GUARANTOR

Varsities seeking commercial loans to get Treasury’s approval

With the financial struggle, some university heads have resorted to banks and other financial institutions for loans

In Summary

•The number of public universities and campuses grew from 49 in 2010 to 204 in 2017 before dropping to 102 last year.

•The institutions posted a deficit of Sh6.2 billion last year and received Sh70 billion from the Treasury to run their operations.

Infographic
Infographic
Image: The Star

Public universities seeking commercial loans will have to get approval from the treasury, according to a draft budget statement 2022.

The argument is, the treasury sits as the guarantor in commercial loans.

“Loans to universities from commercial banks can be authorised by the National Treasury because the government is the guarantor of loans,” the statement reads.

Public universities have come under financial strain in recent years due to the rapid expansion amid a drop in student enrollment.

The number of public universities and campuses grew from 49 in 2010 to 204 in 2017 before dropping to 102 last year.

The institutions posted a deficit of Sh6.2 billion last year and received Sh70 billion from the Treasury to run their operations.

With the financial struggle, some university heads have resorted to banks and other financial institutions for loans. 

In late April, the International Monetary Fund asked Kenya to overhaul its three top public universities to save them from financial distress as part of the conditions of Sh234 billion loan to the country.

The IMF, the private investment arm of the World Bank, identified the three universities–Kenyatta, University of Nairobi and Moi, as among the top state-owned agencies carrying the biggest financial risks.

It recommended for closure of the institutions because of duplication of courses and the need to cut spending.

Kenyatta University and UoN dipped into a combined Sh4.3 billion financial deficit, underlining the cash flow problems that have seen them seek to raise student fees.

Treasury records show that UoN had a deficit of Sh2.17 billion last year.

Under the vice chancellor Stephen Kiama, the institution has put on some reforms including abolishing five offices of deputy vice chancellors and replacing them with two positions of associate vice chancellors.

The changes saw the university reduce its colleges from 35 to 11.

KU’s deficit dropped to Sh2.13 billion in the same period, with the institution relying on short-term loans to finance its operations.

In 2020, KU sought Sh450 million loan to deal with a huge deficit. Last year, Moi University shut down operations and send students home over financial challenges.

The institution has over Sh1.06 billion in debt in statutory deductions.

In addressing the financial challenge, the government suggests the institutions undergo reforms to cut their costs to make them financially viable.

Edited by Kiilu Damaris