Tool 5.1 ECE Financing Resource Guide
Where does financing for ECE come from?
When looking at your particular country context, you may want to map out all the current sources for ECE funding. Conventional financing for ECE is often comprised of multiple funding streams that may come as a mix of central, regional, and local sources.
Possible conventional funding sources for ECE may include:
- Public/government funding, possibly from a mix of central, regional, and local sources
- Private sources, such as NGOs, philanthropies, foundations, faith-based organizations, community proprietors
- Bilateral aid from national governments
- Multilateral aid, such as GPE, World Bank, UNICEF, World Food Programme, etc
- Community-based
- Country-specific sources
In some cases, households may also be expected to contribute to their children’s pre-primary education, such as by contributing to school expenses, paying for school meals, and contributing to extra childcare time in schools. Given the high rate of private provision, many pre-primary centers require that parents contribute to enrolment costs.
Determining domestic ECE financing patterns, such as the different sources used and how these different sources provide support to the different types of pre-primary programmes in the country, may be a useful step in figuring out how to expand quality ECE. A multi-pronged approach is often needed in order to deal with funding aspects as well as potential quality and management issues that also have financial implications.
An important consideration is not only to ensure that there is adequate and efficient financing for ECE, but that this financing is effective. In essence, you want to make sure that you spend efficiently but also that you are reaping as many outcomes as possible from the monies that are allocated to ECE. As such, it is important to examine ECE interventions and implementation modalities through the lens of efficiency and effectiveness to prioritise those that ensure the best value for money.
Of note, low public financing (especially if there is relatively high ECE coverage) in a country may raise important sustainability and equity questions, going back to the concept of ECE as a public good. While public spending on ECE is essential, and establishing long-term domestic funding for ECE, there are complementary avenues, such as innovative financing mechanisms, that can supplement and stimulate more conventional financing in the short-medium term. Furthermore, some innovative financing mechanisms, such as results based financing, can also contribute to spending more effectively and reaping as many outcomes as possible from allocated monies.
Public financing for ECE
Public financing is key to ensuring sustainability when it comes to pre-primary education. The UNICEF programme guidance for ECD indicates that one of the six key implementation strategies is strengthening domestic public financing.
It is important to outline the resource requirements for ECE. Financing should follow the needs outlined through an extensive needs assessment process. The ECE Simulation Model is a tool that can support countries in estimating needs to ensure universal access to pre-primary education. The simulation model also provides a detailed outlook of the human, infrastructural, and financial resources needed to meet country targets for the provision of ECE as defined by national ESPs.
Public financing for ECE is important because it is more predictable and sustainable - items in national budgets are likely to remain there. There is also an equity aspect in that, unlike other funding sources, public financing can finance services in areas and populations where the availability of other sources is lower, such as when families cannot afford the extra costs. Further, there is a significant positive relationship between the amount of funds allocated to pre-primary education and the percentage of children who are enrolled in pre-primary education, even after controlling for country wealth, demography and the overall education budget. However, many countries underinvest in pre-primary education, with the amount dedicated to pre-primary education often falling far short of the recommended 10% of the education budget.
However, improving the situation of pre-primary education in national budgets is not as simple as moving money from one subsector to another. Rather, strategies to increase pre-primary financing may include lowering the government unit cost of higher levels of education through innovation, greater efficiency and cost-sharing mechanisms that prioritize the use of public resources for the most marginalized populations. Additionally, funding the pre-primary subsector is linked to efficiencies in the primary and secondary subsectors associated with the benefits gained by increasing enrolment in pre-primary education.
