Higher Education Financing Agency (HEFA)

Higher Education Financing Agency (HEFA) is a proposed not-for-profit agency with initial capital base of Rs. 1000 Crore. It was announced in Union Budget 2016-17.

Organization

• The HEFA will be set up with joint participation by the government and philanthropic donors.
• It would be set up under Companies Act and will be registered with RBI has Non-banking Finance Company (NBFC).
• It will be headed by a banker and will have a board with five donors and five institutions selected on rotation basis.
• All centrally funded higher educational institutions will automatically be added as members.

Objective and Proposed Functions

• The major objective of the HEFA is to leverage funds from the market and supplement them with donations and CSR funds.
• These funds will be used to finance improvement in infrastructure in top educational institutions. The monies of the fund will be used to finance capital expenditure for building quality infrastructure in IITs, NITs, IIITs and IISERs and central universities. It will also be used to fund state-of-the-art research labs and other infrastructure.

Funding and Finances

Total corpse of the body is Rs. 2,000 crore. Out of this, the initial government contribution will be Rs. 1,000 crore. Remaining Rs. 1000 Crore would be collected from 5 other corporate donors {Rs. 200 Crore Each} of which the sponsoring bank would be one. Further, the body will be allowed to raise debt funding of up to Rs. 10,000 crore from the financial markets, including pension and insurance funds. Thus, there is a 1:5 ratio of own funds to debt ratio for HEFA. The debts would be returned back {debt service} from the money received

Infl ows would be from market borrowings, CSR funds from PSUs and other through the escrowed student fee accounts and the donations received from the CSR funds and others.

Meaning for a High Education Institute

An institute will be eligible for a credit limit of 5 times the annual inflow of the student fee from the institution. The institute can then draw interest-free funds against an approved capital or research project and repay the amount over 5-10 years through the escrowed student fee.  Each institute will have to prepare a detailed master plan on infrastructure gaps that will be assessed by an independent group before releasing amount sought. HEFA will monitor implementation, fund utilisation & review outcome, thus necessitating greater financial discipline across institutes.

Analysis: Can HEFA be financially viable?

The above discussion makes it clear that HEFA is a non-profit organization; it will leverage funds from the market and supplement them with donations and corporate social responsibility (CSR) funds. Thus, its operative and regulatory mechanisms would be crucial to ensure its stability. As far as financial viability are concerned, to become self-sustaining, HEFA needs to manage investment of Rs. 25,000 crore over next five years and manage an inflow of Rs. 2000 crore from the fee escrow accounts, assuming that the institutions will fully pay loan amount. Since institutions would get funds without any interest liability and market borrowings would come at around 12%, there might be a need of robust donations as well as viability gap funding from the government.