Poor Loan Recovery

8/10/2019 Poor Loan Recovery

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DECLARATION

I hereby declare that this research project is my original work and has not been submitted in the

same form or any other form in any other educational institute.

No part of this document may be reproduced without the permission of the author or that of KCA

University.

Signature Date.

Stacy Ndirangu

10/03790

APPROVAL BY THE SUPERVISOR

This research project has been submitted for approval with my consent as the KCA Universitysupervisor.

Signature. Date

Mr. George Wamae

Lecturer school of business and public management.

FACULTY ADVISOR

This project has been submitted for examination with my approval as the faculty advisor.

Signature . Date.

Prof. Silas Onyango

Dean school of business and public management.

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DEDICATION

This project is dedicated to my dear and loving parents, Mr. and Mrs. Ndirangu, my dear sisters,

Ann, Lucy and Lydia and to my brothers, Stephen and Erick, for their financial and moral

support through the entire period of my research.

Thank you all for your support, encouragement and believing in me.

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ACKNOWLEDGEMENT

I wish to acknowledge the tireless efforts of all people, without whom this study would not have

succeeded. I am happy to express my heartfelt thanks for your wide and moral and expertise

support received while undertaking the project. I owe several individuals my appreciation.

My gratitude goes to my supervisor Mr. George Wamae for sparing his valuable time to guide

and ensure that the project was complete. Secondly, my special thanks go to the entire staff of

HELB for unconditional support in collecting data and thirdly, my sincere thanks to the KCA

University fraternity especially Mr. Cosmas Kemboi Cheruiyot the university deputy librarian.

Finally, I wish to extend my heartfelt thanks to my good friend Stephen Kamau and also to my

classmates for their time, criticisms and constant encouragement.

Thank you all and may the Almighty God bless you.

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TABLE OF CONTENTS

DECLARATION............................................................................................................................ I

DEDICATION.............................................................................................................................. II

ACKNOWLEDGEMENT .......................................................................................................... III

TABLE OF CONTENTS ........................................................................................................... IV

LIST OF FIGURES ................................................................................................................. VIII

LIST OF TABLES ...................................................................................................................... IX

LIST OF ABBREVIATIONS. .................................................................................................... X

ABSTRACT ................................................................................................................................. XI

CHAPTER ONE ........................................................................................................................... 1

1.0 Introduction ............................................................................................................................... 1

1.2 Statement of the problem .......................................................................................................... 2

1.3 Sbjectives of the study .............................................................................................................. 3

1.3.1 General objective ................................................................................................................... 3

1.3.2 Specific objectives ................................................................................................................. 3

1.4 Research questions .................................................................................................................... 4

1.5 Justification of the study ........................................................................................................... 4

1.6 Significance of the study ........................................................................................................... 4

1.7 Scope of the study ..................................................................................................................... 4

CHAPTER TWO .......................................................................................................................... 5

2.0 Literature review ....................................................................................................................... 5

2.1 Introduction ............................................................................................................................... 5

2.2 The origin and development of higher education loan boards .................................................. 5

2.3 Cooperation ............................................................................................................................... 6

2.3.1 Causes of lack of cooperation ................................................................................................ 7

2.3.1.1 Poor management................................................................................................................ 7

2.3.1.2 Poor communication. .......................................................................................................... 7

2.3.1.3 Non-shared goals ................................................................................................................ 7

2.3.1.4 Ignorance............................................................................................................................. 8

2.3.1.5 Reluctant government ......................................................................................................... 8

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2.3.2 Ways to encourage cooperation ............................................................................................. 8

2.3.2.1 History of cooperative actions or common governance ..................................................... 8

2.3.2.2 Homogeneity of scale, type and governance ...................................................................... 9

2.3.2.3 High level engagement with the governing authority ......................................................... 9

2.3.3 Effects of lack of cooperation on loan recovery .................................................................... 9

2.3.3.1 Increase in loan default rates............................................................................................... 9

2.3.3.2 Iack of enough funds ........................................................................................................... 9

2.3.3.3 Increased conflict of interests and policies ......................................................................... 9

2.3.3.4 Increased rates of unemployment ..................................................................................... 10

2.3.3.5 Lack of innovation ............................................................................................................ 10

2.3.3.6 Lack of efficiency in loan recovery process ..................................................................... 10

2.4 Unemployment ........................................................................................................................ 10

2.4.1 Emerging characteristics of youth unemployment .............................................................. 11

2.4.1.1 Male dominated labor force .............................................................................................. 11

2.4.1.2 The spatial polarization of the labor force and mass unemployment in urban areas ........ 11

2.4.1.3 Increasing young and literate labor force .......................................................................... 11

2.4.1.4 Sectoral transition of the labor force ................................................................................. 12

2.4.2 Causes of unemployment among youths (graduates) .......................................................... 12

2.4.2.1 Difficulties of university graduates transition to work ..................................................... 12

2.4.2.2 The failure of the labor market. ........................................................................................ 12

2.4.2.3 A structural mismatch between labor supply and demand. .............................................. 13

2.4.2.4 Poor education system ...................................................................................................... 14

2.4.3 Effects of unemployment on loan recovery ......................................................................... 14

2.5 Beneficiaries records ............................................................................................................... 14

2.5.1 Types of record keeping....................................................................................................... 15

2.5.2 Cause of poor record keeping in the student loan boards .................................................... 15

2.5.2.1 Technology ....................................................................................................................... 15

2.5.3 Effects of record keeping on loan recovery. ........................................................................ 16

2.6 Conceptual framework ............................................................................................................ 16

2.7 Conclusion .............................................................................................................................. 17

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CHAPTER THREE .................................................................................................................... 18

3.0 Research methodology ............................................................................................................ 18

3.1 Introduction ............................................................................................................................. 18

3.2 Research design ...................................................................................................................... 18

3.3 Target population of the study ................................................................................................ 18

3.4 Sample and sampling procedures............................................................................................ 18

3.5 Data collection methods .......................................................................................................... 19

3.6 Data analysis techniques ......................................................................................................... 19

CHAPTER FOUR ....................................................................................................................... 20

4.0 Data analysis and findings ...................................................................................................... 20

4.1. Introduction. ........................................................................................................................... 20

4.2. Analysis of general information............................................................................................. 20

4.2.1 Response rate. ...................................................................................................................... 20

4.2.2 Gender of the respondents. .................................................................................................. 21

4.2.3: Age of the respondents. ...................................................................................................... 22

4.2.4 Number of years worked in the board. ................................................................................. 23

4.2.5 Department of the respondents. ........................................................................................... 24

4.3: Effects of cooperation on loan recovery process. .................................................................. 26

4.4: Effects of unemployment on loan recovery process of loan recovery. .................................. 30

4.5: Effects of record keeping on loan recovery process. ............................................................. 35

CHAPTER FIVE ........................................................................................................................ 39

5.0 Summary, conclusion, recommendation and limitation ......................................................... 39

5.1 Introduction ............................................................................................................................. 39

5.2 Summary ................................................................................................................................. 39

5.2.1 Objective one: effects of lack of cooperation in the process of loan recovery .................... 39

5.2.2 Objective two: effects of unemployment in loan recovery process ..................................... 39

5.2.3: Objective three: effects of record keeping in the process of loan recovery ........................ 40

5.3 Conclusion .............................................................................................................................. 40

5.4 Recommendation .................................................................................................................... 40

5.5 Limitations of the study .......................................................................................................... 41

