This paper examines the effect that introducing a capitation system to fund non-salary expenditure has had on participation and on investment in improved quality. The principle behind introducing capitation was that it would eliminate the need for households need to pay fees for basic education and that it would make it possible for schools to have access to funds to improve the quality of education. Available education statistics suggests that in its first year the introduction of capitation grants produced a seismic shift in demand as intended by the policy. Subsequently it has become clear that drop out rates have not fallen and that many of the recent entrants are seriously over age. It also appears that delays continue to be experienced in disbursement, and that anticipated investments in quality have yet to bear fruit. The research leads to policy relevant conclusions to act to reduce high levels of over age enrolment, direct higher rates of capitation to the poorest areas, and provide complementary interventions especially in relation to improved teacher deployment and utilisation.