Friday, July 15 2011
Mr Daniel Adero, a Maseno University graduate, is yet to get gainful employment, two years after he graduated. But Mr Adero, just like thousands of his colleagues who are still looking for jobs, receives an e-mail monthly from the Higher Education Loans Board (Helb) that not only reminds him to start repaying his loan but also informs him of a Sh5,000 fine on top of the interest his loan is attracting per month.
Even though his argument that the education financier should give him time to get a job so that he can start offsetting the debt is shared by most of the defaulters the Business Daily interviewed, the board maintains that once any student completes his/her university education, they should use the knowledge gained to generate some income.
Nevertheless, Mr Adero reckons that the new measures have made it indeed very expensive for a beneficiary of the government loan to continue ignoring repayments. Currently, loanees are required to start repayment a year after completing studies, and the board can shorten the grace period if it finds it fit. For instance, Mr Adero’s fines in the past 10 months are now in excess of Sh50,000, which is eight times more than the Sh8,600 interest his 12 per cent interest rate per annum his loan has attracted in the same period, making the fines emerge as the most effective punitive measure that will push the education financier to overcome its greatest nightmare — recovering loans — as it races towards self-reliance.
According to data from the State corporation established to finance needy university students, more than 76,000 beneficiaries who are due for repayments are yet to commence repayments amounting to Sh7.9 billion, meaning that the financier is netting at least Sh3.8 million in fines alone monthly. Should the board defy the mounting pressure against these fines and continues, as is the case in the developed world, then Helb is sure of a fresh source of quick cash to support its huge demand for loans. For instance in the US, defaulters are penalised up to Sh18,000 ($200) a month if they don’t pay.
The board is also looking to tap into the expertise of professional debt collectors to complement the current services of the Kenya Revenue Authority to track down defaulters of the government university loans in an effort to maintain the growth in its loan recovery now in excess of Sh200 million a month.
“The process of picking the debt collectors is currently on as per the public procurement law, there has been drastic increase of loan payment by individual payers not attached to any employer,” the board’s head of operations, Richard Kipsang told the Business Daily. “We have seen more than 100 per cent increase of collections from this group,” Dr Kipsang said.
Latest figures show that the stringent measures the board has introduced to encourage repayment have started to bear fruit after it reported a 21 per cent growth in loan recovery in its last financial year. It collected Sh2.3 billion in 2010 compared to the Sh1.9 billion the previous year — a 60 per cent of the annual loans disbursement to students — while tripling the growth in its individual collections to Sh457 million in the period under review. The growth means that the financier’s revolving fund will be able to cope with reducing Government financing even as it ropes in more students into the scheme.
This year, it is planning to lend Sh4.1 billion to 100,000 students, a 17 per cent growth from the Sh3.5 billion it gave to 76,000 students last year and a 28 per cent rise on the Sh3.2 billion disbursed to 68,500 students in 2009.
The board has also embraced the use of new technology to recover the loans, especially via the mobile money platforms and monthly reminders to defaulters. It has also opened an avenue where one can go and negotiate as much money as they are able to pay a month depending on their income to encourage graduates with unstable contractual engagements, unsalaried or low-paying jobs to also consider repaying.
But it is the dawn of the era of information sharing among lenders on defaulters with the Credit Reference Bureau (CRB) that has handed the board the biggest muscle to deal with its worst nightmare for decades. Information sharing involves circulation of names of defaulters to all lenders, potentially locking them out of the credit market.
The board, which is already sharing information with sister institutions within East Africa and Africa at large through the Association of African Higher Education Financing Agency is now calling on the regulator to increase the scope of information sharing to all lenders including micro-finance institutions and the savings and credit co-operative societies (Saccos).
“We propose that the current legal framework on credit referencing be made more inclusive by including all credit providers in the country. This will enhance accountability and reward those who pay as per the loan agreements,” Dr Kipsang told participants of the regional credit reporting conference early this month last. Currently, information sharing is prominent among commercial banks, leaving out other lenders such as the Saccos and micro lenders.
This comes at a time when the rising cost of living and labour costs have started a clamour for increments in the amount of allocations; a proposal, which if implemented will see the loan advanced to students more than double. Parliament has proposed that the maximum amount allocated per academic year for universities be set at Sh100,000, and the least Sh50,000.
Currently, students who qualify for the loans get between Sh35, 000 and Sh60,000 alongside a bursary of up to Sh8,000 every academic year until they finish their studies. This translates to a minimum of Sh140,000 and maximum of Sh240,000 in four years.
This has seen the board through Higher Education minister Sally Kosgei seek parliamentary support to have its budgetary allocations increased to cater for the increasing number of self-sponsored (parallel) students.
The increased allocation, she said, was meant to include more students into the Helb scheme alongside increasing the disbursement threshold for the students who benefit.
Helb’s extension of its scope of financiers to include all Kenyan students in any university in East Africa, masters and post-graduate students, scholarships to very needy students is also putting it under increasing pressure to ensure it collects its loans. The expanding university population to the current 31 alongside 16 constituent colleges as they seek to satisfy the ever rising demand for tertiary education further exerts pressure on the board as demand for loans increase.
“There is therefore need to enhance loan recovery to be able to create a viable revolving fund to meet this demand for university education,” Dr Kipsang said.
To date 300,000 Kenyans have benefited from financial support from the board at a cost of Sh30 billion in which Sh22.8 billion is mature loans having been disbursed to 212,000 students. Forty-seven thousand students have fully re-paid their loans amounting to Sh3.7 billion whose details have been forwarded to CRB for positive listing.
A consolidated 90,000 beneficiaries are at various levels of servicing their loans, which stand at Sh11 billion.
The board said it is also looking for fresh avenues to push loan beneficiaries to repay their loans.
“The board’s long-term strategy is to become an education savings mobiliser through deposit taking in order to finance students in all tertiary institutions,” said Dr Kipsang. An improved collection will also allow it to increase its allocation to Kenyans studying in East African universities as well as students in the middle-level colleges.
This high demand for university education financing has also attracted commercial banks that are coming up with ways of circumventing challenges posed by this group financing since they lack security — title deeds and other fixed assets — critical to access finance. For example National Bank has a loan product where employed guardians or parents can access loans of up to Sh500,000 through its study loan repayable in 60 months and Kenya Commercial Bank has the Masomo loan product. Insurance companies have also lined up several products targeting parents who want to secure the future of the children’s education.