25053 - Kenya Schools

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Summary of Proposed Investment

Project Number

25053

Company Name

Kenya School Financing Facility

Date SPI Disclosed

Sep 27, 2006

Country

Kenya

Industry

Health, Education and Life Sciences

Projected Board Date

Oct 27, 2006

Status

Completed

Sector

Elementary and Secondary Schools

Department

Regional Industry - MAS Africa

Environmental Category

Previous Events

Approved : Nov 16, 2006
Signed : Dec 7, 2006

Project Description

The proposed project is an initiative to provide local currency financing and technical assistance to private educational institutions in Kenya. It is the second such initiative in the education sector after IFC’s pilot school financing facility in Ghana, committed in June 2005. IFC would provide risk-sharing of up to 120 million Kenya Shillings ($1.7 million equivalent) to K-Rep Bank (K-Rep or the Bank) on loans extended to eligible private schools in Kenya. These loans will be used to finance construction, purchase of educational materials, and other capital expenditures. In parallel with the financing facility, a comprehensive technical assistance program is under preparation. The program will be designed to:

- strengthen schools’ financial, management, and educational capacities;
- improve the business environment for private education; and
- foster the development of an independent provider of educational services to private schools.

Technical assistance will also be provided to the Bank to build its capacity to conduct due diligence of educational institutions and monitor its education portfolio

Currently, few local banks are lending to private primary and secondary schools, and those that do, generally lend for less than two years. Thus, even if schools are able to secure bank financing, the tenor of that financing is generally not long enough to support expansion or modernization projects. Such projects thus proceed in a piecemeal fashion, resulting in a great deal of inefficiency and lost potential revenue. Further, expansion by such means cannot keep pace with the huge growth in demand for private schooling. IFC’s risk-sharing would be structured to encourage the Bank to extend maturities to 3-5 years, tenors more appropriate for financing capital investments.

Despite the impressive growth of private schools in Kenya over the past 15 years, most remain fundamentally weak in their financial and managerial capacities, as well as in their ability to develop more effective educational delivery mechanisms. The majority of schools has minimal financial expertise, weak information systems, if any, and limited opportunities for teacher training and curriculum development. The technical assistance program designed in conjunction with the financing facility is intended to address many of these shortcomings for participating schools, and, in addition, to strengthen the environment for private school operators.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	1.64
Loan
Equity

Development Impact

The proposed project will have a substantial impact on both the education and financial sectors in Kenya.

First, it will help improve the educational quality and financial and managerial capacity of private primary and secondary schools in Kenya. In doing so, the project will enable schools to obtain financing from the formal banking sector and widen access to much-needed quality education. The enormous demand for private schools is currently unmet, in large part because schools have little access to affordable, long- or medium-term financing, and little training in financial management. This project will address both shortcomings, and, with respect to the latter, demonstrate sound practices throughout the sector.

Second, the project’s technical assistance component will also help schools strengthen their educational management capacities, thus setting a standard for the private sector, and improving the business environment for private education.

Third, the project will introduce to the financial sector a means of delivering medium-term local currency financing to educational and other institutions. Finally, this project would further demonstrate the applicability of this risk-sharing model for reaching small education providers—which comprise the vast majority of private providers—throughout Africa (and other regions). IFC could thus continue to expand education financing to other African countries with similar markets and constraints.

IFC’s risk-sharing will enable the Bank to develop a medium-term lending program for private schools, which are in critical need of such financing for development. Further, the use of a risk-sharing instrument will help improve options for local currency financing in Kenya. The accompanying technical assistance program will prepare schools to borrow from the formal sector and provide comfort to the Bank, which has limited experience in the education sector. It will also improve the business environment and the educational quality of schools, which, apart from the obvious social benefits, will make them less risky borrowers. Thus, this Project is helping to create the basic conditions for medium-term lending in the education sector.

This is a Category FI Type 1 project according to IFC''s environmental and social review procedure. K-Rep Bank will be required to establish an environmental management system that will ensure that investments are consistent with applicable host country environmental laws and regulations; designate appropriate individuals who will have responsibility for the environment management system; and submit to IFC an environmental management plan and annual environmental performance reports.

Contacts

For Inquiries About the Project, Contact

Benson Kimithi, Manager-Regional Business Dev.(Special Projects)
K-Rep Bank
Naivasha Road, Riruta
P.O. Box 25363-00603
Nairobi-Kenya
Telephone: +254-020-573141
Fax: +254-020-573178
E-mail: registry@k-repbank.com
Website: www.k-repbank.com

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This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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