Wednesday, April 17, 2024

Poor loan recovery methods costing HESLB billions

By  Jacob Mosenda

What you need to know:

  • The CAG notes that by June 30, 2023, the Higher Education Students’ Loans Board (HESLB) had collected Sh1.29 trillion only (62 percent of all matured loans) since the 2006/07 fiscal year.

Dar es Salaam. The Controller and Auditor General (CAG) has revealed the presence of poor loan recovery methods for higher education students, resulting in the accumulation of a matured loan debt of up to Sh2.10 trillion.

The CAG notes that by June 30, 2023, the Higher Education Students’ Loans Board (HESLB) had collected Sh1.29 trillion only (62 percent of all matured loans) since the 2006/07 fiscal year.

This, he says, means that Sh0.81 trillion (38 percent) of matured loans are still outstanding.Section 6(c) of the Higher Education Students Loans Board Act, Cap. 178, 2008, requires HESLB to administer and supervise the entire process of granting, repaying, and recovering loans issued to students.

The act also mandates HESLB to ensure loans are repaid through monthly instalments deducted at a rate of 15 percent of the basic monthly salary in the case of employed loan beneficiaries or a minimum of Sh100,000 or 10 percent of the taxable income of a self-employed beneficiary, whichever is higher, or in a lump sum.

But the loan recovery trends highlighted by CAG indicate the number of beneficiaries with matured loans who pay their debts has been consistently nose-diving. After having an increasing trend from 17 percent in 2014/15 to 39 percent in 2017/18, the repayment trend took a negative turn, decreasing from 39 percent in 2017/18 to a mere 23 percent in 2022/23.

Further analysis of loan disbursed data and loan repayment status notes that outstanding loans are increasing annually. The outstanding loans increased from Sh1.25 trillion in the financial year 2015/16 to Sh4.84 trillion in the financial year 2022/23, with an average growth rate of 23 percent.

The CAG analysis shows that the percentage of outstanding loans increased from 59 percent in the financial year 2015/19 to 83 percent in the financial year 2021/22.

This happens when the cumulative number of beneficiaries with matured loans has been increasing from 227,063 in 2014/15 to 486,543 in 2022/23.

The audit noted through the review of the matured loan database that there were beneficiaries with due loans over ten years. The beneficiaries with overdue loans over ten years owed 28.8 percent of the matured loans.

A review of the loanee ledgers and matured loan database indicated that HESLB did not identify and bill 61 percent of the beneficiaries with matured loans as of September 2023.


The poor recovery methods

“Lack of cooperation between systems and strategic stakeholders contributes to the failure to collect these loans. This prevents HESLB from providing loans to other needy students,” the CAG explains.

The audit for the 2022/23 fiscal year, the report that was made public on April 15, 2024, also reveals the absence of an integrated system and strategic stakeholders, like a procedure for identifying beneficiaries.

“HESLB relies on Form Four examination numbers to identify loan recipients. However, this method cannot work effectively after graduation, as students may become self-employed, employed, or continue their studies,” he says.

As such, CAG suggests the increasing number of loan beneficiaries requires a more robust and comprehensive identification system like the National Identification Number (NIDA).

“The implementation of NIDA as a mandatory requirement will enable HESLB to track borrowers effectively and improve loan collection efficiency, ultimately ensuring the sustainability of loan disbursement,” he recommends.

“I propose that the HESLB leadership establish guidelines requiring the submission of NIDA for all loan applicants over the age of 18. Applicants under the age of 18 should submit it when they reach 18 for subsequent loan disbursements,” he suggests.

He also recommends that the board require continuing students or existing borrowers to provide their NIDAs before receiving additional loans and to engage with strategic stakeholders to enhance the integration of the system.

Responding to the CAG recommendations, when contacted by The Citizen via telephone, HESLB Executive Director Dr Bill Kiwia expressed satisfaction with the recommendations and advice from the CAG, as it was one of their requests to make the board more robust and lend to many needy students.

“We have received and are pleased with the advice because it is one of the recommendations we made and gave to the CAG. So we thank God that the CAG has taken it and represented it,” he said.

He further explained that this was what they were hoping for because one of the challenges HESLB faced was loan recovery, especially in the informal sector.  “Integrating this with NIDA will greatly help us in tracking those loan beneficiaries in the informal sector. This is very beneficial to us and will help us grow our fund so that we can provide more loans to students,” he said.

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