateral, the school proprietors do not have perfect documentation (and title) on the land and buildings.

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2. Cash flow of schools is very low and servicing a loan would be difficult: financial institutions rely on a borrower’s cashflow in determining the amount of credit to be provided. For most of the low income schools, financial institutions consider the cashflow to be low thus not meeting set benchmarks. 3. Risk of bad debt due to un‐renewed certification from GES: Most financial institutions will only give loans to low income schools that have GES accreditation. However, some low income schools do not have current accreditation or are not recognized. Financial institutions therefore fear that the schools could face closure by the Education Service authorities. 4. Poor Management in the Schools: Quality of management is a key indicator considered by financial institutions in lending to businesses. In the case of low income private schools, management and governance framework remain weak and in other cases are non‐existent. Financing institutions are therefore not comfortable with these schools to provide them with credit facilities. 5. Profitability level of schools is low: low profitability has implications for cashflow and most financial institutions are concerned that some of the low income schools have low profitability. 6. High Delinquency Levels: lending to low income schools has resulted in delinquency and as a result, financial institutions do not want to extend credit to low income schools. For some of the schools it was established that the facilities were used for purposes other than those given during the contracting stage. 7. Observation of a Trend of Poor Repayment has prevented some financial institutions from extending additional credit. 8. Strict loan Conditions: Some financial institutions maintain a strict adherence to conditions which are not met by the low income schools. 9. Inadequate disclosure and transparency on the part of low income schools. The barriers could be removed through the development of products that tie in with the peculiarities of the schools and improved appraisal and monitoring. 6.8 Requirements for Granting Loans to Low Income Schools A review of requirements for granting loans from the surveyed financial institutions suggests that some of the requirements such as the submission of business plans, financial records and cashflow projections will be difficult for majority of low income schools unless they receive support from business advisory service providers. A summary of the general requirements is presented in table 6.4

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Table 6.4: Financial Institution Requirements for Granting Loans Requirements for granting loans Number of Institutions Financial Records and Cashflow Projections 11 GES Approval of School Documents 8 Registration Document of Schools 2 Business Plans 4 Cash collateral/ Other Collaterals 4 Document on schools ownership Structure 2 National ID for Owners 4 Schools Register 1 Bus and Canteen Register 1 Municipal /Metropolitan Permit to Operate 1 Historical Bank Data on the School 1 School Enrolment Register 1 Accreditation Documents 1 Open a Savings Account 1 Documented Board Resolution 1 Loan Application Letter 1

% 25% 18% 9% 9% 9% 5% 5% 2% 2% 2% 2% 2% 2% 2% 2% 2%

6.9 Barriers from the Perspective of the Low Income Schools Low income schools in listing barriers to access finance from their perspective noted the following: 1. High interest rates: 47% of respondent schools consider the rates judged by the MFIs serving them as too high. In cases where schools go ahead to contract the loans, they do so because there are no alternatives to them. As a result most low income schools will not want to approach financial institutions for loans. 2. Absence of payment flexibility: 46% of respondent low income schools noted the lack of flexibility in respect of payment as a barrier. The requirements of repayment schedules are said to be similar to those of other businesses which generate continuous cashflow instead of mapping the payment schedules to cashflow of the schools. This lack of flexibility is the main cause of default on repayment schedules provided by the financial institutions. 3. Short repayment duration: 24% of respondent schools mentioned short repayment duration as a disincentive in borrowing from the financial institutions. The nature of low income school cashflow (timing and size) as well as the purpose for loans which includes infrastructure expansion and acquisition of teaching and learning materials will justify loan repayment duration of at least 36 months instead of the current range of 12 to 14 months in most cases.

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4. Other challenges reported include delays in disbursement on the part of the institutions; demand for too much documentation and general lack of interest in providing facilities to low income schools because they are not considered as attractive businesses to be financed. The promotion of improved relationship between low income schools and MFIs will contribute to the removal of most of the barriers listed by each group. Schools need to understand the business of financial institutions so as to relate to them effectively and the financial institutions on the other hand also need to improve on their understanding of low income schools to partner with them.

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SECTION 7.0: FINDINGS – ADVISORY SERVICE PROVIDERS 7.1

Introduction

The section on Advisory Services Providers discusses the demand and provision of advisory services to low income private schools. The section discusses available services from the providers; willingness of providers to work with low income schools; fee ranges and challenges perceived by the providers in dealing with the low income schools. A total of twenty – two (22) Advisory Service providers were interviewed in the Accra and Kumasi Zones. 7.2

Legal Structure of the Establishment

The legal status of advisory firms interviewed is in three main categories: Limited Liability Companies, Sole Proprietorships and Non‐Governmental Organizations. Majority of the businesses providing advisory service, (87.5%) are registered as Limited Liability Companies and the other 12.5% is shared respectively between the sole proprietorships and the NGOs as shown in Figure 7.1. Figure 7.1: Legal Structure of Advisory Firms

7.3

Staff Capacity

The capacity of Service Providers was assessed on the basis of available staffing. Deriving from this, the firms have been grouped into three categories: small scale as employing between 1 to 5 people; medium scale as employing between 6 to 29 people and large scale, employing above 30 people. The small scale and medium scale firms are in the majority of firms providing business advisory services as shown in figure 7.2.

