Why HELB Loans to Unemployed Graduates Should be waived

Why HELB Loans to Unemployed Graduates Should be waived
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When Judy Chelimo* finished her masters’ degree in Business from Havard University, she had an option of remaining in the United States or coming back home.

She could have easily landed a good job in Wall Street, earning some obscene salary. But instead, she believed, her degree would be more meaningful back at home, and three weeks after graduation in 2015, she came back, with high spirits of landing a good a job or starting a business.

 By the time she left for her Master’s, she was working with a local blue-chip and was dutifully paying her student loan, and was half-way through. But her stay abroad meant that she had to forego the payments, hoping to come back and settle the rest.

 No sooner she defaulted a few months than she was listed under the Credit Reference Bureau. Soon, the Higher Education Loans Board (HELB) was fining her Sh 5,000 for every month she missed on payments.

 Since she came back, no reasonable job has been forthcoming. She resorted to starting a business and that is when her woes begun. When she went to borrow money, she discovered she was listed with the Credit Reference Bureau and on further inquiry, she discovered she had been listed by HELB. On following up, she was rudely told, she must repay half the amount she owes them and commit a standing order for three months before her name could be struck off the list.

Two years later, no job, no source of income to afford repaying HELB. With no access to any credit,  her business idea is moot.

Not giving platforms for easy settling is the worst crime a society can give the most youthful and energetic of its population especially after years of education after university.

“I’m now considering going for a Ph.D. and forgetting about Kenya, altogether,” she told us about her predicament. 

Judy is not the only graduate without a job. Hundreds of thousands of graduates in recent years are jobless. Those who were HELB beneficiaries are fined Sh 5,000 monthly for not paying and their names are forwarded to Credit Reference Bureau and the state is quiet on this development.

Credit Scores allocated to loan beneficiaries should in a normal case assist the financial institutions to assess the risk when giving credit, which will determine the interest rate of a particular loan. Data from the Credit Reference Bureaus should not be used to blacklist individuals who have not honored their loans, especially HELB loans.

Kenya has a serious unemployment crisis. The youth, aged 15–34 years, which form 35 percent of the population, have the highest unemployment rate of 67 percent. Over 80,000 students graduate each year from the universities and less than 30% get employment in the first 3 years. The others earn a living through the informal sectors or remain jobless. These graduates are the major beneficiaries of the Higher Education Loans Board; hence it is almost automatic to predict a higher default rate going by that earlier scenario.

HELB is currently owed Kshs.9.5 billion by past beneficiaries. This amount is comparatively low compared to waivers and bailouts the Government of Kenya has been giving in the last few years. For example, in the 2016 budget statement, the Treasury Cabinet Secretary allocated Sh2.4 billion for coffee loans waiver. Farmers owed unions, co-operatives, and SACCO’s a total of Sh4.78 billion, according to the Report of the National Task Force on Coffee Sub-Sector Reforms. The government cleared Sh4 billion, leaving Sh784 million, which was to be cleared in the 2016/2017 financial year.

They most probably feel hopeless and worthless from their joblessness years after toiling hard to study.

Over Sh.10 billion coffee debt has been waived by the Government in the last 5 years. In July 2017, the government waived loans amounting to Sh. 475 million for dairy farmers belonging to the Meru Dairy Union owed to Government. Up to Sh1.5 billion in loans owed to the Agricultural Finance Corporation (AFC) by farmers in Kajiado, Narok and Baringo counties was also waived. Over Sh.2 billion have been waived for tea companies and farmers and lastly, over Sh.30 billion debts owed by Chemelil, Muhoroni, Miwani, and Nzoia were written off including numerous bailouts to Mumias amounting to billions of shillings given out.

For all the above examples, the majority of the given loans and waivers benefited farmers who are middle-aged to old in age who have been practicing farming for many years. Most of them have assets and if they were to request a loan from an institution they would probably get that collateral required. It is then a pity why HELB loans cannot be fully waived to give the thousands of youths a chance to kick-start their lives. These young men and women have been blacklisted by credit bureau agencies and have been denied loans by all financial institutions. Because of the limited ability of white-collar job absorption in the formal sector, most are trying to set up businesses for their own employment. Not giving platforms for easy settling is the worst crime a society can give the most youthful and energetic of its population especially after years of education after university. 

The society has to find a solution to this group. They have the potential to create thriving SMEs but are tied in a vicious cycle which cannot let them thrive.

But what is the solution? After waiver, then what next? What happens to the current and future beneficiaries? Systems need to change to work for the young people. Currently, the focus should be on international investors who want to settle in the market and set up their businesses or expansion of big businesses and bringing in Foreign Direct Investments. That should not be the case. The focus should also be on industrialization, enriching our value chain and export. When this group is enriched, consumer spending will flow and boost our country, the taxman would be able to add more people in the tax roll and middle class will expand.

We must rethink the model the government uses to disburse the funds targeting the youth. 

 To the current and future beneficiaries, a platform should be made to empower this group immediately they graduate and probably they can end up being deducted from their earnings. The government also should engage them especially in jobs or areas where we are currently taking in an influx of Chinese or temporary jobs where they can be given opportunities to gain experience and their pay deducted from the earnings.

Assuming platforms and structures for marketing and export are available, wouldn’t it be a perfect idea to encourage graduates to work in groups and be given sections of Galana Kulalu to run, enrich and process the final product?

They most probably feel hopeless and worthless from their joblessness years after toiling hard to study. Priority on funding too is crucial, for these young men have ideas that just need funding and that may unlock their immense potential.  There are more reasons to rethink the model which government uses to disburse the two funds, Youth Enterprise Fund and UWEZO fund. An initial study by a local university on the two funds reveals lower repayment rates and minimal impact after over 10 years of being in existence.  In the current world, young people in colleges should be exposed to entrepreneurial experiences.

We must as a matter of urgent intervention think about credit to these unemployment graduates who are trying to earn a living from the private informal sector and expansion hindered by lack of credit. This is the best way to trigger entrepreneurial spirit. As it stands now no solution has been brought forth. HELB is probably waiting for the young men to come forward and repay their loans. 

This is unlikely because most of them are either underpaid or not earning anything at all.  Importantly the little growth being witnessed is expanding at the upper section of the society resulting in more unemployment and widening the gap between rich and poor and in future, we may not resolve the inequality in this country.

 

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