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5.6 Suggestions for further research ............................................................................................. 42

5.6.1 Viability of credit system in kenya ...................................................................................... 42

5.6.2 Feelings of beneficiaries ...................................................................................................... 42

REFERENCES ............................................................................................................................ 43

APPENDIX 1 ............................................................................................................................... 45

QUESTIONNAIRE..................................................................................................................... 45

APPENDIX 2 ............................................................................................................................... 52

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LIST OF FIGURES

Figure 2.1 Conceptual framework ................................................................................................ 17

Figure 4.1: Pie chart showing the rate of response. ...................................................................... 21

Figure 4.2: Pie chart showing gender of the respondents ............................................................. 22

Figure 4.3: pie chart showing age of the respondents. .................................................................. 23

Figure 4.4: Bar graph showing number of years employed in the board. ..................................... 24

Figure 4.5: Bar graph showing the departments of the respondent. ............................................. 25

Figure 4.6: Pie chart representation of the number of factors rated as being of very great extent

and of great extent. ........................................................................................................................ 27

Figure 4.7: Pie chart representation of the number of factors rated as being of very high and high

rate................................................................................................................................................. 28

Figure 4.8: Pie chart representation of the level of cooperation in the loan recovery process. .... 29

Figure 4.9: Showing cooperation between the board and beneficiary can be improved. ............. 30

Figure 4.10: Showing whether unemployment has effects in the process of loan recovery ......... 31

Figure 4.11: Bar graph showing the effects of unemployment ..................................................... 32

Figure 4.12: Pie chart showing factors rates as being of very great and great extent. .................. 33

Figure 4.13: Pie chart representation of effects of unemployment on loan recovery process. ..... 35

Figure 4.14: Bar graph showing the effects of technology in record keeping. ............................. 36

Figure 4.15: Pie chart showing cases of loss of records in the board. .......................................... 37

Figure 4.16: Bar graph showing the response to the existence of other factors leading to poor

loan recovery. ................................................................................................................................ 38

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LIST OF TABLES

Table 4.2.1:Response rate of the respondents ............................................................................. 20

Table 4.2.2: showing the gender of the respondents. ................................................................... 21

Table 4.2.3: showing the age of the respondents. ......................................................................... 22

Table 4.2.4: Number of years employed. ..................................................................................... 23

Table 4.2.5: Respondents departments. ....................................................................................... 24

Table 4.3.1:Showing the respondent ratings on the following effects on loan recovery. ........... 26

Table 4.3.2:Showing factors that were rated as of very great extent and of great extent. ........... 26

Table 4.3.3:Showing the rate at which the following factors affect the process of loan recovery.

....................................................................................................................................................... 27

Table 4.3.4:Showing factors that were rated to have a very high rate and very high. ................ 27

Table 4.3.5:Showing the level of cooperation in the loan recovery process. .............................. 28

Table 4.3.6:Cooperation between the board and the beneficiaries can be improved. ................. 29

Table 4.4.1:Showing whether unemployment has effects in the process of loan recovery. ........ 30

Table 4.4.2:Showing the extent at which unemployment affects the process of loan recovery. . 31

Table 4.4.3: Showing the extent at which the following factors affect the process of loan

recovery ......................................................................................................................................... 32

Table 4.4.4:Showing the percentages of the factors rated as of very great extent and of great

extent. ............................................................................................................................................ 33

Table 4.4.5:Showing the effects of unemployment. .................................................................... 34

Table 4.4.6:Showing how the effects of unemployment have been rated. .................................. 34

Table 4.5.1:Effects of technology in record keeping process. .................................................... 35

Table 4.5.2:Showing cases of records loss in the board. ............................................................. 36

Table 4.5.3:Showing existence of other factors leading to poor loan recovery. ......................... 37

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LIST OF ABBREVIATIONS.

HELB : Higher Education Loans Board.

HELF : Higher Education Loan Fund

GOK : Government of Kenya

T.F : Total Frequency

R & P : Research and Planning

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ABSTRACT

Kenya has a long history of lending to students, but in the 1980s, the program was criticized forits poor administration, high cost and low recovery rates. The establishment of the HigherEducation Loans Board in 1995 ushered in reforms that have broadened the program beyond thepublic universities to postsecondary institution and to some students in Kenyas growing private

sector and improved loan recoveries.The financing of higher education in Kenya has been a big challenge to the G.O.K throughHigher Education Loans Board. There is a growing student population, rising rates of educationand an increased dependency by students on financial assistance due to slow growth rate of theeconomy and the impact of poverty levels in the country.The board has recognized key challenge that it must account in its operations. They include theneed for HELB to mobilize funds and become a self-sustaining organization in the long term,increasing demand for loans by Kenyan students, the need to maximize the recovery of non-performing loans by entering in to strategic partnership, which would assist in the netting in ofloanees and the need to reduce loan default rates.The study is therefore an exploratory research on the factors contributing to poor loan recovery

in student financing organization. The studys main objective is to explore factors contributing topoor loan recovery in students loan schemes and finally makes a number of recommendations toimprove the process of loan recovery.Conclusion, implications, limitations and recommendations were completed and statements weremade on the findings.


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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the study

University student loans were introduced in Kenya with the aim of easing the burden of public

expenditure in higher education. In the initial years the loans were to benefit all students enrolled

at University irrespective of their socio-economic backgrounds. The beneficiaries were expected

to repay the loan later upon getting into employment. This mode of funding eventually became

unpopular both to the government and the international donor community because of the inherent

negative social implications (Eshiwani, 1993).

Worldwide, there is now a significant increase in demand for higher education. This is

challenged by the limitations of public resources for financing the same (Woodhall (2004).

Higher education is widely accepted as a leading instrument for promoting economic growth in

that it plays a key role in training qualified individuals who will be capable of implementing new

technologies and using innovative methods to establish more efficient enterprises and institutions

and thus allocate resources more effectively.

Financing of students in higher learning institutions in Kenya, has over time largely being

dependent on Government resources. Prior to its independence in 1963, the British colonial

government had already a set up a scheme of financing the university education called Higher

Education Loans Fund (HELF) that was used to assist those pursuing university education

outside East Africa.( Ishengoma, 2004).

Woodhall (1991) observes that student loans have been widely advocated for, as a way of

providing financial support to students, and as a way of sharing the costs of higher education in a

manner that is both equitable and efficient. Several economists and other proponents of loans, for

example, Mbanefoh (1981) argue that education is both a personal and a social investment.

A loan program financed from public funds will enable those who cannot afford to pay tuition

fees, or to meet the costs of books and living expenses, to borrow and finance their higher

education. The beneficiaries would later repay the loans when they enjoy better job prospects.

In Kenya, the student loan program was first introduced in 1974. However, until 1992, these

loans were indiscriminately given to all students irrespective of their financial backgrounds

(Eshiwani, 1993). This approach of loan provision very much compromised the social justice

dimension of public subsidies. In an effort to promote social fairness in the loan awards, the

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government constituted the Higher Education Loans Board (HELB) in 1995 by an Act of

Parliament. The foremost task of HELB was to identify and access financial assistance to the

needy students.

HELB annually disburses about 1.5 billion Kenya shillings to the university students. Of this

amount, the exchequer (Central Government) provides eight hundred million (800M) Kenya

shillings, while the balance comes in the form of loan recoveries from the former beneficiaries.

