FACTORS CONTRIBUTING TO POOR LOAN RECOVERY IN

STUDENT FINANCING ORGANIZATIONS

(CASE OF HIGHER EDUCATION LOAN BOARD)
(HELB)

BY
NDIRANGU STACY
10/03790

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE FINAL YEAR RESEARCH PROJECT OF THE BACHELOR OF
COMMERCE DEGREE PROGRAMME KCA UNIVERSITY

AUGUST 2013

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 University
supervisor.
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.

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.

ii

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.

iii

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
v

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

ix

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

ABSTRACT
Kenya has a long history of lending to students, but in the 1980s, the program was criticized for
its poor administration, high cost and low recovery rates. The establishment of the Higher
Education Loans Board in 1995 ushered in reforms that have broadened the program beyond the
public 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 through
Higher Education Loans Board. There is a growing student population, rising rates of education
and an increased dependency by students on financial assistance due to slow growth rate of the
economy and the impact of poverty levels in the country.
The board has recognized key challenge that it must account in its operations. They include the
need 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 nonperforming loans by entering in to strategic partnership, which would assist in the netting in of
loanees 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 to
poor loan recovery in students loan schemes and finally makes a number of recommendations to
improve the process of loan recovery.
Conclusion, implications, limitations and recommendations were completed and statements were
made on the findings.

xi

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
1

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)
2

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.

1.4 Research questions

The research has answered 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.

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 higher
education 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 the
higher 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 providing
them 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

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).
6

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.

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, deliberately
downplaying 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.

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 easy
to 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.

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 146
million 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.

10

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.

11

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 and
employment 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.
12

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.

13

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 therefore
leading 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)

14

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.

15

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 to
poor loan recovery in student financing organizations.

16

Figure 2.1 Conceptual framework

Cooperation

GovernmentPolicies
andStrategies

Students
Loan
recovery

Unemployment

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.

17

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).

18

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.

19

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

No. Of Response

Rate%

Questionnaire
Response

20

17

85%

Non-response

15%

Total

20

20

100%

20

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.
ResponseRate
15%

Nonresponse
Response

85%

4.2.2 Gender of the respondents.

Table 4.2.2: showing the gender of the respondents.
Gender

Frequency

Percentage (%)

Male

11

85%

female

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.

21

Figure 4.2: Pie chart showing gender of the respondents

GENDERRESPONSE

35%

Female
Male

65%

4.2.3: Age of the respondents.

Table 4.2.3: showing the age of the respondents.
Age bracket

Frequency

Percentage.

21-30

24%

31-40

29%

41-50

47%

Above 50

0%

Total

17

100%

About 24% of the respondents belong to the age bracket 21 - 30, 29% indicated that they belong
to 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.

22

Figure 4.3: pie chart showing age of the respondents.

AGEOFTHERESPONDENTS.
0%

24%
2130
47%

3140
4150
above50

29%

4.2.4 Number of years worked in the board.

Table 4.2.4: Number of years employed.
Years

Frequency

Less than 5 years

6-10 years

11-15 years

16-20 years

Over 20 years

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.

23

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

Respondentsfrequency

5
4
3
2
numberofyearsworked
1
0
lessthan 610years
5years

1115
years

1620
years

over20
years

Rangeofyearsemployed

4.2.5 Department of the respondents.

Table 4.2.5: Respondents departments
Departments

Frequency

Human resource

Finance

Operations

Communication

Audit

Research and planning

Total

17

24

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

departmentsofrespondents
6

Respondentsfrequency

5
4
3
2
1
0
human
resource

finance

operations

communication

audit

R&planning

Departments

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.

25

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.

Ave Very

Great

Extent

Low

Extent
Commitment of top management in the

Low

T.F

Extent

Extent

17

17

High level of cooperation from beneficiaries

17

High level of cooperation between

13

17

Low level of cooperation than expected

14

17

The board has put up measures to improve

12

17

17

process

departments

cooperation
Cooperation from the government

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

60%

Great extent

40%

Total

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.

