While most universities and education clusters evolve as an outcome of government support and national education goals, an overwhelming number of the world’s best colleges and seats of higher learning function the way they do because of support from companies and industrial conglomerates.

The education sector is in the less industrialised countries (also called ‘emerging markets’ nowadays) is no longer seen as the exclusive obligation of the government and well-organised NGOs. It now presents opportunities for research and private investment.

Both private sector for-profit and not-for-profit business models exist in education, and the less industrialised countries provide any number of examples of foundations, funded by the philanthropic activities of companies, that support the delivery of educational services from the primary schooling to the post-graduate level.

Education is indeed a service like any of a very large variety of goods and services provided very efficiently by the market. When we say that markets work it is just as applicable to the provision of education.

For instance, The Spark Group, founded by entrepreneurs from MIT, is creating a branded chain of low-cost schools across India. The schools will be owned and operated by private entrepreneurs. Spark hopes to maximise outcomes of the initiative by harnessing the power of grassroots entrepreneurship.

The model will be to provide a ready-to-run package that comes with everything required to start and operate a low-end school - from curriculum to fee schedule to infrastructure design.

The Spark Group’s plan is to take the entrepreneur from “ink on the contract” to “chalk on the board” in three months. This chain of schools will be adapted for local needs — and yet be integrated under one brand that will be instantly recognised by every poor family in India.

Backed by rigorous academic research from Harvard and MIT, Spark plans to make sustainable investments in schools by providing much-needed resources and value-added services.

Even those who advocate a market-based approach to providing basic services don’t argue that the state can totally abdicate its responsibilities. The late economist Milton Friedman, who advocated a school voucher system, did not want the state to withdraw totally from the field of education.

The state must also be responsible for providing services when there is a market failure, because free markets do not work well when economies of scale are very large and there is a natural monopoly, as in the case of piped water, and when the commodity is a ‘common good’, as in the case of public health. In such cases, the market might be a partial complement to the state, but it cannot be a total substitute. For example, if a region has a private water supply, the government must still regulate rates and ensure that the poor have enough purchasing power to buy water.

The boom in India’s private sector has been accompanied by an outright failure of the state, and the poor have borne the brunt of this failure.

The rich can purchase services from private enterprises, and the middle class are the main beneficiaries of limited public services. But the poor have little or no access to public services and cannot pay the high prices for private services. For instance, children of the rich go to exclusive private schools, children of the middle class use a mix of private and public schools, and children of the poor often do not go to school at all or go to low-quality public schools.

WHAT ARE THE linkages between being poor and absence of (or very limited) education? We possess enough knowledge now to understand that the two are deeply interlinked, and one critical link is the absence of financial security and opportunity.

Without capital, impoverished people cannot rise above subsistence. This is the lack that the huge global microfinance movement addresses, which is also a basic yet crippling glitch in the formal banking system.

There are some microcredit organisations that give their clients more than loans, offering education, training, healthcare, and other social services. Typically, these organisations are not-for-profit or are owned by customers or investors who are more concerned about the economic and social development of the poor than they are with profits. The largest of these social purpose microfinanciers include Accion International, Finca International, Grameen Bank, Oikocredit and Opportunity International.

In contrast to nonprofit organisations, commercial banks that make microloans typically provide only financial services. Indonesia’s Bank Rakyat, Ecuador’s Bank Pichincha, and Brazil’s Unibanco all directly target poor customers. Some large commercial banks, such as the Indian bank ICICI, do not lend directly to individual microcredit clients, but instead work through small microfinance organisations.

Many non-profit microfinance organisations target women borrowers. At Grameen Bank, for example, 97 per cent of clients are women because, the bank says, “women have longer vision [and] want to change their lives much more intensively”. Evidence indeed suggests that when women retain control of microloans, they spend more on the health, security, education and welfare of their families. That’s why when wealthy philanthropists such as financier George Soros and eBay co-founder Pierre Omidyar pledge hundreds of millions of dollars to the microcredit movement — and when global commercial banks like Citigroup and Deutsche Bank establish microfinance funds — they will do well to examine how education needs can benefit from the microcredit revolution.

Rahul Goswami is a policy analyst (makanaka@pobox.com) and writer based in Goa and Berlin.