Regulating Educational Services in Nepal: A New Perspective

There is strong public resentment over exorbitant fee charged by private schools. Public outcry over excessive exploitation of students and their parents by owners of some of the private schools was long overdue. My opinion is based on some of the incidents that I, as parent of school going children, have personally experienced in two different private schools. In one of the schools, I was not given my child’s annual report card in the pretext that I had not paid my child’s dues for the following annual academic session. The school had no qualm in encroaching on my fundamental right to choose school for my child. In the same school I saw an invoice in which a student was fined Rs.200 for forgetting to carry her instrument box in the class one day. In another school, I had to pay a monthly fee on account of food even for the month the school was not open. I had to pay fine at the rate of Rs.100 per day for failing to notify the school in advance that my child was not attending school on account of her sickness. It is extremely unfortunate, that simmering discontent manifested in the form of some students taking law in their own hand, manhandling principals of some schools and damaging their private properties, and forcing the schools to close for one whole week. In response, the government has formed a high level working committee to propose reforms. Unfortunately again, this is not the first committee of its kind. Relishing in talk and shying away from action have become our national character. Nevertheless, I will attempt here to give an alternative framework of regulating our market for educational services.

Education system needs regulation.

Free competition tends to provide better price value consideration to the end consumers. The big concern, however, is that whether the economic logic that applies to other products or services applies to education as well. What is so special about the education industry that the free market logic should not apply?

In educational services the consumer (student) parts with his/her money and time in exchange for promise of knowledge and skill delivery over a period of time. There is a time lag between the initiation of the buy-and-sell transaction and its consummation. Until the transaction has consummated, the seller of the transaction has incentives, at least in one period game, to act in a manner that is not in the interest of the buyer. Second, unlike other products the educational product that the consumer acquires cannot be transferred for a price to other buyers if she/he does not want to keep the product. Finally, switching cost to the buyer is high, first because he/she cannot switch during the term or year and second he/she may not be able to transfer for value what he/she has already bought or accumulated up to the time of switching. The implication is that private providers of services have incentive to disseminate false information, or make false promises.

Regulation and Its Costs

Any design of regulatory framework for educational services should be based on the following three broad objectives:

1. Facilitating competition in the market for educational services so that the end users get better price value consideration.

2. Ensuring that the consumers are protected from fraudulent practice and coercion from the providers of the services.

3. Ensuring that the inequity in consumption of educational services is reduced without too much interference in the efficiency of the educational system.

Regulatory framework, however, should be designed with full understanding that the only objectives of regulations are to increasing efficiency and/or promoting equity, and every regulation entails cost – cost of formulation, monitoring, compliance, and forgone opportunities. Many times the costs are not so obvious and the society tends to unknowingly accept bad regulations for good, and perceive more than desirable regulations for inadequate regulation. Further, if regulating agencies fail to ensure compliance for lack of resources or lack of will, regulations distort the playing field in favour of unethical players at the cost of ethical players. In view of administrative inefficiency and resource constraint of our government in particular, it is more desirable to transfer as much regulatory function as possible to the market.

Broad Functional Classification of the Educational Service Providers

Educational service providers should be divided into two broad and distinct categories –

Program Accrediting Institutions and Program Delivering Institutions. Conditions to be fulfilled by the education service providers – accrediting function or delivery function – before obtaining the license to operate will have to be designed by the Ministry of Education.

Program Accrediting Institutions will perform the following basic functions:

1. Designing standard educational programs to be offered by affiliated delivering institutions.

2. Granting approval to the educational program designed by the Program Delivering Institutions.

3. Designing and Implementing Evaluation Mechanism for each program approved by it and awarding degree on completion of such program by the students.

4. Formulating regulation for and monitoring the quality of the programs delivered by the delivery institutions.

5. Developing and Administering National Test of Proficiency in different subjects for different age groups.

Program Delivering Institutions will deliver the programs approved by one or more accrediting institutions to its students.

Under the proposed framework all Universities and Boards will have to obtain license to operate as Program Accrediting Institutions and they should phase out from program delivery by siphoning off its delivery function. All government delivery institutions – school and colleges should be transferred to new owners – private, public, community, etc.— after carefully designing the modality of such transfers. The discussion on the modality of such transfers is beyond the scope of this article.

To avoid conflict of interests no legal entity should have simultaneous controlling interest in the institution engaged in the delivery of the education program and the institution engaged in the accreditation of the educational programs. The other reason why accrediting function should be segregated from delivery function is that the institutions engaged in both functions will have unfair advantage over the institutions only delivering the programs. Further, accrediting institutions will shy away from accrediting programs already offered by it to avoid or reduce competition.

The educational institutions offering or intending to offer educational programs should take affiliation for their program from one or more of the accrediting institution. At the same time institutions delivering the educational services can choose the accrediting institutions of their choice for different programs they intend to deliver. The resulting market pressure fosters competition among the accrediting institutions as well as among the delivering institutions.

The Role of the Ministry in the Proposed Framework

Based on the nature of education that is to be provided into different age group Ministry of Education should have different wings or different apex regulating agencies to promote efficiency and equity in that segment of the education. For example,

1. Wing to regulate Pre-Primary Program (For age group 3 to 5)

2. Wing to regulate Primary Education Program (for Age Group 6 to 9 for Grade 1 to 4)

3. Wing to regulate Secondary Education Program (for age group 10 to 13 or Grade 5 to 8)

4. Wing to regulate Higher Secondary Education program (for age group 14 to 17 or grade 9 to 12)

5. Wing to regulate Higher Education Program (for age group 18 and above or class 13 onward)

Wing of the ministry to oversee the educational program in specific age group or grade should perform the following functions for the programs they require to regulate:

a. Awarding the institutions, under charter, license to accredit the program for specific age group.

b. Awarding the institutions license to deliver educational program affiliated to one or more accrediting institutions.

c. Periodically conducting or arranging to conduct national aptitude tests for students of the age group or grade within their jurisdiction.

d. Making a regulation regarding consumer protection, periodic reporting requirement in consultation with the Agency for monitoring financial discipline of educational institutions.

e. Maintaining statistics across time and institutions of the students and the institutions so as to review continually the effectiveness of the policy undertaken and making timely changes, if required.

One more wing under the finance ministry should be established to monitor financial discipline in all educational service providers – accrediting institutions as well as delivery institutions. The purpose is to reduce information asymmetry between the providers and receivers of services and ensure adequate degree of consumer protection. Wing to regulate financial discipline should formulate the reporting requirement for all institutions and publish periodic public reports on performance of educational institutions for public scrutiny. It should, in consultation with regulatory agency for specific segment of the education, initiate necessary corrective actions if the regulated institutions were to violate its charter with the regulated agency.

Some specific suggestions to reduce regulatory burden:

1. In so far as possible, the delivery channels, i.e. the schools, should not be part of the Government. Continued inefficiency of institutions owned and run by the Government allows private providers of education to extract higher economic rents. Schools that the government owns should be transferred to the local community or private providers, after carefully designing the modality of such transfers. Government’s provision of education should not be confused with the government’s production of education and the intent of this paragraph should not be misunderstood.

2. All providers of educational services, be they producers or deliverers of such services, should have a separate legal entity, the form of which is determined by the choice of the stakeholders who would own the institutions. Since Government agencies to register legal entity already exist, there is no need for the Education Ministry to cling on to the power of providing legal existence to schools, as is currently being done. Granting the license to operate is altogether a different matter.

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