Helb expands lending base despite high default rate

How many students is the Board currently funding and by how much?

If you look at the last financial year, which closed on June 30, we had funded 245,875 students in 74 universities in Kenya and five universities in Uganda. We have this arrangement because of the East Africa Community protocol, where Kenyan students studying in universities within the EAC region are funded by the Higher Education Loans Board. The only thing they miss out on is government grants. In TVET, we had funded 120,474 students in 252 colleges, including some 85 medical training colleges. All that took a budget of about Sh15.5 billion.

Comment on the current funding from the government that Helb receives

Our funding budget three years ago was about Sh10 billion. Exchequer contributed 60 per cent while the rest, 40 per cent, came from loan recoveries. It was only until two years ago when government expanded the TVET programme that we saw a tinkering of that. Last year, for example, we had Sh11.4 billion from the government which represents about 69 per cent. We also have a very good external sources such as USAID, the counties and the constituencies.

What makes some students who strongly feel they deserve educational loans miss out?

There are two levels. There’s an appeal where you may not have been given anything and you think that you actually deserve. There’s also an appeal where you’ve been given Sh40,000 and you think you need an enhancement. This is how we do the processing. We have a criteria called Mean Testing Instrument. The MTI is able to get the vulnerability of the student economically.  In the MTI, we’ll ask you where you went to school, what does your guardian or whoever sponsored you do? Are they on an income, what kind of an income? In that income, what is there expenditure levels because you can have an income of Sh100,000 and you have 10 students who are relying on that money or, one is paying a loan. We ask about other incomes, for example, from farming.

For the people who are employed, we cross-check with KRA to see whether that number is deserving. We are then able to establish the cases which are more vulnerable than others. For orphans, apart from giving them the loan at the maximum of Sh60,000, we also extend to them a bursary of Sh8,000, which is not repaid.

I’m not sure why anybody would feel that they deserve when the parameters do not say they deserve. The way you answer the questions is exactly what will make us decide whether you will be funded and at what level.  Last year, we funded 97 per cent of the applicants. Will we replicate that this year? I’m not sure because of the way the resources are flowing from government and we’re seeing government allocations coming down. We’re also seeing the impact of Covid-19 in terms of loan recoveries.

Quite a number of loanees are now discussing with us repayment programmes, either to postpone it or be able to restructure it when they get a job. Our expectation is that we’ll have a shortfall of recoveries of about Sh1.7 billion. In the past three weeks, we have received 45,000 new applications and in our own budget, we don’t think we’ll fund more than 60,000, yet the numbers are rising.

Note that there are some 122,000 students who were admitted recently to join universities but have not reported; most them will require loans.. In addition, there are people who previously didn’t come to borrow because their parents were in gainful employment but now things have changed. Household incomes have diminished because of job losses, pay cuts and reduced business.

It has been reported that the number of students applying for HELB loans has been on the decline. Does this mean the loans are no longer attractive and if so, why?

On contrary, the demand is going up. In 2011, we funded 109,000 university students. In 2019/20 they were 245,000. For TVET, we started at zero in 2013/14 and last year we had 120,000. We have seen an exponential growth. This year, I think the applications will be way over half a million.

What would you list as major achievements of HELB in the past 10 years?

I just started my second contract. My first contract started in 2013 and ended in 2019. Immediately we came in, one of the key things we looked at was the plan of the organisation. It wasn’t an ambitious plan. It wasn’t saying the direction the organisation wanted to go. We came up with a strategy (modelled like a house).

The Universities Act (2012) had just been passed, which created level playground for universities. For example, it allowed the government to support students in private universities. In 2013, we had about 30 universities, today we have 74. Then we were moving to another regime called Differentiated Unit Cost model.

The government would send a single flat figure for all students, irrespective of the courses they were taking. With the DUC, for example, students of medicine would now get more money than those studying for bachelor of arts. We built a strong foundation in customer service.

We wanted to become customer-centric. Because the student and client portfolio was growing, we needed somebody to serve those numbers quite well. One of the pain points for those repaying is that nobody was talking to them or addressing their issues so they would not pay.

We said that every call must be picked and every email replied to. First class customer service is our foundation.

We have automated our process and the students don’t have to come here (to the offices). We talk to the students on social media and loanees can access their accounts on the portal. This has enhanced service delivery.

We had challenge of institutional capacity. This institution is like a bank. It receives deposits in terms of funds from the government and then creates assets by giving students loans. They repay back so that we can make a revolving fund. From an asset base perspective, with a balance sheet of about Sh85 billion, we could be placed at about number 13 out of 43 banks in Kenya. Sustainable financing initiatives is one of our key pillars.