The following recommendations address how public financing for ECE can be strengthened:
- Place pre-primary education on a firm financial footing by progressively increasing ECE budgets to reach the suggested allocation of 10 per cent of education budgets to the subsector
- Use available resources more equitably and efficiently, namely to track expenditures to pinpoint areas needing the most improvement, while monitoring efficiency and financing gaps
- Coordinate national and subnational budgets, while building accountability mechanisms and capacities for implementation
- Progressively increase international education aid to pre-primary education to at least 10 per cent of international education investments, catalysing and complementing public resources
For the sources of this information, as well as further reading, see Chapter 4 in A world ready to learn and Add today multiply tomorrow: Building an investment case for early childhood education.
Innovative financing
Innovative financing is defined as a “set of financial solutions and mechanisms that create scalable and effective ways of chafnneling both private money from the global financial markets and public resources towards solving pressing global problems” (ILO), such as scaling up ECE.
Innovative financing is designed to complement traditional international resource flows, such as aid and foreign direct investment, in order to mobilize additional resources for development (Citigroup, 2014). Some innovative financing mechanisms, such as results based financing, also aim at using resources more effectively towards the achievement of the desired outcomes.
One way to conceptualize innovative financing is to think about innovative sources of financing and innovative delivery mechanisms for financing. Innovative sources help generate new financial flows that may come from various economic sectors and can include both repayable and nonrepayable sources.
More recent trends in innovative financing for education point to a shift from innovative sources of finance towards innovative delivery mechanisms of financing. Innovative mechanisms help maximize the efficiency, impact, and leverage of existing resources.
Some examples of innovative mechanisms for financing include:
The allocation of funding by the government to schools based on student enrolment. For example, the Indonesia Early Childhood Education and Development project provided three-year block grants to allow local communities to either establish new preschool services or strengthen existing services.
An umbrella term referring to any program or intervention that provides rewards to individuals or institutions after agreed-upon results are achieved and verified. Essentially, this is a performance-based approach. One major aspect that varies amongst different types of RBF is who bears the financing risk in case results are not achieved and relatedly, who is incentivized, such as the government, investors, or service providers. While there are a number of different types of RBF programmes, one type of programme may be more appropriate in a particular country context than another depending on the country-specific bottleneck. This approach has the potential to provide a stronger focus on the actions necessary to improve learning outcomes, foster local solutions to common education challenges, strengthen the capacity of education systems to measure and track progress, and generate data and evidence on the cost-effectiveness of interventions. As with any programme/project, RBF programmes need to be well-designed and well-implemented in order to incur benefits. When RBF programmes fail to meet these standards, they will have limited impact on reducing inefficiency and improving spending effectiveness (source).
Some different types of RBF are:
- Conditional cash transfers (CCTs): In conditional cash transfers (CCTs), families receive a direct cash transfer if they fulfill certain conditions, such as ensuring their children attend school. CCTs are meant to stimulate the demand for ECE. Individuals bear the greatest financial risk in CCTs, as families do not receive monies if they do not fulfill the conditions of the CCT.
- Impact bonds:
Impact bonds incorporate the use of private investors, often impact investors (see above), to cover the upfront capital required for a provider to set up and deliver a service. The investors are repaid by an outcome funder contingent on the achievement of agreed-upon results. Different types of impact bonds include:
For the source of these definitions and more information, see Add today, multiply tomorrow: Building an investment case for early childhood education, Results-based financing and results in education for all children (REACH), and Using public-private partnerships to expand access to preschool).
For a table outlining these and additional various innovative financing mechanisms and potential benefits and drawbacks, please see Annex 1.
For innovative financing mechanisms to be used successfully, their design and implementation need to consider the particular economic, political, and social conditions of the implementing country. It is also imperative that equity is kept at the forefront while using both innovative financing sources and mechanisms.
While innovative financing can provide a jump start in terms of being interested in and investing in ECE, it is important that ECE not be solely associated with innovative financing but also benefit from traditional sources of finance. Financing for the pre-primary subsector needs to be integrated into financing for core services while leveraging these innovative sources and mechanisms in order to improve access to and the quality of ECE services.
Funding specific to GPE countries
The Global Partnership for Education (GPE) is a multi-stakeholder partnership global fund dedicated to transforming education in lower-income countries.
