New varsity financing model targets private capital

Kenya’s capital markets will be the biggest beneficiary of the proposed shift in financing of university education, experts said, underscoring the increased role that crafters of the new plan have carved out for private capital.

The plan, prepared by a World Bank-backed team of consultants, proposes a wide mix of instruments that universities can use to tap private capital for their expansion and growth.

It proposes that universities be allowed to use assets such as land, and government guarantees to access long-term capital from banks and the bonds market -- opening up new channels for private equity, insurance firms, fund managers and high net worth individuals to invest in tertiary education.

Investors are also expected to get an additional window at the Higher Education Loans Board (Helb), which under the new financing plan, will issue education bonds linked to its performing loans.

Helb is initially expected to issue a Sh7 billion education bond, based on the Sh7.4 billion performing loans portfolio that will be tradable at the Nairobi Stock Exchange, according to people familiar with its plans.

Analysts, however, warned that the viability of bonds as a sustainable source of funding for universities will depend on the interest rates regime.

It has also been proposed that Helb securitises the loans for use as an asset to borrow directly from banks.

The proposed shift in the financing of tertiary education could also see investors build and operate facilities such as hostels and book stores to meet the demand for ultimate transfer to the institutions.

Client base

It is also proposed that the universities lease or sell the huge chunks of idle land valued at billions of shillings they own and use the proceeds of such transactions to expand learning infrastructure.

“The sector has a growing client base that should be of interest to both government and private players,” said Carol Musyoka, a finance expert with Bungani Consulting.

“Listing bonds by individual universities could, however, be tricky because of the costs involved,” she said, adding that the regulatory requirements could also pose a challenge to many of the colleges.

The proposals released on Monday aim to wean the public universities of heavy reliance on short-term borrowing that has left them with yawning budget gaps and ramped up the cost of higher education.

While some finance experts reckoned that the plan offers public universities the best avenue ever to raise the estimated Sh100 billion they need to finance their programmes, critics said it was inappropriate in a socially unequal economy like Kenya’s as it raises the prospect of locking students from poor families out of tertiary education.