Higher education loans agency faces uncertain times

Kenya’s Higher Education Loans Board, or HELB, the agency that disburses loans to students on behalf of the government, is likely to face significant cash flow problems in the coming years, the country’s auditor general has warned, citing poor chances of recovering over US$85 million (KES8.8 billion) in non-performing loans.

Another US$4 million (KES405 million) is held as deposits in the local Chase Bank that was placed under receivership by the Central Bank of Kenya in April last year after the regulator unearthed a scam. Of the US$4 million, US$1 million was in short-term investments, while the balance was held in deposits, the Auditor General Edward Ouko said in the latest audit report on HELB tabled in Parliament earlier this month.

In his assessment, Ouko said he is doubtful these funds will be recovered.

The suggestion by the auditor general that the agency should write off the US$85 million held by former students has thrown a spanner into the works, as HELB’s growth plans are pegged on the recovery of those loans.

The inability to recover the non-performing facilities – which are part of HELB’s US$300 million loan portfolio – is hurting its capacity to extend lending to fresh university students, a development that has in the recent past seen it cut the allocation available.

HELB requires that all beneficiaries start repaying their loans at least one year after clearing their university studies, based on the assumption that they secure jobs immediately.

High unemployment

But with high levels of unemployment in the country (more than half of the new graduates stay out of work for more than three years before finding a formal job), an increasing number of loan beneficiaries are falling behind in repayments.

The agency has in the past year deepened partnerships with key public agencies to tackle the problem of non-performing loans. It is working with the Kenya Revenue Authority, the National Social Security Fund, the Directorate of Public Prosecutions, employers and other bodies in efforts to track down past beneficiaries who have defaulted.

HELB has apportioned part of the blame to employers who are currently required to effect deductions from the salaries of all former beneficiaries of HELB loans.

Since the beginning of last year it has also become mandatory for all graduates to seek clearance from the loan agency before securing a job.

The revelations by the auditor general come at a time when the agency is struggling to meet its financial obligations as it heads into a new financial year on 1 July with a huge financial shortfall.

HELB received US$100 million for the 2017-18 fiscal year (up US$9 million from the current year) from the national treasury against a request of US$190 million. This means that a growing number of qualified beneficiaries could miss out on funding.

New funding streams

“We are working closely with agents to recover more loans, even as we seek new funding streams to meet the growing demand for loans,” HELB Chief Executive Officer Charles Ringera told reporters in Nairobi recently.

In 2015, HELB lowered the maximum loan limit for new students by 20% to US$555 annually, so that it could grant more loans with limited funds. The minimum allocation remains unchanged at US$380 annually.

But the demand for loans has been growing much faster than the pool of funds available.

Treasury estimates that the number of first-time applicants seeking loans will grow nearly five-fold from this year’s 32,776 to 147,687 in 2018. This is because of growing student numbers and the expansion of loans to students in colleges and private institutions.

Government data shows that more than 110,000 students applied for loans at the end of last year, up from 65,000. Out of the 110,000 first-time applicants, only around half – 65,000 – secured loans.

HELB currently supports nearly 200,000 students within the country and about 1,500 enrolled in universities within the East African region as well as those studying in local middle-level colleges.

HELB has been working on a range of fundraising options aimed at reducing its reliance on faltering state funding.

Partnerships

A financing partnership agreed between Kenya and French public financier Agence Française de Développement or AFD was established in 2014, although no new developments have been recorded since. In terms of the partnership, AFD is to set up credit lines to fund university expansion and student loans through private Kenyan banks.

So far, HELB has partnered with three local banks – the Cooperative Bank of Kenya, National Bank of Kenya and Commercial Bank of Africa – to provide personal loans to students enrolled in universities in the East African region.

Under this partnership, the parents, guardians and sponsors of students are subjected to the bank’s personal loan scheme procedures. However, concerns have been raised about affordability, given that banks lend at 14% interest, compared to HELB’s 4% rate for undergraduate degree loans.

Three years ago HELB partnered with the US-based Latimer Education company to improve access to higher education by offering financial support to identified students in identified institutions in the US and Africa. It also offers financial support in the form of loans, bursaries or scholarships.

The agency has also signed a deal dubbed FunzoKenya Loans with Intra Health Kenya to enhance access and equity to higher education specifically to health workers by way of granting loans and scholarships. The loans target those already in the health sector workforce as well as those enrolled in approved institutions.