KENYA SIGNED AGREEMENT WITH FRANCE BOTH FOR FUNDING UNIVERSITY EXPANSION AND GIVING STUDENT LOANS BY WAY OF FRANCE BANK THROUGH PRIVATE BANKS IN KENYA TO PRIVATE AND PUBLIC UNIVERSITIES WHICH ARE FACING HUGE CASH PROBLEMS WHEREAS STUDENTS RISING BY 40% AGAINST SUBSIDY ONLY BY 4% TO 5% Kenya has signed a ground-breaking partnership with French public financier Agence Francaise de Developpement that intends to set up credit lines to fund university expansion and student loans. Kenya has signed a ground-breaking partnership with French public financier Agence Francaise de Developpement, or AFD, that intends to set up credit lines to fund university expansion and student loans. The arrangement, which will expand sources of finances for private and public universities, is to be made through private banks in Kenya. The details are contained in a concept paper prepared by the Ministry of Education, which will guide an in-depth study into engaging banks in scaling up higher education financing. A copy of the paper was obtained by University World News from the ministry. According to the brief, partner banks will be required to be legally entitled to take loans in foreign currency and will be subject to an in-house risk review by the AFD, given that the envisaged credit line programme will not be covered by state guarantees. The initiative will include tailored credit lines and other tools such as risk-sharing with the banks, technical assistance and institutional support, and will help in setting investment incentives and reducing technical and financial barriers that hinder the desired scaling-up of investment in higher education, the concept paper says. The partnership is the latest in a string of initiatives by the Kenyan government to swell the pool of funds available to universities to meet surging demand for higher education, which has left public universities financially strained and short of adequate facilities and lecturers. Attractive lending for cash-strapped universities Failure to increase funding in line with rising enrolments has undermined higher education expansion plans, including the construction of new campuses, and there has been intense pressure for alternative financing. Student enrolments have been rising by around 40% annually for the past five years, while subsidies have increased by 4% to 5% over the period. Both public and private universities are already borrowing money from commercial banks but the high interest rates and the short durations of those loans do not encourage investments in more costly and therefore less profitable - at least in the short run - programmes which nevertheless correspond to the needs of the job market, says the concept paper. In addition, it obliges universities to increase tuition fees that become unaffordable for students and their families. Appropriate loans should take into account the different profitability of programmes and the average income levels of Kenyans. The government and development partners are simply unable to provide sufficient funds to cover all needed investment in higher education, the concept paper says, also pointing to the need to tap more partnerships. The government envisages that long-term funds provided by AFD will be lent to banks at an affordable interest rate and with long maturities, including a grace period. This means that universities, which currently have to make do with high interest rates, will have access to cheaper loans. Data from the Central Bank of Kenya show that lending rates are currently averaging 16%, double the 8.5% benchmark rate set by the regulator. The benchmark rate is the cost at which the Central Bank lends to commercial banks. The banks will provide loans for investment projects to universities, which must meet eligibility criteria, the paper says. The government has already hired consultants to conduct a study that will guide setting up of the credit lines, establish the level of demand for funds and pre-identify banks that could be involved. The study will review existing financing mechanisms and conditions related to higher education expansion - eligibility criteria, rates, grace period, maturity, fees, security, and collateral. It will summarise investment trends during the past five years, including projects supported by local banks, international donors especially the World Bank and African Development Bank, and other financiers. This will reveal the investment potential for the public and private university sectors for the next three to five years. The study will also recommend ways to circumvent current obstacles to accessing finance and expanding higher education institutions. The report is expected to be handed to government in the next few weeks, clearing the way for potential roll-out of credit in the next financial year, which begins in July. Meanwhile, the government has been encouraging public universities to seek commercial loans and engage in income generating activities to raise money for expansion. But public universities wanting to borrow money have to get approval from both the Ministry of Higher Education and the Ministry of Finance. Several universities recently broke new ground in the search for funds for infrastructure expansion. In January, cabinet gave the green light to two big public universities - Kenyatta and Moi - to engage private investors. The two projects were among at least 20 that will be rolled out under public-private partnership arrangements. The government has also moved to support the development of private universities through, for example, tax exemptions for physical investments and provision of land for expansion projects in remote areas. Student loans Funding pressure has also been heaped on the Higher Education Loans Board, or HELB, which disburses student loans for the government. As a result, needy students have been missing out on opportunities at a time when higher education is increasingly difficult for households to afford. The loans agency has targeted raising the student financing budget four-fold from the current US$63.5 million to US$224.7 million in 2018. A 2009 World Bank report showed that university education in Kenya is among the most expensive in the region. With over 50% of Kenyan households considered poor, most require supplementary funding to keep their children in class. In a strategic plan launched in February, HELB set out to build a larger revolving fund that would ensure continuity and availability of loans for students. Currently, Kenya has more than 200,000 university students, and government expects the number to double to 450,000 by 2016. The consultants are expected to review the HELB loans system, looking at the financial sustainability of the current set-up against student enrolment trends. This will map out the potential for HELB and-or local banks to lend to students, taking into account constraints faced by banks such as regulations and collateral requirements. Response Educationists said the AFD-Kenya arrangement could ease pressure on some students who miss out on HELB funds, as they will be able to get loans from banks. However, the cost of loans from banks is likely to be higher than HELB loans, currently priced at 4% per annum. Kenyas higher education system is at a crossroads. There has to be a way of expanding access to cheaper loans for students and at the same time to universities to fund growth, said Dan Ngugi, a Nairobi-based economist and part-time lecturer. The government and HELB seem to be getting the urgency of this issue, especially with the new partnerships we are seeing. We need more though, he said.
Posted on: Mon, 14 Apr 2014 03:47:08 +0000
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