Bond could raise $50 million for student loan shortfall

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KENYA

Kenya is seeking to raise $50 million through a public bond to fund university student loans.

The Higher Education Loans Board (HELB), the agency that disburses student loans on behalf of the government, intends to issue a social education bond to fill current funding gaps and facilitate the acquisition of computers student laptops.

HELB seeks to contract financial institutions, regulated by the Central Bank of Kenya or the Capital Markets Authority (CMA), which specialize in financing public entities in the bond markets, to raise funds for higher education funding.

The Loans Committee, faced with a dwindling pool of funds, has considered a range of fundraising options to enable it to meet growing demand. A social link is unique in that investors are attentive not only to the financial return of their investment, but also to the social impact of the initiative envisaged.

In an expression of interest published last week, the agency had given companies until September 14 to submit their bids for the initiative, which aims to usher in a new era for HELB by tapping off-budget university loan funding. .

The transaction adviser will have to develop a well-structured bond that will be issued in the capital markets to fill the millions of dollars in shortfall – the result of government funding tracking student enrollment and a rising default rate.

According to the procurement document, the transactional advisor will also be mandated to develop a detailed financial model for the project, including the capital structure and a financing structure with the project implementation schedule.

The agency said the CMA has approved the bond which is expected to be issued for a term of seven years and which has already received a government guarantee.

One of many alternatives

The social link is one of the many alternatives considered by the HELB for three years, since the launch of its last strategic plan which aims, among other things, to create an ad hoc vehicle to manage part of the loans and debts of the HELB, with inflows to be used to repay bond interest.

The agency says it has current assets worth US$110 million that can be used to support social bonding.

Previous efforts to strengthen funding have not yielded significant results. So far, HELB’s external resource strategy to leverage funds outside of government funding has only generated US$15 million through grants from other higher education funders.

Early last year, HELB announced it was seeking a $100 million syndicated loan from an international financier to bolster its funding capacity amid growing demand for financial assistance.

The agency had said discussions were at an advanced stage with the Kenyan National Treasury to guarantee the debt at a rate of 7% for further loans to university students.

“We are looking at this opportunity and the National Treasury must give us a sovereign guarantee that we can attract this funding,” said Charles Ringera, chief executive of HELB, speaking in parliament on March 21, 2021.

However, little traction has been registered on this initiative.

The new president promises to act

The agency said it will also seek to link up with other organizations inside and outside Kenya for funding to enable it to become a fully-fledged financial institution for financing the students. This will enable it to attract syndicated funds from development partners and global financial institutions.

HELB hopes to raise approximately US$89 million over the next three years for loans, both from the government and from alternative sources.

Kenya’s new government has identified university funding as a key priority, with the new president, William Ruto, pledging to roll out initiatives to increase government capitation and encourage revenue-generating business activities for universities.

“We have a national crisis in our universities, and we have decided as a government that we are going to tackle the problem and the crises that exist today in our higher education institutions, especially universities,” Ruto said. , who took the oath. taking office on September 13.

HELB said it would also seek to invest excess funds not currently needed for operations. This will allow him to tap into low-risk investment options like treasury bills and treasury bonds, an avenue in which he previously did not invest.

The number of government-sponsored students in public universities has grown rapidly in recent years, due to the lowering of the public university entrance grade to C+, exceeding state HELB funding .

HELB says its funding gap for the current fiscal year is estimated at US$3 million, awarded to more than 75,000 students in universities and colleges of technical and vocational education and training (TVET).

In the recent past, HELB had indicated that it would be interested in borrowing from the World Bank and the African Development Bank to increase its pool of funds as the country prepares for a further increase in admissions. International lenders will offer students subsidized loans, which will be disbursed through local commercial banks.

The loans, according to HELB officials, will be granted at pre-determined rates estimated to be slightly higher than the current 4% at which HELB lends to undergraduate students.

Accessing available university loans offered by the government remains a big challenge for the most needy students.

Last month, Kenyan university students suffered a severe blow after incumbent President Uhuru Kenyatta rejected a law that would have made student loans cheaper and lengthened the repayment period.

The former president has returned the HELB (Amendment) Bill 2020 for reconsideration by parliament. That means students will have to wait for the next House replenishment to consider the president’s recommendations on the bill, among other ways sought to extend the grace period for loan repayment to five years.

If the proposed legislation had seen the light of day, HELB would have been prevented from charging interest on loans unless a graduate had obtained a job or five years had passed since he or she had left school. university, whichever comes first.

Currently, recipients of government-backed HELB loans are required to begin debt repayment one year after leaving campus, whether or not they have obtained a job. This has been blamed on current high default rates, as 70% of new graduates struggle to find a job for three years or more.

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