ECONOMICS OF EDUCATION: How can one diversify sources of Financing Education?6a iv).



6a iv). Examine the concept of diversifying sources of Financing Education

Diversifying Sources of Financing Education

During the 1960 and 1970s, most of the expansion of education in many countries was financed by increased public expenditure on education which rose in relation to national income and public expenditure as a whole. However, from the mid-1970s, public investment in education slowed down due to a number of factors. One, many countries suffered serious budget deficits as a result of the “oil shock” which led to a sharp increase in the prices of oil seriously affecting the terms of trade and increasing and international indebtedness of oil importing nations. Secondly, other sectors such as health, population, nutrition and rural development began to give education major competition for public funds

Thus, education has over the years faced growing financial constraints. The World Bank (1980) has stressed that the increasing demands on public finance at a time when government funds are stagnant or even failing in many developing countries can only be resolved by either reducing the unit cost or diversifying sources of finance(i.e.  finding additional sources of financing education).

Some of the steps that can be taken to diversify sources of finance for education are:

  • Cost-recovery measures: Due to strained public financial resources, many governments have been forced to introduce cost-recovery measures in the provision of education. This has mainly been through charging of tuition fees for students, especially at post-primary school levels. The argument here is that higher education has got higher private benefits than social benefits and it, therefore, makes sense for the beneficiaries to meet a bigger percentage of the cost. In Kenya, the cost-sharing system in education was formally introduced in 1988 through Sessional Paper No. 6 of 1988 on Education and Manpower Training for the Next Decade and Beyond. Public universities started charging tuition fees in 1991/1992 financial year. To cushion the poor against dropping out of school due to inability to raise the required fees, many governments operate bursary schemes and students loan schemes.
  • Employers providing or contributing to training: Some countries charge training levies to firms with a certain number of employees. This levy office collected is used to finance specific educational programmes. Firms are also encouraged to provide on the job training to their employees thus relieving the government the burden of providing such training.
  • Community involvement in financing education:  Some countries have attempted to overcome financial constraints by using direct labour to build schools, by allowing communities to provide goods and service in kind rather than cash payments, and by relying on other forms of community involvement or self-help. For example in Kenya, many educational institutions have been developed through the “Harambee system”.
  • Income generating activity : Educational institutions have been encouraged to undertake initiatives that can generate income rather than just relying on the government. For example, some universities in UK have diversified their activities to engage in profit-making activities with their local industrial and commercial communities. In Kenya, public universities have started the parallel degree programmes which charge full fee as a way of generating extra income to bridge the deficit in government funding. The University of Nairobi has set up the University of Nairobi EnterpriseServices (UNES), a limited liability company that manages all its income-generating activities. The National Polytechnics in Kenya generate about 25% of their income from Income Generating Activities (Njihia 2005). Many secondary schools in Kenya engage in farming which supplements their budgets a great deal.


Schools in China have also been running businesses since the 1950s. Though the businesses were established in order to link work and study skills (relating theory and practice) their main role has changed to income generation.


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