26

Figure 4.6:
4 Pie charrt representation of th
he number of factors rated as bein
ng of very great
extent an
nd of great extent.
No.offacctorsrated

40%
60%

verygreeatextent
greatexxtent

Table 4.33.3: Showing

g the rate at which the foollowing facctors affect thhe process of
o loan recovvery.
Factorss

Veryy

high

Ave.

high

Loow

T
T.F

ratte

Managgerial efficien
ncy

10

17

Level of
o communiccation

12

17

The exxtent to which board goalls are sharedd

15

17

Lack of
o governmen
nt support

17

Ignorannce from thee loan benefiiciaries

16

17

g factors thaat were ratedd to have a veery high ratee and very hiigh.
Table 4.33.4: Showing
Rate off rating

Frequency

Peercentage (%
%)

Very high
h

200%

high

800%

Total

1000%

27

low

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.
Rateoffactorseffect.

20%

veryhigh
high

80%

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

Frequency

Percentage. (%)

Very high

24

High

11

64

Average

12

Total

17

100

28

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.
Levelofcooperation
12%
24%

veryhigh
high
average

64%

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

Frequency

Yes

12

No

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.

29

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

Respondents frequency

14
12
10
8
6

Response
4
2
0
Yes

No

Responce

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

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.

30

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

Response

18%

yes
no
82%

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

Frequency

Very high

12

High

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.

31

Figure 4.11: Bar graph showing the effects of unemployment

Extent at which unemployment affects the process of loan
recovery

Respondentsfrequency

14
12
10
8

Extents of effets of
unemploynent on loan
recovery process

6
4
2
0
veryhigh

high

Extent level

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

Very

Great

great

extent

Ave. Very
low

extent

T.F

extent

extent

Male dominated labor force

17

Mass unemployment

17

Increasing young and literate labor force

17

Difficulty graduate transition to work

17

Education system

12

17

Economic problem

17

32

Low

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

83.3%

Low extent

17.7%

Total

100%

Figure 4.12: Pie chart showing factors rates as being of very great and great extent.
No. of factors

17%
veryhighextent
Lowextent
83%

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.

33

Table 4.4.5: Showing the effects of unemployment.

Factors

Very

high

Ave.

high

Very

low

T.F

low

Deficiency in human capital

17

Brain drain

10

17

Low standards of living

11

17

Increasing cost of living

13

17

Rural urban migration

17

Increased social problems e.g. alcoholism

17

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

Frequency

Percentages (%)

Very high

50%

High

33.3%

Average

16.7%

Total

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.

34

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

33%
veryhigh
50%

high
average

17%

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

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

35

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.
Effectsoftechnology
16

Respondentsfrequency

14
12
10
8
6

effects of technology

4
2
0
yes

no
Response

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

Response

Frequency

Percentage (%)

Yes

47%

No

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.
36

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.
Casesoflossofrecords

47%

no

53%

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

Frequency

Yes

No

Total

17

37

yes

Figure 4.16: Bar graph showing the response to the existence of other factors leading to
poor loan recovery.
response
10

Respondentsfrequency

9
8
7
6
5
response

4
3
2
1
yes

no
Responsetype

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.

38

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 of
paramount 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.

39

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

40

The Higher Education Loans Board can also network with data centres, credit reference bureaus,
registrar of persons for information on students and loan grantors/ parents. This will help track
grantors who can repay the loans on behalf of the beneficiaries.
HELB should consider choosing an appropriate collection institution central to effective loan
collection. Outsourcing the task of collection and follow up loan repayment to a specialist
agency should be considered.
HELB can introduce incentives for loan beneficiaries who make prompt repayment especially if
the loan repayment is made earlier than the stipulated time and finally the board should maintain
a strong internal control system.

5.5 Limitations of the Study

The main limitation of this study was deciding the sample size to be used. This is because at first
I was not sure about the total number of employees in the board. Deciding the most
representative sample size to use forth study was difficult.
The time allocated for the research was short therefore it was not possible to do a comprehensive
study because I had to reduce even the sample size.
The finances to carry out the research was limited and to make sure the research was completed I
ended up reducing the sample size.
Obtaining data and trends on factors contributing to poor loan recovery in Kenya was not easy.
Very few studies have been undertaken in this regard.
I had a hard time getting data from the respondents because its usually a process where I had to
apply to be permitted to get information for my study. After being permitted I had to submit the
questionnaire to the board which will be later approved by the management. Finally after the
questionnaires are filled and returned, they are supposed to be submitted to the management
board.

41

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.

