Kenya: Banks Seek to Disburse Student Loans with Smartcard

Business Daily (Nairobi)

Mugambi Mutegi

9 January 2012

Banks are seeking to partner with the Higher Education Loans Board (Helb) to disburse students’ loans through smartcards.

Under the deal, students will receive loans through smartcards to cater for tuition and accommodation charges instead of money being credited to their bank accounts.

Helb says the plastic card will ease reconciliation of their records with those of universities, especially in instances where money is sent to universities and students either defer studies or drop out of college.

The banks behind the plastic money said the technology will help them grow their transaction income as they race to cut reliance on interest or loan income. “While the model will benefit Helb track their records and students with better efficiency, banks will have to charge a commission for providing and maintaining the infrastructure,” said Kenya Bankers Association CEO Habil Olaka.

Details on the plan remain sketchy, but the bankers said that students are likely to be charged a monthly fixed fee and ATM withdrawal fees, which banks say will rev up their fees and commission income.

Helb funds about 80 per cent of the 143,130 students in public universities. ATM charges are emerging as a profit driver for local banks with Equity, for instance, earning Sh1.3 billion from the charges in 2010. It earned Sh11.7 million in net interest income.

Significant income earner

Recent Central Bank of Kenya data shows that the total value of transactions made using plastic cards rose 13.4 per cent to Sh428 billion in the nine months to September 2011 from Sh377.2 billion a year earlier.

Fees from ATM, credit, and debit card usage are becoming a significant income earner for mass-market banks which are continuously turning to cards as a reliable payment means.

“Discussions whether the students’ cards will come VISA-enabled are also part of the negotiations we are having with the board,” Mr Olaka said.

Banks are also looking to gain vital information on the students who they hope will become their long term clients.Mr Olaka said that through the model, banks would have a peek into spending habits of university students, knowledge that will come in handy when trying to push various financing offerings to them.

With university enrolment figures going up due to a build-up from the free primary education now in its ninth year, Helb has seen its lending capacity increasingly come under strain.

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