The ministry of human resource development (MHRD) is considering allowing educational institutions to float bond issues for fund generation.
“At present, we are working on some of these ideas. We are also thinking of a national education finance corporation, which can tap into a lot of such resources. We will try to put it all together and work it out as a strategy in the new scheme in the 12th Five-year Plan,” a senior MHRD official told
Business Standard .
A widely-accepted concept in the West, a bond issue allows institutions to tap into the vast pool of not only their alumni network, but also people who wish to do their bit for the education sector.
There will, however, be certain conditions education institutions will have to adhere to, which the MHRD is still working on.
Universities in the US and the UK, including Harvard, Stanford, Cambridge and Princeton, meet their financial needs and finance important projects cheaply via bond issues. These universities need ratings from a credit agency while going for the bond issue.
However, to allow Indian universities to raise money via bonds, some important changes will be required. Educational institutions in India can be set up only by trusts, societies or companies. For a long time, the Centre has been experimenting with ideas to plug the funding gap in higher education. Experts say the move may require modifications in the Companies Act, especially those relating to the formation of companies under Section 25, as well as state laws relating to the way charitable trusts are allowed to function. Internationally, donation of land and shares are accepted by universities to help create an endowment.
Sector experts say getting arating from credit rating companies will compel educational institutions to be more careful about their investment plans, as well as cash flows. The latter will require educational institutions to increase their fees or trim their offerings as and when required, in order to remain financially attractive and get a good rating. A good rating, in turn, allows educational institutions to avail of loans at a cheaper rate.
Rating agencies, including Crisil and Care, have already begun rating B-schools in India. Going ahead, Care may also rate engineering colleges in the country. The move may allow educational institutions to offer their assets, including their corpus, as collateral for meeting important investment outlays.
“Universities need money and this will be a good way for them to raise funds when the price of credit has risen sharply and is no longer readily available,” said Narayanan Ramaswamy, executive director, educational services, KPMG.
However, before any institution went for a bond issue, it needed to put in place a mechanism where it could be equipped to handle such bond issues, he added.
“This brings fiscal responsibility for the management. So, the university needs to be well equipped to manage it. Many universities don’t even have a treasury department or finance officers to manage funds,” he added.
“At present, we are working on some of these ideas. We are also thinking of a national education finance corporation, which can tap into a lot of such resources. We will try to put it all together and work it out as a strategy in the new scheme in the 12th Five-year Plan,” a senior MHRD official told
Business Standard .
A widely-accepted concept in the West, a bond issue allows institutions to tap into the vast pool of not only their alumni network, but also people who wish to do their bit for the education sector.
There will, however, be certain conditions education institutions will have to adhere to, which the MHRD is still working on.
Universities in the US and the UK, including Harvard, Stanford, Cambridge and Princeton, meet their financial needs and finance important projects cheaply via bond issues. These universities need ratings from a credit agency while going for the bond issue.
However, to allow Indian universities to raise money via bonds, some important changes will be required. Educational institutions in India can be set up only by trusts, societies or companies. For a long time, the Centre has been experimenting with ideas to plug the funding gap in higher education. Experts say the move may require modifications in the Companies Act, especially those relating to the formation of companies under Section 25, as well as state laws relating to the way charitable trusts are allowed to function. Internationally, donation of land and shares are accepted by universities to help create an endowment.
Sector experts say getting arating from credit rating companies will compel educational institutions to be more careful about their investment plans, as well as cash flows. The latter will require educational institutions to increase their fees or trim their offerings as and when required, in order to remain financially attractive and get a good rating. A good rating, in turn, allows educational institutions to avail of loans at a cheaper rate.
Rating agencies, including Crisil and Care, have already begun rating B-schools in India. Going ahead, Care may also rate engineering colleges in the country. The move may allow educational institutions to offer their assets, including their corpus, as collateral for meeting important investment outlays.
“Universities need money and this will be a good way for them to raise funds when the price of credit has risen sharply and is no longer readily available,” said Narayanan Ramaswamy, executive director, educational services, KPMG.
However, before any institution went for a bond issue, it needed to put in place a mechanism where it could be equipped to handle such bond issues, he added.
“This brings fiscal responsibility for the management. So, the university needs to be well equipped to manage it. Many universities don’t even have a treasury department or finance officers to manage funds,” he added.
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