Cheboi (2004) observes that currently the monthly loan recovery stands at 60 million Kenya

shillings, a figure that translates into seven hundred and twenty millions (720 M) Kenya shillings

annually. Therefore the recovery process proves to be ineffective. (Cheboi, 2004).

History of the Higher Education Loan Board

The Higher Education Loans Board was established by an Act of Parliament. The statute known

as The Higher Education Loans Board Act, 1995 was legally established as Act number 3 of

1995. It came into existence on the 21st day of July 1995 through Kenya Gazette Supplement

(Cap 213A). The Board is also empowered to recover all outstanding loans given to former

university students by the Government of Kenya since 1952 through HELF and to establish a

revolving fund from which funds can be drawn to lend out to needy Kenyan students pursuing

higher education. The establishment of a revolving fund was also expected to ease pressure on

the exchequer in financing education, which currently stands at 40% of the annual national

budget. (N. C. Acholo, 2009).

1.2 Statement of the Problem

When the board was set up, it inherited a large proportion of unpaid debts, with the recovery

rates being very low (only 3.3%). This rate had increased to 30% by the year 2009 (Fritz, 2009).

The increase is attributed to aggressive public education, the enactment of a legal instrument

binding borrowers and employers to ensure repayment and streamlined record keeping among

other factors.

Sustained overall improvement in loan recoveries will depend on the effort made by the board to

enforce recoveries from beneficiaries outside public sector. Currently the bulk of recoveries are

from those in government and public bodies which is accounting for about 54% of the total

recoveries (HELB Database, 2008)

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The recoveries reflect trends in employment, with the government being the largest employer,

the low recoveries from other sectors point out difficulty in reaching those in private sectors and

those who are not willing to pay (HELB database, 2008).

The second difficulty encountered by students loan institution has been the high level of default

due to a combination of external factors like unemployment and internal factors like poor

management of loan recovery functions. In Kenya for instance the majority of loan beneficiaries

(81%) do not pay as compared to counties like United States and Canada where only about 17%

do not pay (Woodhall, 2004).

The third element which also contributes to lack of financial viability of loan programs is the low

level of managerial efficiency, especially in public agency leading to higher administrative costs.

Among the various measures put in place to maximize the loan recovery mechanisms, HELB is

faced with a dilemma as follows, which is more effective? Would devising various strategies

improve loan recovery? As at 30th

June 2008 the figure stood at 52% (ksh.9.1 billion) of the

total mature loans. (HELB loan portfolio analysis- database, 2008).

Despite strengthening the loan recovery mechanism, the money currently available to assist

needy students is not adequate. Unless the level of the loan recovery of the board improves, it

will soon be unable to sustain its operations thus going against the principle of fiscal viability.

1.3 Objectives of the Study

1.3.1 General Objective

To find out factors contributing to poor loan recovery in higher education loan board.

1.3.2 Specific Objectives

1. To determine how lack of cooperation from both the beneficiaries and employers

contribute to poor loan recovery in higher education loan board.

2. To find out the effects of unemployment on poor loan recovery in student financing

organization.

3. To find out how access to beneficiaries records is contributing to poor loan recovery in

student financing organizations.

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1.4 Research questions

The research hasanswered the following main question, what are the factors contributing to poor

loan recovery in student financing organizations?

Other questions answered alongside included:

1. What are the effects of lack of cooperation from beneficiaries and the employers in

the process of loan recovery?

2. How does unemployment contribute to poor loan recovery in student financing

organizations?

3. In which way does lack of access to beneficiaries records contribute to poor loan

recovery in student financing organization?

1.5 Justification of the study

There has a persistent increase in the demand for university education in Kenya, and financing

the increase has been a critical development issue facing the higher education loan board because

they greatly rely on the loans repaid by the beneficiaries whose loans have matured but the

repayment is delayed. Thus, this study has examined the main causes of delayed payment and

reasons why the board is unable to recover the loans on time, and finally came up with means

that can help improve the recovery rates.

1.6 Significance of the study

This research is of great importance to:

The Higher Education Loan Board that can use the findings to identify the factors contributing to

poor loan recovery and then come up with strategies theta can solve those problems.

The board members and the managers who are open to the new ideas so as to enrich their

knowledge thus improving efficiency in their managerial work.

1.7 Scope of the Study

The study was carried out in student financing organizations and it included a study of factors

contributing to poor recovery of student loans a case study of Higher Education Loans Board.

The target group of the study will be the members of the board.

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CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter focuses on the review of higher education loans. The main areas covered are the

roles of higher education loan board, HELB loan recovery process and factors contributing to

poor loan recovery in the board.

The research literature review was obtained from secondary sources such as books, sectional

papers and the journals and also from the internet.

2.2 The Origin and Development of Higher Education Loan Boards

Higher education loan boards originated from the perception that the demand for highereducation is increasing with a very high rate (Woodhall, 1991). It is challenged by the limitation

of public resources for financing the same (Woodhall, 1991). Student loan boards originated in

Lebanon in the late 1940s (Johnstone, 2002). It was later developed with great deal of

elaboration in other countries like Tunisia in Africa (Johnstone, 2002). It has been adopted

greatly by African countries like South Africa Tanzania, Uganda, Kenya and many others

(Mokgwathi, 1992).

In many countries, it was formed with the aim of easing the burden of public expenditure in thehigher education sector.

Student loans have been advocated for by economist and higher education policy analyst for

nearly 50 years, but the idea has always raised fierce controversy (Woodhall, 1991). The

theoretical justification for loans is that higher education is a profitable private investment

offering graduates high return in the form of better job opportunities and high life time earnings.

Loan gives potential students from poor families, who would otherwise be denied access to

higher education on grounds of poverty, the chance to invest on their own future by providingthem with financial aid when needed and repaid later (Bruce & Chris Ryan, 2004).

Student loans have taken a great deal in cost sharing (Champman, 1988). As higher education

system everywhere faces the twin pressure of financial austerity and rising demand, financial

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assistance to enable students pay direct and indirect cost of higher education has become an

urgent issue in many countries (Johnstone, 1986, 2002, 2003).

The loans also encourage academic progress and success in courses believed to be expensive to

pursue and hard to study e.g. Nursing and Engineering courses. The rationale for cost sharing has

been the subject of a large and well accepted body of economic and public finance theory

(Johnstone, 2002, 2003; Woodhall, 1992) it is important to note that the most compelling case

for cost sharing in developing countries may not rely primarily on the familiar neoliberals

economist presumption of theoretically superior efficiency and equity as valid as those

presumption may be (Johnstone, 1986)

Most of the countries of sub-Saharan Africa have resisted up front tuition fees, which is the most

direct and fiscally significant form of higher education cost sharing (Bruce &Ryan, 2004). This

resistance may stem from two main historical features of sub-Saharan Africa. The first is the

European colonial legacy and the fact that most of Africas classical universities are modeled and

still remains the worlds last bastion for free higher education. The other historic root of this

resistance to fees has been legacy in most African countries and the corresponding view that the

government ought to have financial wherewithal to provide free all levels of education.

Political controversy has frequently surrounded the introduction of student loans. A case of

Ghana where student opposed the introduction of loans in 1971 and this contributed greatly to

the fall of the government. In 1972, the student loan scheme was abandoned (Williams, 1974).

Another country that has faced several problems with student loans in the past is Kenya.

Ziderman &Albrecht (1995) calculated the loan recovery ratio of more than twenty students loan

scheme in the 1980s and concluded that after allowing the cost of interest subsidies, losses due to

defaults and administrative costs, the loan program in Kenya actually cost more than it would

outright grants.

