Struggling university seeks commercial loan to boost finances

Kenyatta University, Kenya’s biggest institution by student numbers, has turned to commercial lenders to fund its operations, exposing the worsening financial condition of the country’s public universities.

In an expression of interest to financial institutions, the university has sought a US$4.5 million loan in order to deal with a huge deficit. In a recent tender which gives interested bidders up to 28 February to put together a financing proposal, the university said the facility is valid for 10 years.

“KU [Kenyatta University] will select an individual financial institution among those invited to submit proposals or those who respond to the invitation for proposals in accordance with the method of selection detailed under this section and consistent with the regulations,” said the tender notice.

For years, Kenyatta University has been the face of success in Kenya’s higher education sector. The loan is likely to put pressure on the institution as it will come with a hefty repayment demand in a country where interest rates are hovering around 14% following the removal of a rate cap late last year.

Higher education authorities in the country have been warning the institutions over budget shortfalls which have left them unable to meet their immediate financial obligations against the backdrop of accusations of quality decline.

Public sector universities in financial doldrums

Kenyatta University is not alone in its predicament. The University of Nairobi and Moi University have also been in the financial doldrums.

Unable to run its operations, Moi University, the country’s fourth largest, is currently undergoing a restructuring exercise which has seen it abolish some degree programmes, merge departments and close down two of its satellite campuses in Kitale and Odera Akang’o.

This will save the institution approximately US$2.2 million annually. A committee looking at ways of salvaging the institution has recommended redeployment of permanent staff and the laying off of more than half of casual workers.

At the University of Nairobi, things are not much better. The institution is unable to settle US$16 million in unpaid pension and statutory deductions for its workers and a contractor involved in the institution's US$23 million tower is demanding an immediate payment of a US$2.3 million debt.

Independent commentators say the financial crisis in universities is reaching critical levels and risks bringing some of them down.

‘Stop-gap measures’

“Universities have failed to take advantage of technology to improve efficiencies in administration and training. As a result, most are technically insolvent with some facing closure or mergers. Already, satellite campuses have become the first casualties. It is time to address the issues afflicting universities with more seriousness than just taking stop-gap measures,” the Business Daily said in an editorial on 17 February.

“An overhaul of the running of these institutions is needed now more than ever. Otherwise, we continue to put at risk the lives of many young Kenyans seeking to better their future through education,” said the newspaper.

Kenya’s Education Cabinet Secretary George Magoha asked universities on 17 February to cut the number of support staff in favour of more teaching staff, and to stem recurrent expenditure.

University administrators have linked the cash flow challenges to a sharp fall in enrolments over the past three years and inadequate public funding.

The Kenya Universities and Colleges Central Placement Service (KUCCPS), the government agency that places students in universities, said 125,449 candidates will be placed against the available capacity of 193,878.

Change to entry requirements

Three years ago, the government lowered the entry level from B to C+, allowing more state-sponsored students to join universities. Previously, those who scored below B+ were required to seek education through self-sponsored schemes, which were a cash cow for universities. This avenue has since been closed and in most of the universities the self-sponsored programme has been suspended.

Public universities estimate that they are jointly operating at a US$250 million shortfall annually.

Last month, the government announced it would increase its funding to public universities for the next financial year by 33%, marking the biggest increment in the past five years. The institutions will receive US$1.53 billion in the next financial year that begins in July, up from US$1.15 billion in the current year. However, university administrators say the increase is unlikely to end the pressure on universities.