42

REFERENCES
Albrecht, D, & Ziderman A. (1992) student loans and their alternatives. (1995) Financing
universities in developing countries. Washington D.C
Champman, B (1988) Reform of Ethiopia higher education financing. Champman and Ryan C.
(2002) income-contingent financing of student charges for higher education.
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) teachers good 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.

43

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

44

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, An analysis of Higher Education Loans Board (HELB) recovery program.
I would highly appreciate if you could spare a few minutes of your time to share your views on
this subject matter. The information collected from this research will strictly be used only for the
intended purpose of this research and it will be treated with utmost confidentiality.
Please answer the questions to your utmost knowledge and where appropriate.
SECTION A. GENERAL INFORMATION
1. What is your gender?
Male

Female

2. How old are you?

21-30

41-50

31-40

Above 50

3. Number of years worked at the Higher Education loan board?

Less than 5
6-10 years
11-15 years
16-20 years
Over 20 years

45

4. Which is your department?

Human resource
Finance
Operations
Communication
Audit
Research and planning
SECTION B. To Find out how Cooperation Affect the Process of Loan Recovery
(1- Very great extent, 2- very great 3-, average, 4- very low extent, 5- low extent)
1. To what extent do the following factors affect the process of loan recovery?
1
Commitment of top management to the process
High level of cooperation from beneficiaries
High level of cooperation between departments
Low level of cooperation than expected
The board has put up measures to improve cooperation
level
Cooperation from the government

46

2. How can you rate the following factors that affect the level of cooperation?
(1- Very high, 2- high, 3- average, 4- very low, 5- low)
1

Managerial efficiency
Level of communication
The extent to which the board goals are shared
Lack of government support
Ignorance from the loan beneficiaries

3. How can you rate the level of cooperation in the loan recovery process?
Very high
High
Average
Very low
Low
4. What other factors from your experience influence the process of loan recovery but has
not been covered in the research question?

...
5. Are there ways through which cooperation between the board and the beneficiaries can
be improved?

47

Yes
No
If yes
how?.......................................................................................................................................
................................................................................................................................................
Section C: To find out how Unemployment affect the process of Loan Recovery.
1. Does unemployment affect the process of loan recovery?
Yes
No
If yes, to what extent does unemployment affect the process of loan recovery?
Very high
High
Average
Very low
Low

48

2. To what extent do the following factors of unemployment affect the process of loan
recovery?
(1- Very great extent, 2- great extent, 3- average, 4- very low extent, 5- low extent)
1

Male dominated labor force

Mass unemployment
Increasing young and literate labor force
Difficulty graduate transition to work
Education system
Economic problem

3. How can you rate the following effects of unemployment on loan recovery process?
(1- Very high, 2- high, 3- average, 4- very low rate, 5- low)
1
Deficiency in human capital
Brain drain
Low standards of living
Increased cost of living
Rural urban migration
Increased social problems, e.g. Alcoholism

49

Section D. Beneficiaries Records

1. For how long does the board keep beneficiaries records before discarding them?
Less than 5 years

21-25 years

6-10 years

26-30 years

11-15 years

over 30 years

16-20 years
2. Which method of record keeping do you use?
Electronic
Manual
Both
Why?......................................................................................................................................
................................................................................................................................................

3. For how long have you been using the method chosen above?
Less than 5 years
6-10 years
11-15 years
16-20 years
Over 20 years
4. Have the persistent changes in technology affected your process of record keeping?
Yes
No

50

If yes,
how?.......................................................................................................................................
................................................................................................................................................
5. Are there cases of loss of records in the board?
Yes
No
If yes, what are the causes of loss of records?
................................................................................................................................................
................................................................................................................................................
................................................................................................................................................
6. What techniques do you use to find if the information provided by the loan applicants is
correct?

7. From your experience in the board, are there other factors that led to poor loan recovery?
Yes
No
If yes, which ones?................................................................................................................
........................................................................................................................................
..............................................................................................................................................
Thank you very much for your time and cooperation in completing this questionnaire.

51

APPENDIX 2
TIME SCHEDULE
TIME

MAY

Formulation of the problem

*********

JUNE

Writing of the proposal

**********

Data collection

**********

Data analysis

AUGUST

**********
**********

presentation

**********

52

JULY