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Figure 7.2: Staff Capacity of Advisory Firms

7.4

Range of Business Development Services Provided

General Services A total of fourteen (14) main service areas are provided by the surveyed providers. A detailed presentation of the service lines and the number of providers is shown in table 7.1. Accounting/Auditing (13.3%), Business Management Training (20.4%), Business Management Advisory (16.3%) and Market Research (19.4%) are the most common services provided by the Service Providers. Table 7.1: General Advisory Services Provided Advisory Services Number of Service Providers Business Management Training 20 Market Research 19 Business Management Advisory 16 Accounting/Auditing 13 MIS and Accounting Software 9 Technical/Vocational Training 9 Facilitate Access to Funds 3 Business Plan 3 Equipment Renting/Leasing 1 Advertising/Promotion 1 Equipment Hiring and Management 1 Financial Management Training 1 ICT 1 Skills Training for Teachers 1 Total 98

Percentage (%) 20.4 19.4 16.3 13.3 9.2 9.2 3.1 3.1 1.0 1.0 1.0 1.0 1.0 1.0 100.0

Source: Survey of Low Income Private Schools, July 2010

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7.5

Business Development Services Provided to Schools

The Research Team analyzed the services provided to private schools by the Providers. The analyses as presented in table 7.2 indicate the most frequent advisory services provided to the Schools are Business Management Advisory (18.2%), Business Management Training (16.4%) and Accounting/Auditing (12.7%). The next category of service which the advisory service providers provide most is business plan development; market research; MIS and Accounting Software.

Table 7.2: Advisory Services Provided to Schools by Providers Advisory Services for Schools Number of Service Providers Business Management Advisory 10 Business Management Training 9 Accounting/Auditing 7 Market Research 5 MIS and Accounting Software 5 Business Plans 4 Access to Funds 3 Technical/Vocational Training 2 Proposal Development 2 Equipment Renting/Leasing 1 Advertising/Promotion 1 Fund Raising 1 Skills Training 1 Tax Advisory Services 1 Financial Management Training 1 Human Resource Management 1 Skills and Curricula Training 1 Total 55

Percentage (%) 18.2 16.4 12.7 9.1 9.1 7.3 5.5 3.6 3.6 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 100

Source: Survey of Low Income Private Schools Survey, July 2010

7.6

Fees Charged for Business Advisory Service

The fees charged by individual providers vary and is largely determined by the type of service provided. The basis of fees determination also varies with the most common measures including daily, monthly and lump sum rates. The details are presented in appendix 4.4 in Report Volume 2. The fee ranges for various services are presented in table 7.3.

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Table 7.3: Fees Ranges for Advisory Services Type of Service

Fee Range Charged (GH¢) Accounting /Auditing Minimum GHC100 per month /Minimum GHC750 per year for audit. Business Management Training GHC40 – GHC250 per day Business Management Advisory GHC200 – GHC500 per day Services GHC200 –GHC 1,200 per assignment Advertising and Promotion GHC500 – GHC20,000 per project MIS and Accounting Software GHC1,000 –GHC 33,000 per assignment/contract Financial Management Training Minimum GHC35 per day per head Business Plan Preparation GHC2,000 – GHC5,000 per assignment Proposal Development GHC500 – GHC1,000 per assignment Source: Low Income Private Schools Survey; [US$ 1: GH¢1.4]

The fee structure as per table 7.3 shows that depending on the type of service, the fees charged differ. The maximum figures show that Business Management Advisory and MIS and Accounting software cost more than the other services. The fee structure also largely depends on the type of service being provided and the type of client involved. This was evident during the survey when some of the advisory service providers indicated that they sometimes have to charge lower than their normal consultancy fees to assist the low income schools. 7.7

Assessment of Willingness to Provide Advisory Service to Low Income Schools

Almost all Service Providers stated their willingness to provide advisory service to low income schools. Out of the 22 Advisory Services Providers interviewed, 95.5% (21) of them indicated their willingness to provide business advisory services to the low income private schools. Some of the Service Providers are currently providing advisory support and training for the low income schools and have acquired the needed experience for working with low income schools.

The main issue raised by Service Providers however, is the inability of most of the low income schools to pay for advisory services provided to them and implement recommendations. This is the major drawback when it comes to providing service to low income private schools. Indeed 35% of the 86 Schools that do not use Service Providers stated cost as a reason.

Sampling the opinions of the Service Providers on the willingness of the low income private schools to pay for advisory services, the survey results show that 40.9% of the service providers are of the view that low income private schools are very willing to pay for services provided. 27.3% are of the view that low income private schools are not willing to pay for services provided to them. A further 21.1%, representing 4 of the Service Providers could not gauge the willingness of the private schools to pay for services but rather expressed the opinion that though the low income private schools may be interested in the service, lack of funds prevents them from availing themselves of advisory services.