2.3 Cooperation

This is the process of working together. It involves working in harmony while in its more

complicated forms, it can involve something as complex as the inner workings of human being

or even the social patterns of a nation (Thomas, 2010).

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Nvkvyk (2008) believes that lack of cooperation reduces the social welfare and increases social

expenses making it hard to repay the loans. Building effective and productive teams is a priority

for most organizations (Chuta, 1992). Cooperation in the workforce is perhaps the most

important influence on performance and productivity especially in an environment based

environment.

2.3.1 Causes of Lack of Cooperation

2.3.1.1 Poor management

Management refers to the process of controlling, organizing, coordinating, planning and staffing

(Mary Parker Follet, 2008).

Management is a systematic process and if steps are not clearly followed, it may lead to

disagreement thus leading to lack of cooperation. If the student loan boards and the loan

beneficiaries lack cooperation, there will definitely be poor loan recovery.

2.3.1.2 Poor communication.

Communication refers to the flow of information from one person to another and it is passed on

from generation to generation (Basic, 2008). Without proper, timely, efficient and effective flow

of information cooperation is absent because they do not know what they are expected to do

leading to gossips that usually spread wrong information.

2.3.1.3 Non-shared goals

Revenue Technology Services, Texas, (2002), realized that many divisions in an organization do

not work well especially if each division has its own goals. Departmentalization is said to boost

conflicts within different departments in an organization. This does not encourage cooperation

because they do not share a common organizational goal. They came up with a conclusion that if

the organization had goals shared by all divisions, there could be team work, dependency thus

leading to a high level of cooperation.

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2.3.1.4 Ignorance

Student loan beneficiaries may not understand the need to maintain a good credit rating, indeed

the very notion of credit may be foreign to them (Johnstone, 2004). They may well not have

understood that the money they received was to be repaid and that non-repayment would carry

with it some adverse consequences (Ziderman &Albrecht, 1992).

Strategic defaulting is associated with personal characteristics of the borrowers whereby there is

a willful decision by the borrowers to default moral hazards even when the beneficiary business

has yielded enough to effect repayment (Poulton, Dorward & Kyaa, 1998).

2.3.1.5 Reluctant government

Some governments seem to have engaged in virtually the opposite behavior, deliberatelydownplaying repayment obligation, presumably out of fear of students violence and political

destabilization (Bourdon, 1988). A case of Ghana back in the year 1971, when student rejected

everything to do with student loans and the program was scrapped two years later (Williams,

1974; Norty, 2002).

With such fears, the government is unable to enforce law and regulations that would enhance

cooperation in such organizations.

2.3.2 Ways to Encourage Cooperation

2.3.2.1 History of cooperative actions or common governance

Cooperative collection management is best realized in repositories where the participating

institutions have a history of cooperation and strong intra-institutional ties (J. Basic, 2008). A

strong intra-institutional culture seems essential to cooperative long term management of

collection (Giret, 2010).

Also, if an organization has centralized or common governance, there is a higher level of

cooperation as compared to departmentalized governance.

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2.3.2.2 Homogeneity of scale, type and governance

Diversity of membership can be problematic. State funding of the university of Massachusetts

brings with it constraints on the use of state funds and the deposition of state property that affect

the schools, ability to harmonize the management and use policies of its own collection with

those of other consortium member (Tekleselassie, 2001).

2.3.2.3 High level engagement with the governing authority

The level at which the repository engages with the universities or other governing bodies is

important. If the program is driven wholly by individuals needs of participating institutions, the

repository will become the product of their only need (Bourdon, 1988).

If there are specific laws that can be enforced according to government regulatory, it will be easyto ensure that majority even if not all pay the loans (Norty, 2002).

2.3.3 Effects of Lack of Cooperation on Loan Recovery

2.3.3.1 Increase in loan default rates

With poor cooperation between beneficiaries and the board, there is a low percentage of repaid

loans leaving behind a lot of unpaid matured loans.

2.3.3.2 Lack of enough funds

The student loans boards are meant to use the revolving funds, so if the loans are not fully paid

or are poorly paid, they end up having insufficient funds to lend to the increasing number of

needy students.

2.3.3.3 Increased conflict of interests and policies

The student loans board has its own policies and procedures followed when doing their

operation. This is greatly affected by government policies, rules and regulations.

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2.3.3.4 Increased rates of unemployment

This arises where the employers especially those in private sectors fail to cooperate with the

loans board and to make it easy for them, they do not employ loan beneficiaries who have not

fully repaid their loans. With increased unemployment, there is poor loan repayment.

2.3.3.5 Lack of innovation

Exchanging ideas in a cooperative and mutually supportive way is a central aspect of effective

innovation. If one or more departments cease to cooperate with others leads to breakdown in

development and they fail to come up with new methods that can help improve the process of

loan recovery.

2.3.3.6 Lack of efficiency in loan recovery process

Efficiency greatly depends on cooperation. Lack of cooperation from relevant bodies or

departments removes a link from this chain and causes the whole system to function less

efficiently.

2.4 Unemployment

Unemployment is a macro-economic problem whereby people are willing to work at the current

job wage rate but because of factors of production are not into the fullest uses they are not in a

state to get employment.

The relationship between unemployment and law earnings has greatly contributed to high rates

of default (Baccalaureante & Beyond Survey, BB, 1993; 1998, USA).

According to World Bank (2000), the growth of the working age population will out strip that of

non-working population between 1990 and 2020. The working age population in the North

Africa and Middle East region, estimated at 104 million people in 2000, should reach 146million by 2010 and 185 million by 2020. In the light of those projections, the World Bank

estimates that 100 million jobs will need to be created in the region between 2000 and 2020.

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The employment rates remain relatively low on average 40% which translates into a situation of

mass unemployment and underemployment which mostly affects the youths (Thomas & Mihoub,

2010).

Certainly, labor market growth is considerably lower than the growth of the working age

population (Baccalaureate & Beyond, BB, Survey, 1998). The squeeze on conditions for positive

employment outcomes for young graduates is creating a problematic situation. Graduate

employment in the African countries is estimated at between 20 and 30 per cent on average

(Jackson R, 2002).

2.4.1 Emerging Characteristics of Youth Unemployment

2.4.1.1 Male Dominated Labor Force

The female employment is substantially lower than that of males. In African countries, the

female unemployment rate which is nearly twice that of men is increasing as their participation

rates rises, which highlights womens high degree of vulnerability (Thomas & Mihoub, 2010).

Female entry in to labor markets is limited much by cultural factors like low access to certain

occupations, social or family pressures as by economic factors like job securities which explains

the vitality of labor participation rate observed over the last twenty years (ILO, 2004; 2008)

2.4.1.2 The Spatial Polarization of the Labor Force and Mass Unemployment in Urban

Areas

Spatial disparities arise as a result of urban dynamics brought about by rural urban migration.

This later leads to high rates of unemployment in the urban areas and unemployment in rural

areas.

2.4.1.3 Increasing Young and Literate Labor Force

In many African countries, the 25-29 age group is the largest, representing close 16% of

employed workers in 2007 ( Jackson, 2002). There has been a persistent increase in the number

of graduates with stagnant increase in job creation thus rendering many youths unemployed.

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2.4.1.4 Sectoral Transition of the Labor Force

The public sector remains a major employer in many countries and it only absorbs 29% of

employed persons (World Bank, 2000) with private sector absorbing only 16% of the employed

person.

