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Driving impactful early education through financial inclusion

By Tracey Chambers, CEO and co-founder of Grow ECD

The recent budget speech announced an increase of only R1.59 billion for the Early Childhood Development (ECD) Grant. This is less than the projected R1.9 billion for 2024 that was promised in last year's budget. As a result, the ECD sector is in even greater need of funding and access to alternative sources of capital.

The ECD sector needs access to more varied funding streams as only 15% of children are eligible for the Child Support Grant and benefit from the ECD subsidy. The current subsidy, R17 per eligible child per day, which was set in 2019 and has not increased since. Almost 60% of ECD programmes are not registered with the Department of Basic Education and so cannot access the government’s ECD subsidy. Although these programmes desperately need funding for pre-registration support and improvements to their infrastructure so that they can qualify to register, only 10% of the ECD grant over the next three years will be dedicated to helping ECD programmes register.

To provide access to this crucial funding, Grow ECD has developed an affordable, low-cost loan product for women empowerment and quality education delivery in South Africa’s ECD sector.

Financial inclusion promotes economic growth

The World Bank advocates for financial inclusion as critical to promoting economic growth and reducing poverty. This institution has recognised that financial inclusion is not only about providing access to financial services like transactions, payments and savings but also to affordable, appropriate and convenient financial loans and insurance that can help small businesses grow.

In South Africa, financial inclusion is severely skewed in favour of higher-income groups. Lower-income groups are regularly excluded, which makes it more difficult to accumulate wealth and further deepens the gaping divide between the rich and poor.

ECD Centres do not have access to relevant and affordable financial opportunities

At Grow ECD, we work with ECD Centres in lower-income areas and townships to help them provide five-star learning to every child they teach. This requires time and money. ECD Centres,despite employing 200 000 people and playing a crucial role in preparing children for school, are often not recognised as small businesses. This oversight has left ECD centres, which are mainly women-run, on the sidelines of financial opportunities available to other formal and informal small businesses. It's a systemic issue that affects women entrepreneurs, the people they employ (mostly women) and the quality of education they are able to provide.

Low-cost loan product for ECD sector

In 2021, Grow ECD launched a low-cost loan product to give ECD owners access to affordable, fixed-rate loans. Since then, we have lent over R2,5 million, an average loan of R22 000, to 104 preschools with a remarkable 0% default rate. Schools have used these loans to invest in a daily play-based curriculum and classroom kits, and to unlock access to Grow ECD’s hugely The World Bank defines financial inclusion as access to useful and affordable financial products and services – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. successful ‘business in a box’ programme support solution. Last year (2023), we started providing loans for infrastructure and safety improvements.

Financial inclusion leads to improved education

We have seen that this financial inclusion opportunity we provide to ECD owners leads to impact, not only in business growth but also in improved education and child development outcomes. We are setting a new benchmark of what financial inclusion could look like and proving that this model can be financially sustainable and impactful.

ECD centres face unique business challenges

ECD centres in South Africa face unique small business challenges. They have limited sources of revenue and their income potential from school fees is capped by child-to-teacher ratios and classroom sizes. Their customer base is price-sensitive so they cannot simply increase school fees to afford a loan. Traditional lenders are reluctant to loan capital to ECD centres due to their informal status and lack of formal financial records; while loan sharks offer loans at exorbitant interest rates that lead to crippling debt. Most cannot afford a bookkeeper or administrator and the centre owner must do everything, including financial recordkeeping, cashflow management, budgeting and all the complexities of registration, on top of running the school.

A holistic solution to building thriving businesses

Our low-cost ECD loan model is a pioneering approach to transforming the financial landscape for ECD centres. We recognised that ECD centres needed more than just loans. They needed a holistic solution that empowers them with affordable capital and equips them to run their centres as sustainable, thriving businesses while delivering on education impact. Loans must be accompanied by comprehensive business development support and a package of services to ensure that investments in these small businesses succeed and improve financial sustainability and education quality.