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A graphical depiction of Service Providers’ assessment of the willingness of low income schools to pay for advisory services is presented in figure 7.3. Figure 7.3: Service Providers Assessment of the Willingness of Private Schools to Pay for Advisory Services

7.8

Specific Areas of BDS to Offer to Low Income Private Schools

The Service Providers were asked to suggest areas that could be helpful to the businesses of the low income private schools. A number of areas based on the experience with private schools in particular and SMEs in general were provided. These are presented below. Indicative Business Advisory Services • Accounting/Auditing Services • Training In Management • Financial/Credit Management • Human Resource/Capacity Development Training • Market Research • Business Management Advisory • Technical Assistance • Project Management • MIS and Accounting Software • Technical/Vocational Training • Business Plan Development • Fund Raising • Organisational Design • Communication Management • Equipment Renting • Enrolment Management • Training in General • Training in Marketing Management • Training in Curricula and • Management of School as a Business Syllabus Improvement

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7.9

Promotion of Advisory Services

Table 7.4 shows the medium through which the Advisory Service Providers promote their services. The most recurring mode of promoting advisory services is by word of mouth (41.2%). The Advisory Service Providers indicated that getting referrals from clients is a major means of promoting their businesses. This is followed by Website/email (15.7%), through Business Associations (13.7%) and Mass Media (11.7%). Table 7.4: Promotion of Advisory Services Advisory Services Number of Service Providers Word of Mouth 21 Website/email 8 Business Association 7 Mass Media (Radio/TV/Newspaper) 6 Leaflets/Flyers 4 Letters 2 Business Directory 1 Business Summit 1 No Promotion 1 Total 51

Percentage (%) 41.2 15.7 13.7 11.7 7.8 3.9 1.9 1.9 1.9 100

7.10 Ranking of Schools Business Development Needs Respondents were asked to rank the importance of suggested business development needs for the Low Income Schools. The result obtained from the analyses is presented in table 7.5 below. The top three services that were most mentioned as being the key business development needs are Financial Management Services (30.5%), Business Strategy and Plan Formulation (25.4%) and Information Technology Services (15.3%), thus establishing them as priority areas from the perspective of Advisory Services Providers. Table 7.5: Major Business Development Needs of Schools as Perceived by Service Providers Advisory Services Number of Service Providers Percentage(%) Financial Management Services 18 30.5 Business Strategy/Plan formulation 15 25.4 Information Technology Services 9 15.3 Accounting Services 8 13.5 Capacity/Human Resource Training 5 8.5 Market Research 2 3.4 ICT Research 1 1.7 Access to Finance 1 1.7 Total 59 100

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7.11 Challenges of Low Income Private Schools The challenges of private schools as perceived by the advisory service providers are presented. Challenges of Low Income Private Schools • Inability to retain teachers • Inability to expand school infrastructure and poor school infrastructure • Marketing Challenges • Delays in advisory service fee payments to Service Providers • Inability of schools to raise/access • Poor School Management funds • Improper school records keeping • Lack of electricity for the use of

•

• •

computers Lack of appreciation of advisory services High pupil turnover

Lack of teaching aids Unempowered parent Teacher Associations

•

Poor succession Planning

•

Competition amongst the private schools Unqualified staff Unmotivated Teaching Staff

• •

7.12 Assessment of Demand for Business Advisory Services 7.12 Awareness, Understanding and Usage of Business Advisory Services To assess the willingness of low income private schools to use business advisory service, data was obtained on the status of low income schools’ awareness, understanding and use of business advisory services. The BDS with the highest awareness and use is Accounting and Auditing Services. This relatively high awareness of accounting and auditing services could be attributed to it being the service requested by most small businesses. School Proprietors and Managers for example often interact with Advisory Service Providers on financial issues than issues relating to information technology, which for most of the low income schools may not be of priority. As presented in table 7.6 the usage of advisory services is very low amongst low income private schools with accounting/ auditing services ranking as the most used at 24.3%, followed by legal consultancy (14.5%) and business management advisory services. The least used service is market research.

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Table 7.6: Awareness, Understanding and Usage of Business Advisory Services Advisory Service Awareness (%) Understanding (%) Usage (%) Yes No Yes No Yes No Accounting/Auditing 70.1 29.9 64.7 35.3 24.3 75.7 Business Management Training 54.5 45.5 45.8 54.2 14.5 85.5 Business Management Advisory 48.5 51.5 38.2 61.8 6.9 93.1 Legal Consultancy 53.7 46.3 43.2 56.8 9.1 90.9 Equipment Renting/Leasing 37.1 62.9 29.0 71.0 2.3 97.7 Advertising/Promotion 51.9 48.1 46.6 53.4 8.3 91.7 Market Research 37.9 62.1 28.8 71.2 0.8 99.2 MIS and Accounting Software 33.3 66.7 22.7 77.3 1.5 98.5 Technical/Vocational Training 44.4 55.6 31.1 68.9 3.1 96.9 Source: Survey of Low Income Private Schools Survey, July 2010

7.13 Factors Considered in Choosing Service Provider Factors considered by the low income schools in choosing a service provider as presented in figure 7.4 are varied. 25.8% of the respondents depend on recommendation or referrals from colleagues or friends; 19.4% consider cost (affordability of the provider); existing social relationship with provider (11.3%) and the extent to which the service is perceived as relevant (11.3%).

