Education ministry plans Sh10bn university bond next year
Posted Tuesday, September 14 2010 at 00:00
Kenya’s capital markets is set for a jolt as the Government floats a Sh10 billion university bond early next year to help higher learning institutions raise much needed funds to admit more students.
Higher Education Minister William Ruto said that the university bond whose details are being finalised by Treasury will be guaranteed by the government, opening a new financing avenue for public universities.
“We are finalising deliberations with the treasury in enabling public universities raise capital through a university bond at between six and eight per cent rather than the market rates of 18 per cent,” said the minister.
The issue of the bond is expected to help the State institutions admit at least 25,000 more students next year in a move aimed at eliminating the two-year wait before starting studies.
Such a listing would be the first in a market that remains dominated by corporate and government bonds and would open the door for other service providers to follow suit.
Although no date has been set for the listing, the bond offer is among a raft of plans that the state is considering as it prepares to ease the biting enrolment crisis in public universities that has locked out thousand of potential students and hurt quality of learning.
Prof Olive Mugenda, the chairperson of Vice Chancellors’ association says that public universities have not been able to expand their facilities in line with the increased intake because their resources have been limited owing to minimal funding from the government.
“We are looking forward to the government to double or triple the current funding worth Sh5 billion to enable us expand the existing facilities,” said Prof Olive Mugenda, who is also the vice chancellor of Kenyatta University.
Public universities which have collectively been receiving about Sh5 billion per year from the government to supplement their incomes from students’ tuition fees require more funds to expand their infrastructure.
Having the government guarantee the bond issue would ensure that the universities access cheap credit since investors would not require a premium to invest in the university bond.
In the concluded government infrastructure bond, the state was able to raise Sh30.5 billion at a bargain rate of 7.3 per cent as compared to corporate bonds which are currently selling at double-digit prices.
Universities will be seeking to increase their capacity to offer tuition by building more lecture theatres and better equipped libraries.
The high cost of developing infrastructure has pushed the government to embrace e-learning at the university level with the planned introduction of a fully fledged public open university.