In the past 10 years, the student budget has grown from Sh4.6 billion to Sh15.5 billion. In terms of staff, we’ve expanded from 144 to 267. We never had a single branch but we now have 28.

In 2011 we didn’t have a single partner in terms of external resources, today we have 27 partners who have given us about Sh1.7 billion. We have also doubled the recovery numbers. We had Sh2.5 billion in 2011. Last year we did Sh4.4 billion but this was affected by Covid-19.

There have been complaints about the timing of disbursement of funds and the university calendars. What has HELB done to improve it to avoid wastage of time and resources?

One of our biggest problems is that the university calendar is not tied to the government financial year. We rely on 69 per cent funding from the Exchequer. However, they don’t give all the money in July. Up to now, we haven’t received last year’s quarter four cash. For the loans, people pay monthly, so the collection of the pending loan of Sh5 billion has to be spread out.

This creates a challenge when we need money to give out loans. The last time we had protest from students was in 2015. We have since reorganised our funds flow and synchronised it with the universities’ calendar. We decided to build a buffer to cushion us in case the government funding does not come on time. However, the entry of TVET is a different thing. The only way is to make HELB liquid so that at it has cash at all times to meet students’ needs.

Some students reportedly squander money allocated to them. Does HELB have a programme to sensitise students on prudent financial management?

One of the things we have done since 2014 is financial literacy. We launched our first financial literacy programme in 2016. Today, you cannot access a loan application form before you through our financial literacy course.

If you don’t obtain 80 per cent in the financial literacy exam at the end, you have to repeat until you understand. The course has lessons on budgeting, loan repayment, responsibility and about interest rates.

 For second years, the literacy changes to savings and in fourth year, we introduce courses like entrepreneurship. Some of them start working when they’re still in school. Because of that, two per cent of the student population start repaying their loans while are still in campus.

Overall, the people who’re not paying their loans stands at 26.9 per cent. So the training is working.

Many former beneficiaries complain that they are unable to repay their loans because they are unemployed and yet fines keep on accruing. How does HELB deal with such cases?

We have about 67,000 non-performing accounts with about Sh6.5 billion in unpaid loan. We are making efforts to bring down the figure. One of the key things we have done is to listen to our loanees.

Rather than running away and piling penalties, we invite them to come and talk to us. The people we used to call debt recovery officers are now referred to as debt management consultants. They come up with a way of going around the repayment.

How much is owed by former beneficiaries in non-performing loans? Does listing defaulters with credit reference bureaus help in recovery?

The total amount is Sh6.5 billion and this goes way back to about 1974. We suspect that some of them could be dead. Nobody remembers to notify Helb when their relatives die. We have started a collaboration with the pensions department because it is able to identify the people who are supposed to be on pension and have since died.

So we compare data and remove them from our books. We are also working with the registrar of births and deaths to clean up our books. Since last year, we have started insuring student loans against death.

Listing the CRBs helps. The essence of it was to build the credit score. Immediately you borrow, we list everybody to build your credit score. However, if you don’t perform, you move to the negative side. The requirement by Chapter Six on Helb compliance has really helped us. We have waived the Sh1,000 fee because we understand the plight of the youth.

Are the current regulations governing disbursement and recovery of loans adequate? If not, what suggestions would you make?

So far, we can yes, but we have huge room for improvement. One of them is on data protection and sharing of data. We cannot get some data, for example from Safaricom, yet may find people who’re moving huge volumes of Mpesa and they are not repaying Helb.

 At the NTSA records, you may find someone who’s just bought a BMW but has not repaid Helb, which is a government debt. We also want to move our disbursement from the bank to the mobile phone account. Because of Covid-19, we’ve removed the requirement that applicants go to their chiefs and religious leaders for signatures. We’ve gone electronic. Subsequent applicants can do so on the Helb app. For new ones we require the original application form.

What challenges has HELB encountered in recovery of loans advanced to students?

One of them is a moral issue. There is an attitude that this is public money, so it should not be repaid. Some Kenyans who go abroad forget to repay their loans. The other is unemployment and underemployment.

How has the Covid-19 pandemic affected Helb?

The ‘new normal’ of learning is a new challenge. We are looking at the possibility of getting gadget loans for students, especially the first years.

They are excited by being admitted to university but it may take long before they get to physically go to the campuses.

The job losses cannot be over-emphasised. The limitation of movement has affected us since we cannot visit clients.

Government funding has also been affected since more resources are being directed towards fighting Covid-19. The inflows from the diaspora have also declined.