Figure 7.4: Basis for Choosing Service Providers

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7.14 Satisfaction with Advisory Services Received The extent to which Low Income Schools will be interested in procuring business advisory service is also influenced by the satisfaction with the Advisory Services provided. As presented in figure 7.5, 79.2% were satisfied with the services provided to them and 18.9% indicated that they were okay with the services they received although they hold the view that it could have been better. Only 1.9% expressed dissatisfaction with the service they received. Satisfaction with service is an indication of willingness to use services in the future and eventually pay full cost for advisory services received. Figure 7.5: Satisfaction with Advisory Services Received

7.15 Analyses of Schools that did not use Advisory Service 33.3% of the Low Income Private Schools have never used any form of business advisory service. The reason for this is a mix of the absence of a suitable provider (access problem); high cost and the use of in house resources. 33.3% of the schools that do not use advisory services stated that although they need it they are unable to find suitable advisory service providers. For 22.2% of the respondents, they get it done in‐house and another 22.2% alluded to the fact that it is too expensive. A graphical depiction is presented in figure 7.6.

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Figure 7.6: Reasons for Not Using Advisory Service

7.16 Willingness to Pay for Advisory Services More than half (50.6%) of the respondent school owners said they are willing to pay for advisory services and 24.7% indicated their unwillingness to pay for services. Another 24.7% remain undecided on their willingness or otherwise to pay for advisory services. There would be the need to further create awareness on the benefits of business development services as a justification for payment on the part of those not willing to pay and those who are undecided. It is important to also state that willingness to pay does not necessarily mean payment for full cost of service provided.

Figure 7.7: Willingness to Pay for Advisory Service

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7.17 Importance of Advisory Service for your Business On the issue of whether business advisory service is important or not for their schools, majority of school respondents, representing 61.2% acknowledge that advisory services are very important for them although only 50% expressed willingness to pay. A further 27.1% was also of the opinion that advisory services were somewhat important for them with only 1.2% indicating that advisory services are not important for them. Payment for service is therefore the main constraint. Figure 7.8 presents the ratings. Figure 7.8: Importance of Advisory Service to Low Income Schools

7.18 Need for Business Development Service Areas in Low Income Schools Respondent low income schools were asked to make three preferences as to the kind of business advisory services they require. As presented in Table 7.7 shows that for the first preference, Accounting/Auditing, Business Management Training and Business Management Advisory Services ranked top most. For the second preference, Business Management Training, Business Management Advisory, Legal Consultancy and Advertising/Promotion were the most selected services. In the case of third preference Advertising/Promotion, Market Research and Technical and Vocational Training were the favoured choices. Deriving from the results, the services that are more likely to be demanded by schools include: (i)Accounting/Auditing (ii)Business Management Training (iii)Business Management Advisory (iv) Legal Consultancy (v)Advertising/Promotion and (vi)Technical/Vocational Training.

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Table 7.7: Low Income School Preferences for BDS BDS Service 1st Preference Accounting/Auditing 58.3 Business Management Training 19.0 Business Management Advisory 10.7 Legal Consultancy 2.4 Equipment Renting/Leasing 2.4 Advertising/Promotion 6.0 Market Research ‐ MIS and Accounting Software ‐ Technical/Vocational Training 1.2

2nd Preference 3.0 31.3 25.4 17.9 7.5 14.9 ‐ ‐ ‐

3rd Preference ‐ 1.8 9.1 7.3 9.1 47.3 10.9 ‐ 14.5

Source: Survey of Low Income Private Schools Survey, July 2010

7.19 Conclusion on BDS for Low Income Schools Findings on BDS Providers The survey of provision of business development and advisory services to low income schools suggest that the Providers interviewed expressed strong desire to work with low income schools. Some are already working with private schools including low income schools as part of the initiative of institutions such as the IFC, Mitchell Group/USAID and other NGOs. There is therefore a core group of providers to support an expanded intervention programme for low income private schools in Ghana. The main challenge remains the payment for services. Findings on School demand for Advisory Services On the use of advisory services by low income schools, the survey established the following: 1. Although low income schools are aware of and understand advisory services, usage is very limited. 2. The preferred advisory services providers in order of priority are individual consultants, consulting firms and business associations.

3. The recurring reason for choosing and working with a service provider is affordability and referrals from family and friends. 4. About 50% of the respondent schools are willing to pay for advisory services; 61% consider advisory services as very import for managing their schools. Conclusion It is evident that the low income schools require advisory services which would go a long way to improve upon management of the schools and indeed enhance access to finance even as operations improve. However, the schools have limited capacity to access and use advisory services. Some of the low income schools are not in a position to pay for market rates and will need support to pay for services on cost share basis.