Therefore, this leaves behind a large proportion on unemployed persons who opt to be or to start

their own business while other remain fully unemployed.

2.4.2 Causes of Unemployment among Youths (Graduates)

2.4.2.1 Difficulties of University Graduates Transition to Work

In developed countries, the relationship between holding higher education qualification andemployment is positive as opposed in developing countries (Woodhall, 1992). The probability of

finding employment is an inverse function of education attained. The result of many studies

shows that individuals with a low level of qualification are less exposed to the risk of

unemployment than qualified individuals (Thomas & Mihoub, 2010).

The average unemployment rate of qualified individuals is estimated at 26% with the high

education graduates accepting jobs in the informal sector. Moreover graduate choosing to take up

employment in formal sector often find themselves in jobs that require lower level of

qualification than those they posses. In both cases, graduate finds themselves under employed

(Assad, 2007)

Ministry of employment and professional integration of youth and the World Bank (2004) shows

that it is increasing difficult for higher education graduate to enter the labor market. The same

survey shows that for those in employment, there are numerous instances of occupational

downgrading or educational-occupational mismatch.

2.4.2.2 The Failure of the Labor Market.

A summary review of the main labor market failures provides a first strand of explanation for

graduate unemployment (Aubourg, 2007). High market segmentation limits the signaling

function of degree.

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Labor markets in the African countries are mostly characterized by the low social and social

spatial mobility of the work force (Mezouaghi, 2010). The structural impact of public sector

employment on the labor market and the grazing in-formalization of the economy have

reinforced this bias.

Inertia brought on by the duality of the labor market where public sector employment is deemed

to be stable and relatively well paid. Whereas the private sector is seen as offering precarious and

somewhat less well paid jobs, this quality of labor markets still appears to influence the demand

for employment (Thomas &Mezouaghi, 2010).

The use of political will to construct labor markets has injected rigidities into the wage structure

modifying individuals incentives and expectations, (Dyer, 2005).

The distortions induced by monetary and non-monetary compensation (Agenor & Aynaoui,

2003) explains in the part the transitory behaviors of young unemployed graduates who prefer to

have temporary jobs in the informal sector while awaiting a government employment

opportunity, rather than accept a lower paid in the private sector. This expectation explains the

high demand for public sector jobs as longer period of unemployment.

2.4.2.3 A Structural Mismatch between Labor Supply And Demand.

There is structural mismatch between labor supply and demand. Insufficient job creation by the

private sectors. The dominance of the public sector has skewed the functioning of the labor

markets; it has hampered the emergence of a diversified and structured public sector (Thomas,

2010). Certainly the persistence rent-seeking behaviors on domestic markets have forced the

productive economy to diversify and turn to international markets, thus limiting the private

sector capacity to create jobs (Champman B, 1999 & Jackson R, 2002). This situation has largely

driven greater employment flexibility, thus fuelling underemployment and growth of jobs in the

informal sector.

Mismatches on the labor market. The matching of supply and demand for skilled labor is also

constrained by the labor markets lack of transparency. This reinforced the structural mismatch

of labor supply and demand which in many cases leads to skill, shortages and the failure to

meet private sector demands for skilled labor.

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2.4.2.4 Poor Education System

This leads to an increase in the number of unfilled job vacancies due to the deficit of skilled

labor in specific market segments (Assaad, 2007). Several industrial investment projects could

then decide to move or relocate to other production sites because of insufficient supply of skilled

workers, revealing a workforce that lack depth in some areas of their qualification (Thomas &

Mihoub, 2010).

The current education system proves not to meet the required requirements in the labor markets

thus rendering many youths unemployed (Otieno, 2004).

2.4.3 Effects of Unemployment on Loan Recovery

Deficiency in human capital which can only be maintained by a working population thereforeleading to decline in technological know-how (Lonenceau, 2009). With such a situation, the

student loan beneficiaries wont be able to repay their loans.

The cost of living which refers to the price of goods and services increases and thus people

struggle to meet their basic needs (Lonenceau, 2009).

With high levels of unemployment many people especially the youths opt to go out of the

country (brain drain) to search for greener pastures. They end up evading loan repayment (

Duchatelle, 2003; 2009).

Unemployment leads to high standards of living thus causing a lot of social suffering whereby

people cannot meet their basic needs (Gurgand, 2003). With many people in such a situation, it

will be hard to pay the loans to respective student loan bodies (Ziderman, 1992).

2.5 Beneficiaries Records

Record keeping can be described as a systematic compilation of similar information in an office

setting and stored in files or folders for the purpose of office administration (John Nnakwe,

2006).

In many institutions in different countries, keeping records have been very hectic whereby they

keep scanty records and many even end up losing the records (Otieno, 2004)

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2.5.1 Types of Record Keeping

There are basically two types of record keeping; manual and electronic record keeping methods.

Electronic record keeping refers to where the accounting software programs are used to simplify

electronic record keeping and produce meaningful reports. This method has several advantages

which include, it is efficient to keep financial records and it requires less storage space, it

automatically tallies amounts and produce reporting function, it keeps up with the latest tax rates,

tax laws and rulings, it allows back up of data and keeps them in a safe place in case of fire or

theft and also it allows confidentiality of data because of the security controls that are applied in

those softwares.

Manual record keeping refers to where the businesses prefer or want to use a simple, paper based

record keeping system. It also has some advantages which include; it is less expensive to set up,

correcting entries may be easier with manual systems, data loss is less of risk, particularly if

records are stored in fire and water proof areas, problems with duplicate copies of the same

records are generally avoided and finally the process is simplified as you dont need to be

familiar with the computer software used to calculate and treat the information.

2.5.2 Cause of Poor Record Keeping in the Student Loan Boards

2.5.2.1 Technology

In previous years, the electronic mode of record keeping was not available and when it was

adopted, it turned out to be hard to update into the system all the manual records (Bogonko,

1992). This made it hard to trace the beneficiaries.

There is also the use of programmed systems such that once data is filled in to the system, it

cannot be edited. This leads to keeping of wrong information.

Poor record keeping techniques whereby the information stored in the files or the folders cannot

be retrieved easily because systematic process was not followed.

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2.5.3 Effects of Record Keeping on Loan Recovery.

Record keeping is an essential part in every organization. With proper record keeping, an

organization is able to compare its performance with those of previous periods and also with

other organization (Melonio & Mezauaghi, 2010).

According to Mary Parker (2008), records kept in an organization can be used for planning the

future of the organization. In summary, it is important for to keep proper records of the operation

and their transactions (Mary, 2008).

Loss of records or possibly records not kept at all makes it difficult for the organization to claim

anything because they lack the evidence required ((Bogonko, 1992).

Little evidence of conscientiously counseling student about the implication and responsibility of

their loan either before borrowing, during the university years or just before departure when the

repayment obligation should start (Melonoi, 2002). So if there is track of records where it is

clearly stated that the student know their obligation to the student loans institutions, then, it

would be possible to follow up with them ( Melonio, 2002).

According to Mwiria and Nge`the (2002), the mean testing instruments although better than the

earlier systems is not rigorous enough. Reportedly, up to 25% of loan recipient have lied about

their education, employment and income status of their parents.

Therefore, with false records, it becomes hard to trace the loan beneficiaries. The students loan

bodies are unable to verify the information provided by the applicants.

