Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Kenyan slums cater to over 500,000 students a year, offering lower student/teacher
ratios and better facilities when compared to public schools 78 .
Case study: Gyan Shala (India), Indian School Finance Company (India)
There are two types of business models that stand out in the education sector, and we
analyze both in our market sizing work. The first business, Gyan Shala, runs over
350 one-room schools in the urban slums of Ahmedabad, India. They have
successfully delivered education at scale by creating highly standardized materials
that teachers with less specialized training can implement without sacrificing the
quality of the education provided. Part of that quality derives from the materials, and
part is derived from teachers’ local ties and their “appropriate attitude” toward
teaching (which are part of the criteria for employment). Essentially, Gyan Shala has
employed the “no frills” model in the education sector and done so successfully.
Gyan Shala currently operates as a not-for profit organization, but parents in Income
Bracket F (the bottom bracket) confirmed a strong willingness to pay school fees at a
level that would sustain the business model commercially 79 . In order to complement
this case study with profitable schools, we reference a study from Gray Matters
Capital of private budget schools in Hyderabad City. The study surveyed private,
unaided (by governmental or donated funds), budget schools located in and around
old Hyderabad City in India. Tying together the economics of these surveyed
affordable private schools with those of the Gyan Shala project allows us to estimate
the cost/revenue structure of a feasible business model.
Potential size of investment: $5–$10bn; estimated profit opportunity: $2.6–$11bn
Based on the above case studies, we conclude that the potential required impact
investment capital in this market over the next 10 years could be about $5–$10bn.
The sector could also provide an estimated profit opportunity of $2.6–$11bn. Table
21 and the following text detail the key assumptions going into this conclusion.
Table 20: Household income brackets
INDIA, calculated as in Table 9
India
2005 PPP
(upper bound)
A 11,923
B 9,936
C 7,949
D 5,962
E 3,974
F 1,987
Source: World Resources Institute, UN Statistics Division
Table 21: Education market sizing
Data point Source Education example
Annual household income of target market Case study Brackets A–E, Urban, primary school age
children
Target market (# of children, mm) N4B 238
Anticipated penetration rate Case study 40.0%
Anticipated customer base (# of children ,mm) 95
Average price of unit Case study $50–$103
Aggregate revenues over 10 years, bn $26–$54
Estimated operating margin Case study 10.0%–20.0%
Estimated profit opportunity, bn $2.6–$11
Total invested capital, bn $5–$10
Source: J.P. Morgan. Case study indicates the particular case study used for each sector. "N4B” indicates The Next 4 Billion, 2007,
WRI.
Affordability: Brackets A–E, urban
Both Gyan Shala and the affordable private schools in Gray Matters Capital’s study
cite that their students come from households in Brackets C–F. Again, we exclude
Bracket F from the potential customer base, and we also include the higher income
78 Understanding the Kenya Independent Schools Sector, Y Musani, Gray Matters Capital,
June 2008.
79 Emerging Markets, Emerging Models, Monitor Group, March 2009.
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