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SECTION 8.0: FINDINGS –DEVELOPMENT PARTNERS AND OTHER STAKEHOLDERS 8.1

Introduction

Ghana’s educational sector in general has received innumerable support from development partners, international and local Non‐Governmental Organizations (NGOs). Over the years support has been received in areas such as inputs for teaching and learning; vehicles and other forms of grants for the educational sector. A significant part of the support has been in the area of capacity building. The main development partners that have supported education sector include DFID and USAID. Low income private schools have received support from Non‐Governmental Organizations in the areas of training, general capacity building and subsidized loans. 8.2

Overview of USAID Support

The U.S. Government basic education assistance through USAID seeks to expand access to, and improve the quality of, primary education. The education program places attention on: increasing the percentage of children who enroll in school, especially girls; helping to ensure that children who complete primary school are able to read at grade level understanding; improving the management and accountability of school systems; increasing community involvement in schools and education; and preventing HIV/AIDS in the education sector. Examples of USAID activities include:

1. Increasing access to education: USAID supports the establishment of complementary education centers in northern Ghana for school‐age children, particularly girls who, for varying reasons, are unable to access and participate in formal schools. USAID also provides scholarships to girls at risk of not completing their primary education.

2. Improving the quality of instruction in primary schools: Using funds provided under the U.S. President’s Africa Education Initiative, USAID helps to accelerate the acquisition of literacy by teaching Grade 1 pupils to read in their local language before helping them to transition to English. 3. Improving management and accountability of schools: USAID provides grants to districts and training to help them improve their education planning and management. 4. Increasing community involvement in education: USAID supports efforts to increase parental and community involvement in schools as well as increase the capacity of parents and communities to lobby for school improvements. 5. Preventing HIV/AIDS and reducing its impact in the education sector: USAID helps teacher training colleges to provide HIV/AIDS education to its teacher trainees, so that they are better prepared to address HIV/AIDS issues in their schools and communities.

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Most of the support is directed at the public sector schools through the Ministry of Education and Ghana Education Service. USAID Private Sector Support: Under the support for private sector, USAID in Washington is implementing a programme in Ghana from up to September 2013. The programme is managed by the Mitchelle Group to undertake the following. • Provide training to proprietors of private schools; • Facilitate access to loans through Opportunities International Savings and Loans; • Capacity building with GNAPS; • Training in private schools management. Indeed as part of its support for low income schools, the Mitchelle Group is working through local service providers located in different zones of the Country to provide training to low income schools. The programme encourages the involvement of school associations in the determination of logistics and the fees to pay for the training programme. 8.3

Overview of DFID Support for Education

The DFID has a budget allocation of £105 million to be used in the education sector of Ghana over an 8 year period ending in 2013. Out of this amount, £ 100 million is for budgetary support in the education sector based on the education sector strategic plan. The other £ 5million is retained by DFID for projects in Technical Assistance, Consultancy, Research and Studies to support the Ministry of Education. DFID is currently helping the Ministry of Education to access The Education for All Fast Track Initiative. The initiative is a global partnership between donor and developing countries to speed the progress towards the Millennium Development Goal of universal primary education by 2015. All lower‐income countries which show serious commitment to achieve universal primary completion can receive support from initiative. 8.4 Ghana National Association of Private Schools (GNAPS) The Ghana National Association of Private Schools (GNAPS) was established in 1971 as an umbrella association for all privately founded, funded and managed schools. The major focus of the Association in private school education is the provision of quality and affordable education. This is achieved through advocacy, support for school registration, upgrade and linkage with the Ministry of Education and Ghana Education Service among others. GNAPs consider the setting up of private schools as the best thing that has happened to the education sector, noting that 80% of the pass rates from BECE examinations are from the private schools. The private schools sector thus plays a significant role in basic education in Ghana. In the

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view of GNAPs, The Ghana Education Service perceives the private schools as aliens in the school system and therefore does not pay the required attention to the private schools. For instance, in the Ghana Education Service System, there is only a desk serving the private schools and GNAPS is in consultation with the Education Service to make this a unit.

On support to low income schools, GNAPS noted that it has in partnership with USAID (through the Mitchelle Group) and private consultants organised training for the private schools. The training covered school proprietors and staff in the areas of financial management, textbooks management system and other aspects of school management. The GNAPS on its own also organizes training programmes for the private schools which are patronized by low income schools. The Association plans on organizing more training for the low income schools

GNAPS Views on Strengthening of Private Schools GNAPs’ views on strengthening low income schools in particular and private schools in general are summarized:

•

• •

Access to funding should be expanded to the member schools to increase and improve on infrastructure. GNAPS facilitates access to funds for its members through the issuance of introductory letters but has no guarantee system in place to facilitate sustained lending; Sometimes, some of the banks also assist the schools with loans; Access to sustained training in various courses for proper school management and improvement; Donation of items such as furniture, text books, exercise books etc. to the schools. Supplies from the Ministry of Education and Ghana Education Service remain inadequate and inconsistent.

Grading of Schools GNAPS contends that the Ghana Education service for a long time now (about 20 years) has not done any grading of schools. There is therefore no valid and reliable data on the grading of schools available. In situations where some grading is done, the schools are not given certificates to indicate the grade of the school. Currently GNAPS estimates that there are over 20,000 private schools in the country, which is two times the reported statistics from the Ministry of Education. GNAPS expect the GES to strengthen its capacity to inspect, grade and monitor the operations of private schools.

