Imagine you are a University graduate, yet to get gainful employment, two years after you graduated. But, just like thousands of other graduates all over the country who are still looking for jobs, you receive an e-mail monthly from the Higher Education Loans Board (Helb) that not only reminds you to start repaying your loan but also informs you of a Sh5,000 fine on top of the interest the loan is attracting per month.
Even though most of the loaners are of the view that the government should give fresh graduants time to get jobs which can enable them offset the debts owed to them, the board has insisted that once any student completes his/her university education, they should use the knowledge gained to immediately start generating some income.Though, it is agreeable that the new measures introduced by the financier have and will make it very expensive for beneficiaries of the government loan to continue ignoring payment, questions still remain on how effective and considerate such kind of measures are and will be on either parties. 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, a fines of 10 months will be in excess of Sh50,000, which is about 8 times the amount the interest the loan could have earned in a period of 12 months, 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.
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