Low-cost private schools; the untapped gold mine for financial institutions

The concept of the missing middle and needs of SMEs goes beyond access to finance. There is need for support in governance, business development and mentorship.

To take this forward financial institution have been challenged to innovate financial products for affordable private schools which experts say have a huge but untapped revenue growth potential for lenders.

CapitalPlus (CapPlus) Exchange Senior Advisor Gerry Monteiro said affordable such schools will need to borrow over $164m (sh585b) over the next three years, presenting a huge business opportunity for financial institutions to make money.

The funds, according to Monteiro, will be needed to construct additional classrooms, renovate existing structures and enhance facilities such as laboratories and libraries.

Monteiro was speaking at the release of the Financial Sector Deepening Uganda (FSDU) and CapPlus co-authored report on “affordable private schools “at Sheraton Kampala Hotel on 12 September 2017.

“Financial institutions may not realise but affordable schools market is very large. Their requirements over the next three years is huge and they need to tap into that. Banks were focusing on corporate banking, then moved to business banking and now SMEs but they need to go further and realise that affordable schools are a big business opportunity and fund them” he said.

Additionally, Monteiro said that affordable private schools are also profitable despite being low-cost and are a stable business and that the transactional volumes from such schools is expected to be $273m (sh973.9b) over the coming three years.

This, he adds, creates a big opportunity for financial institutions to cross-sell account services and innovative payment solutions to further grow their bottom lines.

According to the report, there are about 2,200 affordable private schools in Kampala, educating over 500,000 children of all ages and socio-economic levels.

The report further indicates that although 93% of the schools may operate profitably, majority are under-banked and have difficulty access credit from financial institutions.

Nearly 60% of affordable schools don’t have bank account or bank credit while over 80% have never had bank credit in their life and they survive on funding from parents, friends and family, according to the report.

FSDU executive director Jacqueline Musiitwa also alluded to the need for financial institutions to tap into the immense opportunities presented by affordable private schools by innovating and providing tailored financial products.

She added that while government put education in the top key three priority sectors, with 12% budget allocation in the current financial year, the trend points to declining financing over the last seven years, creating an opportunity for financiers to explore public private partnerships to support each other’s growth.

She added that the report findings indicate that only half of registered schools and only 22% of unregistered schools have a dedicated bank account and only 18% have accessed any loan to date.

“This gap in access to finance for SMEs is murky. What we found in our research (National Small Business Survey) is that 7 out of every 10 MSMEs identify ‘limited access to finance’ and the ‘cost of finance’ as constraints to business growth,” Musiitwa said.

There is ample research on the correlation between the stage of growth of SMEs and sources of financing.

She added: “SMEs at the lower end tend to be financed through informal sources such as owners’ local savings or borrowings from friends and relatives. Larger and registered SMEs often borrow from formal sources.”

The same trend applies to affordable schools.  These MSMEs vary in size and formality.  The affordable private schools in Kampala are MSMES.  Some are unregistered other are unbanked and generally ineligible for access to financial services.

“Indeed, there are opportunities for many institutions represented in this gathering, who provide formal financial services, to seize the opportunity to innovate and provide the various services they need, from savings to lending to insurance,” She added.]

CapPlus president Lynn Pikholz said that linking school borrowers to education quality technical assistance providers and providing credit would improve the learning outcomes including better educated students, motivated and effective teachers and more financially resilient schools.

She added that increased access to credit will allow schools to transition from focusing on day-to-day needs to improving the quality of education provided, facilitate expansion of facilities to increase enrolment, profitability and provide working capital to ease erratic cash flow challenges.


However, Damalie Mukiibi, a banker said to make affordable private schools attractive to financial institutions, the schools should be given technical support to boost financial literacy, maintain proper books of accounts and have proper corporate governance structures.

Orient Bank Head Retail Andrew Agaba also alluded to the need for enhanced corporate governance structures in private schools, saying that banks are reluctant to lend to them because it has many stakeholders including proprietors, parents, students, government and the community. This, he said, makes foreclosing difficult in case of failure to repay the debt.


Findings from the report co-authored by FSDU and CapPlus showed that within the sample, half of registered schools and only 22% of unregistered schools have a dedicated bank account and only 18% have accessed any loan to date.

Therein lies some huge opportunities for the banks and other lenders in the room.  Schools need $96.5 for expansion; $62.3 for working capital, and $5.0 for staff loan in the coming three years. Demand from an individual school in a given year is an average of $17,295 for registered schools and $11,756 for unregistered schools.

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