Universities eye bank loans to drive development

Leading Russian universities, facing a lack of capital investment and plans to reduce state funding of higher education, are considering additional sources of finance for their activities, including bank borrowing.

So far, most Russian universities have not been able to attract bank loans because of their status as state-financed organisations.

However, ongoing budgetary reforms have granted the status of autonomous institutions to about 30 major Russian universities, improving their chances of borrowing from external sources.

According to analysts from international ratings agency Standard & Poor's (S&P), a shortage of capital investment has been a traditional problem for most Russian universities.

Although during the period 2002-12 state investments for higher education increased 3.5 times in value terms, this has not resulted in a significant improvements to academic infrastructure and has not boosted their positions in international rankings.

Currently Moscow State University, Russia’s leading institution, occupies only the 112th place in the QS World University Rankings, with St Petersburg State University in 251st place.

Total revenue and capital expenditure per student at even Russia’s wealthiest universities, Moscow State University and the Russian Higher School of Economics, or RHSE, is significantly lower than the figures of leading UK and American universities.

S&P analysts say one of the ways to improve the situation could be a larger volume of borrowed funds.

According to S&P, at present the potential volume of the Russian universities’ lending market is estimated at about RUB18 billion (US$600 million).

Most of the borrowed funds could be invested in the development of universities’ infrastructure, thereby attracting foreign teachers and increasing academic salaries.

Irina Abankina, director of the Institute for Educational Development at the RHSE, commented: “Leading Russian state universities are very interested in raising bank loans for their investment needs.

“Today, most domestic state universities experience an acute need to upgrade their material and technical base and infrastructure, which cannot be achieved by using only state funds.

“At the same time this problem is non-topical in the case of private institutions, which have long had the status of commercial organisations and can obtain loans."

Abankina concluded: “Russian state universities should follow the example of China, where the state universities have recently been allowed by the government to borrow funds from banks.”

Currently Russia lacks a well-established mechanism for lending to domestic universities, while the richest universities are not interested in attracting loans, having the necessary funds for development.

Viktor Sadovnichy, head of the Moscow State University, said in an interview with the business paper Kommersant: “The university is not going to take out loans in the near future, while its future development is expected to be provided by state and extra-budgetary funds."

The same view is shared by the representatives of the RHSE.

In addition, Russian banks are extremely reluctant to lend to the majority of Russian universities, due to lack of transparency in their financial statements, long-term development strategies and clear investment programmes.

Many banks also do not understand what funds will be used by Russian universities to repay loans, given their very low income from R&D activities and lack of endowment funds.

Anton Tabakh, a senior analyst at Uralsib Capital, Russia’s leading financial analytical agency, said: “We do not believe in the development of endowment funds in Russia in the near future.

“Repayment of loans could be through the possible renting of a huge number of real estate units, which are currently on the balance sheet of many Russian universities, as well as tuition fees, the cost of which is steadily growing.”

The idea of a special loan programme for Russian universities has already been mooted by analysts at the Russian Agency of Strategic Initiatives, Russia's largest agency for the promotion of new business projects. But it has failed to win over the banking community.

Still, analysts believe that bank lending could be considered almost the only source of funding for Russian universities, along with state support.

Unlike in Western countries, no Russian university has endowment funds, and revenue from R&D activities remains small.

But according to Igor Fedorov, head of Bauman University, one of Russia’s leading technical universities, the annual volume of investments in the university from big business is estimated at about RUB1 billion, with the majority of funds attracted from numerous orders for Bauman scientists’ R&D developments.