Bond likely to raise US$50 million for gap in student loans

HELB is seeking to raise US$50 million through a public bond to finance loans for university students.

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

HELB is seeking to contract financial institutions, regulated by the Central Bank of Kenya or the Capital Markets Authority (CMA), that specialise in the funding for public entities in the bond markets, to raise funds for higher education student loan financing.

The loans board, faced with a dwindling pool of funds, has been mulling over a range of fundraising options to allow it to keep up with growing demand. A social bond is unique in that investors are keen, not only on the financial return on their investment, but also on the social impact of the intended initiative.

In an expression of interest published last week, the agency had given firms until 14 September to submit their bids for the initiative, which seeks to open a new era for HELB by tapping off-budget financing of university student loans.

The transaction adviser will be expected to develop a well-structured bond that will be issued in the capital markets to meet the millions of dollars in deficit – a result of government funding trailing student enrolments and a growing default rate.

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

The agency said that the CMA has approved the bond which is expected to be issued for a seven-year tenure and which has already received a guarantee from the government.

One of many alternatives

The social bond is one of the many alternatives that HELB has been considering over the past three years, since it launched its latest strategic plan that seeks to, among other aims, create a special- purpose vehicle to manage part of HELB’s loans and receivables, with the inflows to be used to repay the bond interest.

The agency says it has current assets worth US$110 million that can be used to back the social bond.

Prior efforts to bolster financing have not borne significant fruit. So far, HELB’s external resource strategy to source funds outside government funding has only generated US$15 million through grants from other higher education financiers.

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

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

“We are looking at this opportunity and the national treasury has to give us the sovereign guarantee to be able to attract that funding,” said Charles Ringera, the chief executive officer at HELB, speaking in parliament on 21 March 2021.

Not much traction, however, has been recorded on this initiative.

New president promises action

The agency said it will also seek to establish links with other organisations within and outside Kenya for funding to enable it to become a fully fledged financial institution for student financing. This will see it attract syndicated funds from development partners and global financial institutions.

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

Kenya’s new government has identified university funding as a key priority, with the new president, William Ruto, committing to roll out initiatives to drive up government capitation and encourage commercial income-generating activities for universities.

“We have a national crisis in our universities, and we have set out as a government that we are going to address the issue and the crises that today exist in our institutions of higher learning, especially the universities,” said Ruto, who was sworn into office on 13 September.

HELB said it would also seek to invest any surplus funds not currently required for the operations. This will see it tap into low-risk investment options like treasury bills and treasury bonds, an avenue it was not previously investing in.

The number of government-sponsored students in public universities has grown rapidly in the past few years, due to the lowering of the entry grade to public universities to C+, outpacing HELB funding from the state.

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

In the recent past, HELB had indicated 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 surge in admissions. The international lenders will offer students subsidised loans, which will be disbursed through local commercial banks.

The loans, according to HELB officials, will be extended at predetermined rates estimated to be slightly above the current 4% at which HELB lends to undergraduates.

Access to the available university loans offered by the government remains a big challenge to the neediest students.

Last month, Kenyan university students suffered a big blow after the outgoing president, Uhuru Kenyatta, rejected a law that would have made student loans cheaper and extended the repayment period.

The now former president sent back the HELB (Amendment) Bill, 2020 for reconsideration by parliament. This means students will have to wait until after the next House is reconstituted for it to look at the recommendations of the president on the bill, among other means sought to increase the grace period for repayment of the loan to five years.

Had the proposed legislation seen the light of day, HELB would have been prevented from charging interest on the loans unless a graduate had secured a job or five years had elapsed since he or she had left university, whichever came first.

Currently, beneficiaries of the government-backed HELB loans are required to start repaying the debt a year after clearing campus, irrespective of whether they secure employment or not. This has been blamed on the current high default rates, as 70% of fresh graduates find it hard to secure jobs well into three years or more.


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