2.6 Conceptual Framework

This conceptual framework is presented as shown below. It shows the independent variables on

the left side, intervening variables in the middle and the dependent variables on the right side.

The conceptual framework shows the set of factors (independent variables) that contribute topoor loan recovery in student financing organizations.

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Figure 2.1 Conceptual framework

Students

Loan

recovery

Cooperation

Unemployment

GovernmentPolicies

andStrategies

LaborMarkets

2.7 Conclusion

The Kenyan loan program has come a long way. From an institution registering a gross loss of

aver 103% ( Albrecht & Ziderman, 1991), it is one of the few functional loan programs in Africa

with possible exception of the south Africa program which has significantly reduced government

dependence of about 50% of its disbursement yet like most loan programs all over the world, it

must overcome a number of obstacles including raising enough funds to serve all the qualifying

claimant, thereby expanding access to higher education and ensuring real cost recovery while

limiting debt burden in a way that will encourage beneficiaries to pay.

While the current recovery rate is not good enough, it is a significant achievement in less than

ten years. Not only has the board been able to raise recoveries significantly, it has also reduced

administration costs and procedures including setting up an interactive website.

A tighter form of means testing will ensure that the loans serve the purpose for which the

program was introduced, namely to expand access to higher education through equitable

distribution of available funds.

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CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This section discusses the design and the methodologies of the research study. It consists of

research designs, samples and sampling technique, data and data collection techniques, data

analysis technique, research questions and data finding presentation methods. The methodology

includes using logical methods in collecting of the data, determining a target population and

sampling design.

3.2 Research Design

A research design is plan for collecting and utilizing data so that desired information can be

obtained with sufficient precision or so that a hypothesis can be tested properly. This research

employed various methods to ensure that the information is comprehensive. In this case,

descriptive design was used to describe facts in the field. Descriptive design is an approach

which describes data and characteristics about the population or phenomenon being studied (Best

& khan, 2004). To accurately get the information, questionnaires were employed. Qualitative,

quantitative and analytical survey methods were also used to determine and report the way things

were in order to facilitate generalization. This was aimed at finding the factors contributing to

poor loan recovery in the student financing organizations.

3.3 Target Population of the Study

The target population of the study was the HELB management board which directly deals with

the student loans. The target population was 200 (HELB, 2013).

3.4 Sample and Sampling Procedures

A sample is a finite part of a statistical population whose properties are studied to gain

information about the entire population (Best & Khan, 2004).

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When dealing with people, it can be defined as a set of respondents selected from a large

population for the purpose of a survey; Webster (1985). A sample procedure is a definite plan

determined before any data is collected for obtaining a sample from a given population.

The study will entail a sample size of a 50 people who are members of the HELB management

board. The sample study was determined through probability sampling which involved simple

random sampling technique because each board member have an equal chance of being included

in the representative sample.

3.5 Data Collection Methods

This includes techniques used to collect data from the respondents. The research used both

primary and secondary methods.Primary data included both open-ended and closed questionnaires. Secondary data sources

included journals and internet searches. These were the main sources of actual data that was

analyzed to enable the researcher make conclusions on the research study.

3.6 Data Analysis Techniques

Data analysis refers to means of categorizing, ordering, manipulating and summarizing data in

order to obtain answers to the research questions.

This was done using descriptive statistics. The descriptive analyses included frequencies,

percentages, tables, charts, graphs and cross-tabulations, which will be used to summarize,

organize data and describe the characteristics of the sample population.

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CHAPTER FOUR

4.0 DATA ANALYSIS AND FINDINGS

4.1. Introduction.

This chapter contains the data analysis and findings of the study. The objective of the study was

to find out the factors that contribute to poor loan recovery in student financing organizations.

Questionnaires were administered to the Higher Education Loans Board members in six

departments. A total of 20 questionnaires were distributed to the employees of which 17 were

completed and returned but three were not. This represented 85% response rate.

The data was analyzed using various statistical and qualitative techniques. Data obtained was

analyzed on a question-by-question basis and it is presented in terms of tables, charts and graphs.

The tables are in frequencies and percentages.

4.2. Analysis of General Information

The following tables, graphs and charts represent the demographic profile of the 17 respondents

who filled and returned the questionnaires. Each questionnaire had a total of nineteen questions.

It was found out that many respondents were not comfortable with filling the part of the

questionnaire that contained open ended questions.

4.2.1 Response rate.

Table 4.2.1:Response rate of the respondents

Response No. Of

Questionnaire

No. Of Response Rate%

Response 20 17 85%

Non-response 0 3 15%

Total 20 20 100%

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Twenty questionnaires were administered in the educations loans board and only 17 of the

distributed questionnaires were filled and returned. The response rate was 85% and only 15%

didnt respond.

Figure 4.1: Pie chart showing the rate of response.

15%

85%

ResponseRate

Nonresponse

Response

4.2.2 Gender of the respondents.

Table 4.2.2: showing the gender of the respondents.

Gender Frequency Percentage (%)

Male 11 85%

female 6 15%

total 17 100%

Out of the seventen respondents, eleven were male and only six were women. This shows that

85% of the respondents were male and the remaining 15% was represented by women.

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Figure 4.2: Pie chart showing gender of the respondents

65%

35%

GENDERRESPONSE

Female

Male

4.2.3: Age of the respondents.

Table 4.2.3: showing the age of the respondents.

Age bracket Frequency Percentage.

21-30 4 24%

31-40 5 29%

41-50 8 47%

Above 50 0 0%

Total 17 100%

About 24% of the respondents belong to the age bracket 21 - 30, 29% indicated that they belongto the age bracket of 31 40 years, 47% of the respondents belong to the age bracket of 41 50

years. Of the 17 respondents, there was no one in the age bracket of 50 and above.

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Figure 4.3: pie chart showing age of the respondents.

24%

29%

47%

0%

AGEOFTHERESPONDENTS.

2130

3140

4150

above50

4.2.4 Number of years worked in the board.

Table 4.2.4: Number of years employed.

Years Frequency

Less than 5 years 4

6-10 years 3

11-15 years 4

16-20 years 4

Over 20 years 2

Total 17

From table 4.2.4 above, only four of the respondents have been working in the loans board for

less than five years. Only three have been working in the board for a period of between 6 and 10

years. Four have been in the board for a period of between 16 and twenty years. The last two

who have been in the board for over twenty year saw the transition of the board from HELF to

HELB.

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Figure 4.4: Bar graph showing number of years employed in the board.

0

1

2

3

4

5

lessthan

5years610

years 11

15

years16

20

yearsover

20

years

Respondentsfrequency

Rangeofyearsemployed

Numberofyearsworked

numberofyearsworked

4.2.5 Department of the respondents.

Table 4.2.5: Respondents departments

Departments Frequency

Human resource 2

Finance 4

Operations 5

Communication 2

Audit 1

Research and planning 3

Total 17

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Figure 4.5: Bar graph showing the departments of the respondent.

0

1

2

3

4

5

6

human

resource

finance operations communication audit R&planning


Departments

departmentsofrespondents

departmentsofrespondents

From table 4.2.5 and figure 4.5, only two of the respondents are in the human resource

department, four in finance, five of them in operations, two belong to communications

department, only one in the audit department and three of the seventeen respondents in research

and planning.

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4.3: Effects of Cooperation on Loan Recovery Process.

Table 4.3.1:Showing the respondent ratings on the following effects on loan recovery.

Factors Very

Great

Extent

Great.

