Business Daily (Nairobi)
Mwaura Kimani
10 July 2009
Barclays Bank is developing a new platform in the bonds market that promises to significantly change the way public universities finance their ever-increasing needs.
It is working on an education bonds plan that will be priced - among other factors - on the billions of shillings worth of assets held by the universities.
The plan has the potential of lowering the cost of education and increasing access to the universities.
The aim is to wean the institutions of their heavy reliance on short-term borrowing that has left them with yawning budget gaps and ramped up the cost of higher education, according to people familiar with the plan.
Adan Mohamed, the Barclays Bank managing director, reckons the long-term plan offers the seven public universities the best avenue ever to raise the Sh100 billion they need to finance their programmes.
"Public universities are sitting on huge financing opportunities," said Mr Mohamed.
"We want to help them unlock this value out of the big assets and reduce the overall cost of higher education in Kenya," he said.
Kenyan universities bear the dubious distinction of being the most expensive in East Africa, a development that is being blamed on the financing model.
Public universities have traditionally been financed through government allocations.
More recently, however, as Treasury became overburdened by the increasingly public expenditure needs, the varsities have come to rely more on money from income-generating activities such the popular parallel degree programmes.
Heavy reliance on fees as a revenue stream has in turn tipped the scales in favour of upward adjustments that have blocked thousands of prospective students from university education. It costs at least Sh1 million to complete a Bachelors degree programme under the parallel system.
The Barclays' plan is backed by the National Economic and Social Council (NESC) --the organ responsible for the country's economic policy.
Analysts said the involvement of NESC signals the Government's resolve to find a long term solution to the financing crisis in public universities.
If successful, this plan will see public universities become big players in the financial markets where they could tap into the billions of shillings held by high net worth investors and financial institutions.
The growing demand for higher education is piling pressure on institutions to look for additional sources of financing, forcing them to re-think their fund-raising strategies.
On Thursday, senior public university administrators, officials from Barclays Bank and NESC met to distill their proposals, before they are given to the Government for consideration.
Demand for education services and the subsequent need for expansion by institutions is fuelled by thousands of working Kenyans, seeking additional qualifications that can cushion them against a changing labour market.
Educationists say failure to push through new financing solutions that could help the universities develop new teaching facilities promises to throw the sub-sector into an admission crisis.
"Short-term financing has proved to be very costly given the level of demand for funds to expand facilities," said Prof Louis Mumera, a deputy vice-chancellor at Egerton University.
"Focus should be on recruitment of strategic partners who can help develop university infrastructure and recover the money later," said Prof Mumera, adding that investors have been hesitant to engage universities for fear of political meddling.
Biggest challengeIt is estimated Kenyan public universities received Sh11.2 billion worth of State subsidies in the last financial year, down from Sh14.2 billion a year before -- a 16.2 per cent drop.
Education officials said the universities were spending double the amount sourced from commercial avenues to supplement incomes.
Financing higher education has emerged the biggest challenge for educationists, informed by dwindling Government disbursements to universities, said to have put the brakes on expansion, including construction of campuses.
"It's a crisis period in universities," said University of Nairobi Vice Chancellor Prof George Magoha in an earlier interview. "We are already excluding too many qualified students and this has a negative impact on skills development in the country."
More than 200,000 form four leavers who sat for last year's Kenya Certificate of Secondary Education (KCSE) will, for example, miss places in public universities since the institutions are short of spaces.
Educationists reckon the measure of success in Kenya's higher education is bound to be judged by the ability of the institutions to absorb all qualified candidates, irrespective of whether or not they meet the country's human capital demand.
This will be taken as the return of investment from the billions of shillings being pumped into the institutions by both the Government, parents, and guardians annually.
"If the Government was to reasonably finance universities, this would mean doubling the current spending and the economy can hardly support this," said John Mberia, a deputy commission secretary at the Commission for Higher Education, the universities regulator.
"We have one of the most expensive university education system and this must change if we are to meet our human capital needs to grow the economy, " said Mr Mberia.
Already, the Higher Education Loans Board (Helb) which finances university learning through loans to students is in the process of remodelling its fundraising strategies in the wake of high demand for loans.
For the body that has mainly relied on hand-outs from Treasury and recoveries from past borrowers to finance its operations, the shift will see it reach out to sovereign wealth funds and big education scholarships and bursary funds for more money.
Sovereign wealth funds are state-owned investment vehicles through which surplus government finances are invested, especially in firms in need of a cash infusion.
Helb is also pushing through a plan to float a Sh7 billion education bond to raise more money on the Nairobi Stock Exchange.
Although no date has been set for the listing, the bonds offer is among a raft of plans that Helb is considering as it prepares for tough times in the coming years.
"We must look for alternative sources of funds given that demand for monies has reached an all-time high and could get out of hand in the next few years, " said Mr Benjamin Cheboi, the chief executive in an earlier interview.
High feesThe new initiatives are set to benefit thousands of university students who are currently grappling with high school fees.
School fees account for 60 per cent of an average Kenyan household's annual spending, according to past studies.
"As the demand for higher education continues to rise, the ability of the government and parents to finance higher education will continue to drop," says a recent report by the Institute of Policy Analysis and Research (Ipar), a policy think-tank.
"This requires a re-thinking of financing strategies by both the Government and private players."
According to the Economic Survey 2009, Kenya had 122, 847 university students by the end of last year, up from 118,239 in 2007. Despite the increased enrolments, the number of universities has stagnated at 28 countrywide since 2006.
Be the first to Write a Comment!
Copyright © 2009 Business Daily. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
