The private sector is playing an increasingly important role in financing and providing educational services in many countries. (Often the term "private sector" encompasses households' out-of-pocket expenses rather than describing for-profit or not-for-profit sectors.) Private sector development has not arisen primarily through public policy design but has been affected by the design and limitations of public policy. Analyses of case studies of 11 of 70 World Bank education projects in 1995-97 reveal that the World Bank's interest in private sector development is in capacity-oriented privatization to absorb excess demand for education. This is crucial to the bank's general strategy for education lending: promoting access with equity, focusing on efficiency in resource allocation, promoting quality, and supporting capacity building. Absorbing excess demand tends to involve poorer families, usually much poorer than those that take advantage of other forms of privatized education. The bank emphasizes capacity-oriented privatization, especially of teacher training for primary and secondary schools, as well as institutional capacity building for tertiary and vocational education. The underlying principle is that strengthening the private sector's role in noncompulsory education over time will release public resources for the compulsory (primary) level. (Case studies of World Bank projects in the following countries are appended: Dominican Republic, Maldives, Chile, Mauritania, Argentina, Senegal, Burkina Faso, Mali, Indonesia, El Salvador, and Comoros. Contains 74 references.) (KC)