Helping Schools Survive: Experimental Evidence on the Impact of Financial and Educational Support to Private Schools

Despite the rapid growth in the number of affordable private schools in Pakistan, these schools often fail to make investments aimed at improving their physical and learning infrastructure. Our past work has shown that this may be the result of financial constraints, and that when these constraints are alleviated through unconditional grants, schools tend to make investments resulting in increased revenues and learning quality; and showing significant economic returns that exceed the cost of finance. In this study, we seek to recreate those results by offering schools access to sustainable, commercially-viable financial products.

To do so, we partner with Tameer Microfinance Bank to perform a randomized control trial (RCT) involving 815 private schools distributed in 566 villages in Punjab, Pakistan. We randomly offer treatment schools with loans of up to Rs. 150,000 with interest rates ranging from 10% to 20%. We then measure the impact of these loans on a range of school and household level indicators. We also investigate whether we can stimulate increased school investment in educational products by organizing trade fairs where schools were connected with providers of such goods. Our main research questions include:

1. Whether offering school loans can alleviate financial barriers and induce increased investments in physical and learning infrastructure - We seek to evaluate whether schools that receive loans show increased investments in infrastructure that may increase school performance.

2. If schools that take-up loans demonstrate improved outcomes - We investigate whether schools that take up loan products show reduced closure, improved learning, or increased financial outcomes.

3. If loans are financially viable - We seek to evaluate the financial returns for the school loan products to determine whether they are commercially viable for private lenders to offer.

4. If there is heterogeneity in outcomes depending on characteristics and structure of the loan - We offer two different types of financial products to schools, one with a fixed interest rate depending on collateral, and the other a quasi-equity product with repayment contingent on school revenues. We seek to understand if schools respond differently to each type of loan.

5. If connecting schools directly with providers of educational products can increase their level of investment in such goods - We cross-randomize to invite a portion of schools in our sample to trade fairs connecting them with providers of educational products that can benefit student learning and school performance. We compare the effects of this treatment with the finance loans; and investigate the existence of complementarities between the two treatments.