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Saturday, Nov 07, 2009
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Business Daily from THE HINDU group of publications Saturday, Nov 07, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Money & Banking
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Financial Institutions Web Extras - Education Sibal moots corporation to fund education
The NEFC could provide long-gestation loans of up to 20-30 years at lower rates of interest than offered by banks and FIs. Could also provide limited credit guarantees through the principle of risk-pooling for educational loans 
Mr Kapil Sibal, Union HRD Minister Vinson Kurian New Delhi, Nov. 6 The Union Ministry of Human Resource Development has mooted the idea of setting up a national education finance corporation (NEFC) to raise resources for primary and higher education sectors. A brainchild of the Union Minister for HRD, Mr Kapil Sibal, the corporation is being equipped to generate resources for meeting the obligations imposed by the Right of Children to Free and Compulsory Education Act, 2009, as well as the larger funding requirements of the higher education sector. NO SUPPPLANTINGThe proposed corporation is intended to supplement and not supplant the existing funding mechanism through banks, according to Mr Sibal. The NEFC could provide long-gestation loans of up to 20-30 years at lower rates of interest than are offered by banks and FIs. Since educational infrastructure involves creation of physical assets, mortgage or collateral for such loans would not be an issue. The NEFC could also provide limited credit guarantees through the principle of risk-pooling for educational loans analogous to that provided by the Export Credit Guarantee Corporation. The proposed corporation would have an authorised share capital of Rs 20,000 crore, with 5 per cent being redeemable preference shares. Three-fourths of the initial issued share capital of Rs 4,000 crore may be contributed by the Centre and the rest subscribed to by development banks, public sector banks, the GIC, the LIC and other institutions owned and controlled by the Centre. The equity subscribed to by banks and other institutions could be converted into redeemable preference shares carrying a fixed rate of dividend after seven years. The share capital may be augmented by Rs 2,000 crore every year over the next eight years limited only by the size of the authorised capital. RAISING DEBTThe NEPC may also have the power to raise debt by issue or sale of bonds to raise resources from the market. The bond holders may be exempt from the levy of tax – individual or corporate – or be granted rebate in capital gains tax. The NEFC could also be allowed to borrow from the Reserve Bank against securities. The Centre may, if required, guarantee the bonds issued by the Corporation against outstanding principal or interest. Another possible mode of funds would be the rural infrastructure development fund (RIDF) from the Nabard (National Bank for Agriculture and Rural Development). The debt to equity ratio may be kept at 4:1, allowing for maximum lendable resources of Rs 20,000 crore during the first year, which can go up to Rs 1 lakh crore in the eighth year. The requirement of funds for the education sector is expected to be Rs 60,000 crore during 2009-10. This could grow to as high as Rs 1.55 lakh crore in 2016-17. The NEFC will ensure lendable funds of an estimated Rs 38,000 crore in 2009-10 and Rs 1 lakh crore in 2016-17. EASY RESORT“The difficulty is that banks treat loans and advances to the sector much the same way as they do for the trade, industry and commerce and conveniently ignore inherent contrasts in terms of initial investments, gestation period and returns,” says Mr Sibal. Short-tenure loans availed at commercial rates of interest leave educational institutions with hardly any other option than rustle up quick money – even if this meant the easy resort to charging capitation fees, or other scourges that the resource-hungry sector is blamed for. “We can’t stop these practices just by legislation. There is therefore a need to devise an institutional mechanism that can provide educational institutions the means to access funds at lower cost with long gestation periods.” The mandate of NEFC may extend to granting loans and advances to any scheduled public sector bank or such other financial institutions by way of refinance for establishment, development or promotion of any educational institution or providing loans and advances at concessional rates of interest for infrastructure in identified backward districts. The corporation could also directly finance any university for its establishment, increase in enrolment or improvement of infrastructure. The proposal has already been moved to the Planning Commission for favour of constituting a working group to discuss the modalities of taking it to the next level, which may include exercising the option of drafting an enabling legislation. More Stories on : Financial Institutions | Education
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