International agencies to help loans board

Kenya is planning to approach international financing agencies as it seeks to cope with ever-increasing numbers of university students, most requiring study loans. The country's higher education loans board, faced with a dwindling pool of funds, has been mulling a range of fundraising options to allow it to keep up with growing demand.

Through the Higher Education Loans Board (HELB), the agency that funds university students on behalf of the government, Kenya has entered into a financing deal with the French Agency for International Development.

And in 2011 the board indicated it would be interested in borrowing from the World Bank and the African Development Bank to increase its pool of funds as the country prepares for a further surge in admissions this year.

Government officials said these are just some of a long list of deals that the country will enter into with global development agencies to allow it to service growing demand for student loans.

To do its work, HELB relies largely on state subsidies and recovery of student loans, many awarded to students from poor households. But given a rapidly diminishing pool of funds at HELB, educationists reckon that numerous students are missing out on higher education.

In terms of the new financing deals, the international lenders will offer students subsidised loans, which will be disbursed through local commercial banks. The loans, according to HELB officials, will be extended at pre-determined rates estimated to be slightly above the current 4% at which HELB lends to undergraduates.

"The idea is to have as many funding channels as possible to increase access to all students in universities" said Benjamin Cheboi, the chief executive at HELB.

Kenya's university education, studies show, is among the most expensive in Africa.

And inflation rose to nearly 20% towards the end of last year from a low of 5% in January 2011, pushing up the cost of essential goods and services. Universities have also been increasing tuition fees.

HELB receives at least US$18 million (Sh1.5 billion) from the government annually to lend to students, an allocation that has not really grown over the past few years and has lagged behind student numbers.

The loans board gives the equivalent of at least US$650 per needy student annually to help them pay fees and boarding expenses, but has been unable to increase the quota for four years now despite the surge in the cost of living.

Cheap loans for students would offer some relief for the many parents and guardians who have sought education loans from banks at a time when interest rates are at a historic high in Kenya, making such facilities unaffordable.

Due to a tight monetary stance advanced by the Central Bank of Kenya, commercial banks are currently lending at a minimum of 24% - 10% higher than the rate in June 2011. This has complicated financing higher education as a sizeable number of parents had opted for bank loans to keep their children at university.

Demand for student loans has been further pushed up by government's double-intake plan, implementation of which began in September last year in an attempt to clear a decade-long backlog.

As previously reported in University World News, public universities are under pressure to provide admission over the next two years to 40,000 students over and above the usual intakes.

HELB's Cheboi said the agency would require an additional US$13 million to adequately support the extra students under the double-intake plan, piling more pressure on the government, which finances the board. But with indications that the government can no longer cope with the demand for funds, the loans agency has been forced to rethink its fundraising strategy.

One of the options the board said it was considering was issuing education bonds linked to its performing loans. Last year HELB indicated that it was planning to issue a KSh7 billion education bond, based on the US$82.4 million (KSh7.4 billion) performing loans portfolio that is to be tradable on the Nairobi Stock Exchange (NSE).

But the current stock-market downturn, which has depressed activity at the bourse, could be scaring HELB off seeking funds through the NSE, as the bond might not attract adequate investors.

HELB has also been cautious about internal borrowing such as tapping a pension trust fund - an option that has been on the cards - fearing this could be seen as an unnecessary risk to the public.

The need for HELB to up its fundraising game comes at a time when educationists are predicting rapidly rising demand for student loans in Kenya in the decade to come.

In 2015 the first group of beneficiaries of free primary education will enter university. The social welfare plan, started in 2003, has helped push up enrolments in the school sector by more than 1.5 million, meaning many more students will be knocking at higher education's door in just a few years' time.

And later this year universities will admit 32,611 students who sat the Kenya Certificate of Secondary Education in 2009 or 2010, out of 96,000 who qualified. Last year, the Joint Admissions Board admitted only 24,000 students.

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