The low-cost ECD loan model

Grow ECD partnered with Spoon Money, a registered credit provider that shares our vision for financial inclusion, to pave the way for affordable loans for ECD centres. We negotiated fixed interest rates, ensuring affordability and stability for the ECD centre owners. We have developed a unique loan review, risk assessment and approval process that complements the financial record-keeping capabilities available to ECD centres through our free app. Using this, we assess each centre’s business and determine what she can afford to invest in her centre.

Our commitment to financial inclusion doesn't stop with loans or blended finance. We understand that investing in these small businesses must have a lasting impact. That's why we offer comprehensive business development mentorship and break-even analysis as part of the loan review process. This ‘business in a box’ solution ensures that the centre doesn't waste money and is buying a proven recipe for quality education.

Proving that small ECD businesses are ready for business

As a result of our financial inclusion strategy over 8000 children and their teachers now have access to an NCF-aligned daily play-based programme and the educational equipment they need to deliver a quality programme. We have offered over 400 in-person training workshops in the past 12 months to ensure that these centres stay on track on their journey towards financial sustainability and child development outcomes.

Financial inclusion is about empowering women and transforming education

Financial inclusion in the ECD sector is not just about providing loans; it's about empowering women, transforming education, and ensuring that ECD centres are recognised as essential small businesses contributing to the community's well-being. Grow ECD is dedicated to providing this recognition and support. By bridging the financial inclusion gap, we're giving womenentrepreneurs the tools they need to succeed and nurturing the future of South Africa's children.

As we continue to grow and expand our impact, we are driven by the belief that financial inclusion leads to empowerment, resilience, and ownership. It's time to recognise the invaluable role of ECD centres and the women who run them in South Africa's journey toward a brighter future for all.

Testimonial: “We trust Grow ECD and are grateful to have them on our side”

Happy Valley Day Care in Strandfontein, Cape Town, established in 2012 by Lionel and Chantal Braaf, has 45 learners, three classes, with four teachers. Chantel says, “Before we started with Grow, things were stressful as we didn’t have a proper curriculum. We had no educational equipment because it was very expensive. As an ECD, we had no access to finance to try to improve our business.

Lionel says, “We used a low-cost loan from Grow ECD to buy the curriculum and classroom equipment we needed. We were delighted that we got approved for that loan because it helps us improve our centre. Getting a loan through a bank is so difficult for a small business. Also, taking a loan is a risk for us because you share your credit record and sign up for a financial commitment. We have a relationship with Grow ECD and trust them. Plus, Grow ECD gives us training on how to implement what you have invested in. This makes us know that Grow has our best interest at heart and cares about our school.”

Chantal says, “Grow helped us with a micro-loan (done through a registered financial service provider) and we paid it off. I get all the lessons, all the equipment we need, all the training we need and an app that helps me run the business properly, it is very good value for money. Now the atmosphere at our ECD is quite relaxed because we all know what we’re doing and what we’re going to do tomorrow and we have all the equipment we need. It is amazing,” she says.

Lionel and Chantel have successfully completed an application for a second loan for infrastructure improvements through Grow ECD. “We will pay this off over the next 24 months. It takes a bit of time to put everything in place but now we are ready to do our infrastructure upgrade and refresh our centre. Parents will see the quality and the professional look of our centre and that makes us different from other centres. It will help us gain and keep customers,” says Lionel.

“Grow ECD sees our needs and our potential and we have built a relationship with them. That is trust, and we are grateful to have them on our side,” he says.

Some facts about financial inclusion:

- Financial inclusion has been identified as an enabler for seven of the 17 Sustainable Development Goals.

- Financial inclusion allows individuals and organisation to take advantage of business opportunities, invest in education, save for retirement and insure against risks.

- The World Bank considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity.

- The World Bank is advocating for access to financial services in emerging markets as it is a crucial component to small business growth and for reducing the gender PAY gap.


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