Extent

Ave Very

Low

Extent

Low

Extent

T.F

Commitment of top management in the

process

17 0 0 0 0 17

High level of cooperation from beneficiaries 1 4 5 0 7 17

High level of cooperation between

departments

2 13 1 1 0 17

Low level of cooperation than expected 14 2 1 0 0 17

The board has put up measures to improve

cooperation

1 2 12 0 2 17

Cooperation from the government 9 6 2 0 0 17

Table 4.3.2:Showing factors that were rated as of very great extent and of great extent.

Extent rate Frequency Percentage (%)

Very great extent 3 60%

Great extent 2 40%

Total 5 100%

Form the table above 60% rated that the commitment of top management in the process, low

level of cooperation than expected from the beneficiaries, cooperation from the government as

having a very great extent of effects in the process of loan recovery. In order to improve the

process of loan recovery, the board must put great emphasis on these factors. The remaining 40%

ranked the cooperation between department and from the government as having a great extent of

effects in loan recovery process.

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Figure

extent a

.6: Pie cha

d of great

rt represen

extent.

tation of the number f factors rated as bei g of very reat

Table 4.

Factor

Manag

Level

The ex

Lack o

Ignora

Table 4.

Rate o

Very h

high

Total

.3:Showin

erial efficie

f communi

tent to whic

f governme

ce from th

.4:Showin

rating

igh

40%

the rate at

cy

ation

h board goa

t support

loan benefi

factors tha

which the f

s are share

ciaries

t were rated

Frequency

1

4

5

No.offa

27

llowing fac

Ver

high

3

4

2

4

16

to have a v

torsrated

tors affect t

high

10

12

15

9

1

ery high rat

P

2

8

1

60%

e process o

Ave. L

ra

4 0

1 0

0 0

4 0

0 0

and very h

rcentage (

%

%

0%

verygre

greatex

f loan reco

w

e

low

0

0

0

0

0

gh.

)

atextent

tent

ery.

.F

17

17

17

17

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From the above table, 20% of the respondents rated that ignorance from the loan beneficiaries as

having very high rate of effect in level of cooperation between the loans board and the

beneficiaries, while the remaining 80% rated managerial efficiency, level of communication,

extent to which the goals are shared and lack of government support as having a high rate of

effect.

Figure 4.7: Pie chart representation of the number of factors rated as being of very high

and high rate.

20%

80%

Rateoffactorseffect.

veryhigh

high

Table 4.3.5:Showing the level of cooperation in the loan recovery process.

Level Frequency Percentage. (%)

Very high 4 24

High 11 64

Average 2 12

Total 17 100

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From table 4.3.5 above, four out of the seventeen respondents rated the level of cooperation in

the loan recovery process as very high, representing 24%. Eleven respondents rated the level of

cooperation in loan recovery process as high which is 64% and only tow rated is as average.

Figure 4.8: Pie chart representation of the level of cooperation in the loan recovery process.

24%

64%

12%

Levelofcooperation

veryhigh

high

average

Table 4.3.6:Cooperation between the board and the beneficiaries can be improved.

Response Frequency

Yes 12

No 5

Total 17

From the table above, 12 of the respondents agreed that the level of cooperation between the

loans board and the beneficiaries can be improved and only five of the seventeen respondents

opposed.

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Figure 4.9: Showing cooperation between the board and beneficiary can be improved.

0

2

4

6

8

10

12

14

Yes No


Responce

Cooperationcanbeimproved

Response

4.4: Effects of unemployment on loan recovery process of loan recovery.

Table 4.4.1:Showing whether unemployment has effects in the process of loan recovery.

Response Frequency Percentage (%)

Yes 14 82%

No 3 18%

Total 17 100%

The table above shows that 82% of the respondents agreed that unemployment affects the

process of loan recovery. The remaining 18% of the respondents didnt agree with that statement.

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Figure 4.10: Showing whether unemployment has effects in the process of loan recovery

82%

18%

Response

yes

no

Table 4.4.2:Showing the extent at which unemployment affects the process of loan recovery.

Extent Frequency

Very high 12

High 2

Total 14

Unemployment greatly affects the process of loan recovery. This is according to the respondents

whereby twelve out of fourteen respondents rated effects of unemployment on loan recovery

process as very high and only two out of fourteen rated it as very high.

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Figure 4.11: Bar graph showing the effects of unemployment

0

2

4

6

8

10

12

14

veryhigh high


Extent level

Extent at which unemployment affects the process of loan

recovery

Extents of effets ofunemploynent on loanrecovery process

Table 4.4.3: Showing the extent at which the following factors affect the process of loan

recovery

Factors Very

great

extent

Great

extent

Ave. Very

low

extent

Low

extent

T.F

Male dominated labor force 2 4 4 0 7 17

Mass unemployment 8 6 3 0 0 17

Increasing young and literate labor force 7 8 2 0 0 17

Difficulty graduate transition to work 9 5 3 0 0 17

Education system 12 4 1 0 0 17

Economic problem 9 6 2 0 0 17

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Table 4.4.4:Showing the percentages of the factors rated as of very great extent and of great

extent.

Extent rating Frequency Percentage. (%)

Very great extent 5 83.3%

Low extent 1 17.7%

Total 6 100%

Figure 4.12: Pie chart showing factors rates as being of very great and great extent.

83%

17%

No. of factors

veryhighextent

Lowextent

The table above shows that 83.3% of the respondents agreed that mass unemployment,

increasing young and literate labor force, difficulty graduate transition to work, education system

and economic problem have a very great extent of effect in the process of loan recovery. The

remaining 16.7% agreed that male dominated labor force do not greatly affect the process of loan

recovery.

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Table 4.4.5:Showing the effects of unemployment.

Factors Very

high

high Ave. Very

low

low T.F

Deficiency in human capital 0 8 4 0 5 17

Brain drain 10 7 0 0 0 17

Low standards of living 11 5 1 0 0 17

Increasing cost of living 13 4 0 0 0 17

Rural urban migration 8 5 4 0 0 17

Increased social problems e.g. alcoholism 9 6 2 0 0 17

Table 4.4.6:Showing how the effects of unemployment have been rated.

Rate Frequency Percentages (%)

Very high 3 50%

High 2 33.3%

Average 1 16.7%

Total 6 100%

The table above shows that 50% of the respondents agreed that brain drain, low standards of

living and increased cost of living are factors that have a very high effect in the process of loan

recovery. 33.3% of the respondents show that deficiency in human capital and increased social

problems are factors that have a high effect in the process of loan recovery. The remaining

16.7% show that rural urban migration has an average effect in the loan recovery process.

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Figure 4.13: Pie chart representation of effects of unemployment on loan recovery process.

50%

33%

17%

Effectsofunemployment

veryhigh

high

average

4.5: Effects of record keeping on loan recovery process.

Table 4.5.1:Effects of technology in record keeping process.

Response Frequency

Yes 14

No 3

Total 17

The table shows that fourteen of the respondents agreed that frequent changes in technology have

affected the process of record keeping in the board. Only three opposed that technology affect

record keeping process.

The fourteen respondents who agreed that technology affects the record keeping process said that

it has lead to reduced paper work, it is user friendly and easy for them to use because each

advancement of the technology makes the system easy and this boost their morale and efficiency

and the effectiveness of the work done. It makes it easy to retrieve the records and allows easy

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follow up. Changes in technology have come up with improved security systems that assure

safety of the records.

Figure 4.14: Bar graph showing the effects of technology in record keeping.