Funding GNAPS consider inadequate funding as one of the major setbacks of the private school sector, especially the low income private schools. IFC which provided some funds to private schools together with its partners is considered too rigid in its requirements for accessing these funds. This only makes the proprietors of such low income schools shy away from participating in such funding arrangements which are meant to support private schools. Rather than rigid terms, GNAPS would prefer a more simplified process to be used to get basic requirements from the schools. When this

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does not happen, most of the schools would withdraw because the loan sizes they require are small, for the purposes of putting up a fence wall, purchase furniture etc. and would not be interested in any rigorous and time consuming processes to access such loans. 8.5 IDP Rising School Program The IDP Foundation, Inc., is a United States of America based NGO supporting school development in Ghana through its IDP Rising School Program. The IDP Rising Schools has launched a program designed to boost the development of existing but very poor, non‐government schools for disadvantaged children throughout Ghana. It is hoped that this approach will build a sustainable education model that can be supported through microfinance loans and capacity building to be replicated throughout Ghana, Sub‐Saharan Africa, and the developing world. The main objectives of the IDP Rising Schools Program are to: 1. Increase enrolment in the schools. 2. Improve the quality of education offered to the students. 3. Increased sustainability (and profitability) of the schools. 4. Create a positive impact on the Microfinance Institution (MFI). 5. Achieve gender equality in the schools. The IDP Rising Schools Program is working with Sinapi Aba Trust and started with 120 schools with plans to expand to 7 regions in Ghana and reach 30,000 students in the first 2 years.

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PART IV

Section 9.0 :

Conclusions and Recommendations

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SECTION 9.0: CONCLUSIONS AND RECOMMENDATIONS 9.1

Conclusion

Results from the low income private schools market research suggest that Ghana is experiencing growth in the private schools sector and this is expected to continue given the overall performance of private schools especially at the basic education level. At the basic education level, there are a total of 14,925 private schools representing 30.65% of a total of 48,688 basic schools representing 30.65% of the market. The Ghana National Association of Private Schools (GNAPS) however, estimates that there are about 20,000 private schools. We estimate that about 40% (5,970) of the private schools on roll fall in the low income private schools category and we expect a year on year growth of at least 7%. The research further established that the low income private schools are providing quality education in some areas where there would have been no school; achieving high female (girl) to male (boys) ratio; attaining high performance by way of school performance at the BECE level of over 80% pass rate; generating employment for people and contributing to government’s effort to meet the millennium development goal number two of “Universal Education for all by 2015”. The above notwithstanding, the low income schools surveyed have a number of constraints emanating from two main sources: the approach to management of the school by owners/proprietors and inadequate support for the sector. Linked to the management approach is the lack of application of business practices to school management in areas such as effective financial management, record keeping and promotion. The inadequate support for the low income schools stem from general lack of understanding of the uniqueness of low income private schools by policy makers as a result of which there are no specific government policies to support low income private schools. It is important for all stakeholders including policy makers to note that low income private schools are not just private schools but constitute effective partners in government’s effort at poverty reduction and achieving universal education for all. Financial institutions and advisory service providers have demonstrated support for low income schools over the years. However, this support has generally stemmed from a purely business motive. Interest rates from most of the financial institutions are comparable to all businesses dealing with financial institutions and sometimes even higher without considerations to the peculiar needs of the low income schools. Loan terms remain inappropriate for the low income schools. Advisory Service Providers who are key in supporting the schools mainly do so with the support of development partners and NGOs that are focused on supporting low income schools. The survey has established that any specific support received by low income schools by way of financing and capacity building is influenced largely by development partners and non‐ governmental organizations such as the USAID and its partners.

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Estimated financing needs of 119 schools which expressed interest in loan facility is GH¢3,980,032 (US$2,842,880). The borrowing capacity of the schools was also assessed based on an estimated free cash flow of the schools. Based on the financial information obtained aggregate borrowing capacity is GH¢707,395 (US$505,282) for one year loan; GH¢1,208,260 (US$863,042) for a two year loan and GH¢1,563,151 (US$1,116,536) for a three year loan. When revenue was enhanced by 30% to take recognition of possible understatement due to poor record keeping on the part of the schools, the aggregate borrowing capacity increased to GH¢919,518 (US$656,798) for one year facility and GH¢2,032,053 (US$1,451,466) for a three year facility. Low income schools could be good businesses to be financed by microfinance institutions and other formal institutions. Access to finance and business advisory services will greatly enhance the performance of the low income private schools. 9.2

Recommendations

Two main categories of recommendations are presented. Category one presents options for addressing the access to finance and advisory service by low income private schools and category two focuses on recommendations targeted at strengthening the general operating environment for low income private schools. 9.2.1 Options for Addressing Access to Finance and Advisory Service by Low Income Private Schools In presenting the intervention options, the issues distilled from the survey are recapped: • Low income private schools are like other micro and small businesses and deserve to be supported with access to credit and business advisory services. • Financial institutions especially microfinance institutions do not understand the business model of low income schools; they perceive them as high risk and lack the capacity to develop financial products with features that are suitable for the low income schools. • Given the perceived high risk in lending to micro, small and medium sized businesses, most deposit taking MFIs are either unwilling to lend to low income schools or will only lend at interest rates considered exorbitant by the schools; MFIs are unable and in some cases unwilling to lend beyond 6 to 12 months due to asset liability maturity mismatch; most Financial NGOs lack adequate funds to lend beyond 6 months and will lend at rates considered too high by the schools. • Most low income private schools do not adopt good business practices and are generally weak on business documentation, governance, business and financial management practices. • Majority of low income private schools appreciate the importance of business advisory services to the profitability and sustainability of their school businesses. However, they consider these services as either too expensive or are unwilling to pay for the services. • The schools lack the capacity to implement recommendations emanating from business advisory services and will need extended handholding to realize the benefits offered by business advisory services.

