Social Impact Bond in Emerging Markets: Funding Chinese Migrant Workers’ Children Digital Education

06/02/2016

The goal in our pilot study is to assess whether an education via digital media can help the educational outcomes of migrant workers’ children in China.

With budgets tightening worldwide, there is a need to channel limited government and international organization funding towards high-quality developmental projects. A new type of investment vehicle, social impact bond, carries the promise of bringing private capital to achieve important social objectives. Social impact bond is a contractual agreement where government (or international organization) promises to pay when specific social outcome benchmarks are achieved. Private investors would invest to provide current funding for the social intervention, and get compensated with repayment and returns once the benchmarks are achieved. The social impact bond brings positive benefit for private investors, governments and the social enterprises. Private investors in social impact bonds potentially earn returns and provide screening and monitoring. Governments would be able to reduce risk and pay only when a successful outcome happens. Social enterprises would receive up front capital to provide social services.

The first social impact bond on early childhood education in the U.S. was issued in 2013 in Utah. In its first year of implementation, 595 low-income children got to receive pre-school education, out of which 110 had been expected to need special education when they reached school age if they did not attend preschool. Utah promised to pay a lump sum per student if the student would not need special education. This promise of future payout becomes an illiquid asset against which the social impact bond is issued. In the initial round, Goldman Sachs lent $4.6 million and serves as the underwriter for the issue, while Pritzker Family Foundation invested $2.4 million. This money helped pay for the expansion of preschool education to more children. According to Popper (2015), the Utah social impact bond project had a successful outcome. Out of the 110 students considered likely to need special education at the end of preschool, only 1 student eventually needed special education. As a result of this success, investors were paid the principal plus returns.

The goal in our pilot study is to assess whether an education via digital media can help the educational outcomes of migrant workers’ children in China. Migrant workers’ childrens’ education is a challenging issue in China. As a result of regional economic discrepancy, there are millions of migrant workers in Chinese coastal cities. Migrant workers’ children do not have rights to receive education in regular city elementary and junior public schools, which are free and guaranteed for all other school-age children. These children either go to poorly funded and low quality migrant workers’ schools, or return to study in their home provinces and be separate from their working parents.

We conduct a pilot study on the feasibility of using digital media to supplement and facilitate the education of these migrants’ children. To conduct the study, we partnered with a migrant workers’ children school in Beijing and examined the test score improvements for hundreds of elementary school students. We first identified and classified free educational videos on the web, organized them at grade-level, and distributed the videos to migrant workers’ children into a handheld tablet. These videos were used in classroom or home settings. We then used a pilot experimental program to distribute the tablets to the students. We then monitored the test score improvements to the students before and after they have received tablets, and compare such improvements to students who do not have the tablets. Overall, we found that students benefited substantially from the math content in the tablets. This provides basis for a potential social impact bond to use digital media to improve education quality of Chinese migrant workers’ children.

Note: This a summary of the research paper written by the authors. David Ng acknowledges the generous financial support from the Cañizares Faculty Fund, Emerging Markets Institute at Cornell’s Johnson School of Graduate Management, and also from Cornell’s Lehman Fund for Scholarly Exchange with China.