0

2

4

6

8

10

12

14

16

yes no


Response

Effectsoftechnology

effects of technology

Table 4.5.2:Showing cases of records loss in the board.

Response Frequency Percentage (%)

Yes 8 47%

No 9 53%

Total 17 100%

Form the above table, 47% of the respondents shows that there are cases of loss of records in the

loans board. The eight respondents proposed issues of corruption in the board where by the

beneficiary gives a certain amount of money to an employee in the board who have access to the

system and then delete the account of that particular beneficiary.

They also proposed that persistent changes in technology have also lead to loss of record of

record especially in the year 1998 when the board fully transformed its operation from being

manual to computerized operations. Some of the records were not fed into the system and others

were misplaced during that period of transformation.

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The changes in technology and increase in the number of information technology experts have

lead to an increase in cyber crime and hacking. Hacking in to their system happened in the year

2002 and lead to loss of records and alteration of others records.

Figure 4.15: Pie chart showing cases of loss of records in the board.

47%

53%

Casesoflossofrecords

yes

no

Table 4.5.3:Showing existence of other factors leading to poor loan recovery.

Response Frequency

Yes 9

No 8

Total 17

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Figure 4.16: Bar graph showing the response to the existence of other factors leading to

poor loan recovery.

1

2

3

4

5

6

7

8

9

10

yes no


Responsetype

response

response

From the table and figure above, nine of the respondents agreed that there are other factors that

lead to poor loan recovery in student financing organizations. Eight of the respondents didnt

agree.

Other factors that have contributed to poor loan recovery in student financing organization are:

Age and competing obligation where age influences the probability of defaulting as older

beneficiaries are more likely to default. They are more likely to default accumulated more

overall debt e.g. credit card, home mortgages etc and are likely to have dependants.

Underrepresented students from low income families, single parents and students with

dependants are most likely to default due to heavy financial burden.

The level of income and debt of the beneficiary also affect. The more the borrower owes the

more the beneficiary is likely to default. If the borrower owes more than he earns, there is a

greater possibility of defaulting.

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CHAPTER FIVE

5.0 SUMMARY, CONCLUSION, RECOMMENDATION AND LIMITATION

5.1 Introduction

This chapter gives a summary of the findings as well as the conclusion gathered from the data

analysis. Findings have been summarized and conclusions drawn from the study and

recommendations are finally given.

5.2 Summary

The purpose of this study was to investigate the factors that contribute to poor loan recovery in

student financing organizations. Data was collected through questionnaires and one on one

interview. Some of the most notable factors identified are commitment of top management is ofparamount importance in the process of loan recovery. From the ranking of the provided factors

based on the respondents, it is clear that the following factors can be identified as the critical

factors influencing the process of loan recovery.

5.2.1 Objective one: effects of lack of cooperation in the process of loan recovery

This objective aimed at finding out the effects of cooperation in loan recovery process.

According to the respondents, it was found out that commitment of top management in the

process greatly affect the process of loan recovery. Other factors that affect the process are low

level of cooperation than expected from both the beneficiaries and the government and also

ignorance from the beneficiaries.

5.2.2 Objective two: effects of unemployment in loan recovery process

Unemployment was rated as the most influential factors that affect the process of loan recovery.

Under unemployment, there are factors that gently contribute to poor recovery of loans in student

financing organizations. They include difficult transition to work where graduates are not easily

absorbed in the job market, education system that is rated as being inappropriate where graduates

clear their education without proper skill that are required in the job market, economic problems

and brain drain. Unemployment leads to low standards of living, increased cost of living and

increased social problems which greatly hinder the process the process of loan recovery.

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5.2.3: Objective three: effects of record keeping in the process of loan recovery

Record keeping has been a hectic process in the loan recovery process. This is because of

persistent changes of technology. It has been costly to keep their systems up to date with

technology. Corruption issues have affected the process of loan recovery because a beneficiary

gives a certain amount to the board member or an employee who have access to the system and

delete the record of that particular beneficiary. The loan applicants provide false information

when applying for the loans and the board has inadequate instruments of means testing. This

makes it hard to trace the beneficiaries when their loans mature.

5.3 Conclusion

The study was mainly conducted to investigate the factors contributing to poor loan recovery in

student financing organizations. The study has exhaustively analyzed all the data that affects the

process. This study established that unemployment and poor cooperation are two critical factors

that affect the process of loan recovery leading to low recovery rates.

This study reveals that unemployment have the highest influence in the process of student loan

recovery. The study established that poor cooperation between the board, beneficiaries and the

government and also the process of record keeping affects the loan recovery process.

5.4 Recommendation

The factors established an integral part in influencing the process of loan recovery. The board

should focus on these factors as it will enable them to improve the process of loan recovery. In

addition, they will be able to identify those areas in their loan recovery process where

improvements should be made and in turn improve the overall process of loan recovery. The

recommendations will focus on:

The loans board should link and automate all the operating information systems because this will

enable detection especially where data has been altered or deleted by some of the employees.

The loans board can network with institutions, embassies, ministry of immigration, KRA, NHIF,

NSSF, and employers especially from the private sectors. This will help curb the issue of brain

drain and that of reluctant employers

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5.6 Suggestions for Further Research

5.6.1 Viability of credit system in Kenya

Its difficult to predict whether a loan applicant will default. The use of credit risk measurement

in Kenya is at a minimal level. Research is needed to see if this system is viable in the Higher

Education Loans Board.

5.6.2 Feelings of beneficiaries

A study should be conducted to examine the feeling of HELB loan beneficiaries towards

exercising their obligation of loan repayment.

Finally a study should be conducted on the effectiveness of the loan recovery program in student

financing organizations.

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REFERENCES

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universities in developing countries. Washington D.C

Champman, B (1988)Reform of Ethiopia higher education financing. Champman and Ryan C.

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Jackson R. (2002) the national student financial aid scheme of South Africa

Chuta E.J (1992) Student loans in Nigeria.

Johnstone D.B (1986, 1988)sharing cost of higher education. Johnstone D.B and Tekleselassie

A.A (2001) the applicability for developing countries of income contingent loans.(2002, 2004),

cost sharing and equity in higher education.

Mokgwathi, G. M. G. (1992) Financing higher education in Botswana.

Wycliffe Otieno (2004) student loans in Kenya. Journal of higher education Africa.

World Bank (2004, 2006)world development indicators.

Cheboi, B (2004) teachersgood at paying varsity loans. East African education publishers.

Eshiwani, G. (1993), Education in Kenya since independence. East Africa education publishers

limited.

Mbanefoh GF (1989). University education in Kenya / Ministry of education.

Mwiria and Ngethe (2002) public university reforms in Kenya.

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Maureen Woodhall (2004). Student loans in higher education, Paris. (1992), changing patterns

and sources of finance for higher education in Europe . (1991),financial support for students.

Thomas Melonio and Mihoub Mezouaghi (2010), Financing higher education in the

Mediterranean region.

Tekleselassie, A.A, (2002), targeting subsidies for higher education.

Norty V. O. (2002), student loan scheme. The Ghana experience.

Ishengoma J. (2004), Financing higher education in federal republic of Nigeria.

www.helb.co.ke

www.wikipedia.com

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APPENDIX 1

QUESTIONNAIRE

My name is Stacy Ndirangu, a Bachelor of Commerce student at KCA University. I am

conducting a study on factors contributing to poor loan recovery in student financing

organizations

Documents

Poor Loan Recovery