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Deriving from the above issues, there is the need to adopt an intervention model that addresses the issues and enhances access to finance and business advisory services by low income schools. In this regard three (3) intervention options are recommended for consideration. Option 1: Establishment of a guarantee fund for low income private schools For purposes of mobilizing financial resources for investment financing of low income private schools, Option 1 envisages the establishment of a Ghana Low Income Private Schools’ Guarantee Fund that will provide a wide range of guarantee products including: partial portfolio guarantees for financial institutions already lending to low income schools to encourage them to expand on existing portfolio; institutional and portable guarantees for credit lines to be utilized by investment finance providers and microfinance institutions to get access to local long‐term funds (for example from pension funds) for on‐lending to low income schools; and other guarantee products for innovative financing schemes such as micro leasing. In addition to guarantees, the proposed model will include matching grants from the guarantee fund to finance improvement of the capacity of the partner MFI to understand low income schools, appraise and manage the low income school loan portfolios. It will also set aside a specific percentage of the guarantee fund to be used for improving the capacity of low income schools in partnership with accredited local business advisory service providers in key school capacity deficient areas such as business and financial management, planning and governance. The funding for the guarantee fund could be raised from development partners currently involved in strengthening low income schools, the International Finance Corporation and its partners as well as other interested bodies. The fund, to be run on a full cost recovery basis, could be managed by an independent fund manager or the Eximguaranty Company based in Accra, Ghana. Microfinance Institutions and other Financiers interested in financing activities of low income schools will apply for consideration. A guarantee fund will increase the confidence of MFIs in dealing with low income schools; provide a reasonable assurance to funding organizations to approve funding for on lending given the guarantee provided from the proposed guarantee fund and mitigate the lending cost to low income schools. The main challenge will be the ability of the MFIs to recover the loans from the schools but this could be managed through effective structuring of the guarantees and MFI capacity in areas such as strengthening through the guarantee fund. The minimum amount for the guarantee fund could be pegged at US$3.0 million which is about 105% of the estimated financing needs of the surveyed schools. Option 2: Direct On lending of Funds to Financial Institutions The model under option 2 envisages the establishment of a Low Income Schools Fund by development partners and other funding agencies interested in low income private schools solely for direct lending at concessionary rates to microfinance institutions and other finance houses

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interested in lending to low income private schools. Given that most MFIs do not have adequate funds to lend on a medium term basis due mainly to inadequate funding base as well as mismatch between loan terms and deposit maturity, the on lending fund will provide interested MFIs with the needed funds for on‐lending to low income schools. Based on current needs as estimated from the survey, an initial fund amount of US$3,000,000 is recommended. Under this arrangement, it is proposed that 5 – 7 financial institutions are selected through a bidding process to receive the funding based on their activity plan on low income school financing. The arrangement will be supported by a memorandum of understanding that spells out the targets to be achieved and related conditions. The cost of the fund will be negotiated to reflect a quasi‐ commercial rate and the final lending rate set within a predetermined range that ensures MFIs are motivated and low income schools do not find the interest rates burdensome. Fund disbursement for on lending to low income schools will be carefully managed to minimize potential losses from idle funds. Presently there are two institutions: Sinapi Aba Trust and Opportunity Savings and Loans Company that are engaged in significant low income school financing and could serve as the seeded institutions around which other MFIs will evolve. A key element of Option 2, as in Option 1 is strengthening of capacity of MFIs and the low income schools through advisory service providers. MFI capacity for lending to low income schools will be strengthened through training and hands on support in areas such as loan product development, appraisal and monitoring among others on a cost share basis. The capacity development for MFIs will be provided by international consultants experienced in low income school financing working with national consultants as an approach to building local capacity for purposes of sustainability. School capacity will be strengthened in areas such as business management, governance, financial planning and analysis as well as other emerging need areas. Funding for the services will be built into the interest rate and paid for by the beneficiary schools. Low income schools that have not sourced funding but are interested in the capacity building will pay directly for the services. Service Providers could come from either within the MFI (as is practiced by Sinapi Aba Trust) or from an accredited list of Service Providers (as is done by the Mitchelle Group). There will be a need for Training of Trainers for the selected Service Providers. Option 3: Establishment of a Low Income School Finance Company Option 3 recommends an ambitious model that seeks to set up a finance company for private school financing. The finance company will ensure that beneficiary schools comply with basic business practices (or are provided with the capacity through accredited business advisory service providers) as a condition for accessing credit. The Low Income School Finance Company could be owned by different stakeholders who will constitute shareholders including international finance companies, local funding institutions (including pension funds), international NGOs working in the low income schools sector and the Ghana National Association of Private Schools among others.