GPE both brings together donors, multilateral institutions, civil society, teacher representatives, philanthropic foundations, and the private sector behind partner country governments’ plans as well as provides financing to catalyze reforms and support national action and commitment.
GPE’s 2025 operating model is centered around the partnership compact. The partnership compact is a policy framework that articulates priority areas for reform. It articulates how a GPE partner country “intends to work together with partners around a priority reform that has the potential to catalyze system change” (GPE, 2021). The compact serves as a blueprint for mutual accountability among partners and is used as background information by the GPE Board of Directors for the approval of the strategic focus and amount of the System Transformation Grant. Additionally, the partnership compact is the basis on which most additional GPE support (technical or financial) can be sought. More information about GPE’s partnership compact can be found here.
These grant allocations range from $1,000,000 to $5,000,000 over a five-year period from 2021 until 2025 included. SCGs provide continually available and flexible funding to support system-wide capacity strengthening across all aspects of GPE’s country-level objectives. It is a key lever for further GPE funding and a building block in support of countries’ capacity to build stronger education systems. The full amount of the SCG does not need to be programmed at the time of the compact. GPE partner countries can draw down SCG funding flexibly to respond adaptively to needs that arise during implementation of plans or policies. Examples of project SCGs can fund include: a detailed diagnostic of the ECE subsector; strengthening of education management information systems (EMIS) to include ECE from many different service providers; cross-sectoral convening on early childhood development; and institutional capacity needs assessments for ECE officials and/or capacity building for centralized and decentralized officials.
STGs aim to help countries use GPE grant resources to focus on key sector bottlenecks and to achieve system transformation. STGs take a flexible approach to requirements and results-based financing towards identifying and addressing policy gaps, as long as countries demonstrate commitment to education according to their ability. Up to 40% of a partner country’s maximum country allocation can be linked to the country’s status regarding the gaps identified in the review of enabling factors during the partnership compact development process.
The purpose of Multiplier Grants is to further catalyze system transformation in GPE partner countries’ education system. Countries access a Multiplier allocation by collaborating with partners to mobilize external financing that is “new and additional.” Because the ability to mobilize Multiplier funding is tied to the availability of co-financing, some countries may seek to access a Multiplier allocation before they can develop a full partnership compact. For each $1 from GPE, “other donors” – including bilateral and multilateral donors – still need to meet the ratio of $3 in additional resources per $1 from the Multiplier. Private sector partners and foundations can help unlock a Multiplier grant with a ratio of 1:1, i.e. $1 in additional contribution. Multiplier funding does not need to come from the same source.
Example: Kyrgyz Republic - Preparing children for primary school. The Kyrgyz Republic has been a GPE partner since 2006 and has received multiple grants from GPE, including the GPE Multiplier grant, which aims to continue to increase access to preschool education for children from most vulnerable households and to improve their school readiness.
The GEA addresses barriers to girls’ education within and beyond the education sector. Specifically, the GEA funding aims to ‘hardwire’ gender equality and girls’ education into the system with the objective of setting in motion target policies and programs while reaching gender equality, addressing inequities within and outside the education sector. Access to the GEA has been prioritized for 30 eligible countries where girls lag furthest behind in terms of access to primary and lower secondary and where child marriage rate is high. The GEA is not a standalone grant: the GEA can only be accessed at the same time as a country accesses its system transformation grant, a Multiplier allocation, or both.
Example: El Salvador - El Salvador is the first country to access the GPE Girls’ Education Accelerator. This article discusses how El Salvador became the first GPE partner country to access the GEA. The country will use the grant to tackle gender norms from an early age and support gender-equitable learning assessment from early childhood to secondary school.
Each of these grants has different eligibility criteria. More information can be found on GPE’s website. Additional information can be found at GPE: Applying for grants and Learning from the partner countries piloting the GPE 2025 approach.