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The proposed finance company will operate two main service lines: 1. School Financing Division and 2. Specialized Private School Capacity Building Division. Operationally, the financing division will provide on‐lending funds to other Financial Intermediaries such as rural banks, financial NGOs and savings and loans Companies for on lending to low income schools. It could also provide direct lending to middle to high income schools based on the demand from these schools. The Specialized Private School Capacity Building Division will provide training in school lending and portfolio management to participating financial institutions to build capacity. It will also work with schools that access funding to develop business and school management capacity. The advisory service will be delivered by internal staff in conjunction with accredited and independent business advisory service providers. The minimum capital for setting up a finance house is GHC7, 000,000 (US$5,000,000). 9.2.2 Recommendations for Strengthening the General Operating Environment for Low Income Schools Need for Clear Policy Framework for Low Income Schools There is the urgent need for stakeholders in the educational sector to develop a policy framework to guide the operations of low income schools. This could be done as part of a general private educational sector policy framework or as a standalone. The recommendation is classified as urgent due to the critical role these schools take on in the sector and the potential for accelerating government’s effort to meet educational needs. An effective and well managed educational programme in low income areas will contribute greatly to poverty reduction and avoid a situation where children of low income parents remain in the category of low income. Our impression is that the low income school sector is being led by development partners and NGOs with some involvement of Government through the Ministry of Education and Ghana Education Service, but this remains inadequate. We understand a policy framework on private schools is in progress but it is not clear whether it has specific provisions in respect of low income schools. Promotion of Partnership between Low Income Schools and Local Financial Institutions Low Income Schools are generally small businesses which need the support of financial institutions to stabilize and expand the school business. As a specialised business, MFIs especially Rural and

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Community Banks, Savings and Loans Companies and Financial NGOs need to address the following: 9 Develop understanding of the low income school businesses especially in the area of financing needs; cashflow patterns and the very act of school management. An improved understanding will contribute to the development of loan products that actually addresses the needs of the schools. A cash flow based lending for example will be more appropriate for these schools compared to collateral based lending which most of the schools are not able to afford. 9 Microfinance institutions are encouraged to support the business advisory needs of the low income schools especially through the training of school owners and managers/administrators. The training in basic business management principles, record keeping, cashflow management, procurement and staff administration will be beneficial to the schools and financial institutions. The model to be applied could be either of the following: 1. Use of MFI staff for school capacity building as is done presently by Sinapi Aba Trust (in partnership with IDP Rising School Program); 2. Partnership with business advisory services providers to provide capacity building. The provision of training from within the MFI could over stretch the resources of small MFIs and in all cases will require that Field Officers/Training Officers of MFIs have received training in general private school sector management. Payment of Advisory Services by Low Income Private Schools Unwillingness to pay for advisory service is not limited to low income private schools, it is a global SME problem. There is however a need for Advisory Service Providers and other stakeholders to establish a linkage between business performance and advisory service as a basis for improving on the culture of non‐payment for services. This can be achieved through sustained education of school owners using the vehicle of School Business Associations and Financial Institutions. A fund for capacity development set up independent or preferably linked to the proposed guarantee fund could facilitate initial cost share at different levels for different categories of low income schools. Sustainability of the fund will be addressed through increasing the counterpart funding of the low income schools as performance improves. The Need for Increased Monitoring of Private Schools in General The monitoring framework of the Ghana Education service in respect of private schools is weak and needs strengthening. Stakeholders including the Ghana National Association of Private Schools (GNAPS) have complained about this. The current situation in which private schools ‘emerge’ especially at the basic level without adequate control and monitoring has to be addressed. An improved monitoring framework especially at the metropolitan, municipal and district levels will enhance the quality of the schools and their operations.

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To ensure that schools are not established without the knowledge of the Ghana Education Service, the Ministry of Education should liaise with the Ministry of Justice to prevail on the Registrar General’s Department to register only schools with clearance from the Ghana Education Service. This will ensure that school locations are known to the GES to facilitate monitoring. Promotion of Information Exchange Information exchange among stakeholders in the private education sector and low income schools sector in particular is highly recommended. The exchange will facilitate compilation of what works well and what does not work well; development of subsector averages to facilitate lending decision making by microfinance institutions and the general entrenchment of best practices among others. The ‘exchange’ could be arranged by the GES, GNAPS or a Unit established purposely for low income schools. Involvement of Metropolitan, Municipal and District Assemblies (MMDAs) in Low Income Private Infrastructural Development The MMDAs are encouraged to support low income private schools in their administrative areas. There are areas such as the development of facilities to be shared by schools that can not afford to acquire these infrastructures on their own. Facilities and infrastructure that could be developed include playground, computer laboratory and science laboratory. This could be undertaken as part of Public‐Private Partnership, through which the low income schools could for example use the facilities and pay a user fee. Junior High Schools for example could use computer laboratories to prepare students who are expected to be examined in ICT at the BECE level.

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