Loan Characteristics and Repayment Performance at the Higher Education Loans Board in Kenya
Kwang’a, Maureen Achieng’
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The Higher Education Loans Board aims to enhance access and retention of qualified needy students in university education through loans. In Kenya, it was essential to come up with a higher education loans board due to the increasing cost of tuition. The prices of education meant that students were highly dependable on parents and guardians. The loans board provides loans to the students; however, the problem arises when it comes to the process of recovery. Studies show that around 65000 loan defaulters risk being listed by the Credit Reference Bureau (CRB). Besides, studies have not indicated the factors that influence the repayment of loans by students in Kenya. The main objective of this study is to determine the effects of loan characteristics on repayment performance among students’ loanees owing Higher Education Loans Board. The specific variables of the study are the effect of loan size, interest rate, and loan tenure on repayment performance and the moderating effect of unemployment on the relationship between loan characteristics and repayment performance at Higher Education Loans Board in Kenya. The study adopted the Moral Hazard Theory, Adverse Selection Theory, and Financial Intermediation Theory to support the relationship between the study variables. A descriptive research design was adopted in this study since it explains a subject through the creation of a pool of events, problems, and people through data collection. The target population of the study comprised of repayment performance data for the Tertiary, Undergraduate, and Post Graduate loanees for the period 2009-2018. The study utilized secondary data to make inferences and conclusions about the study population. Document analysis of Higher Education Loans Board statistics (specifically financial data annual disbursement and recovery reports) was used. The data on the unemployment rate was obtained from the Kenya National Bureau of Statistics. The data was collected using a document review guide. The data was analyzed using Statistical Package for Social Sciences. The tests that were carried out in the study were Heteroscedasticity, Mu1ticollinearity, and Autocorre1ation, and pane1 unit root test. The inferential (multiple regression and ANOVA) analyses were utilized in the study. The study determined that there is a significant relationship between loan sizes, loan tenure, and repayment performance of loans disbursed by the Higher Education Loans Board. Interest rate is an area that was not conclusively studied; hence, the study determined that the interest rate does not impact repayment performance because it is constant across the years of study. Unlike other studies conducted in the same field, this research determined the moderating effect of unemployment on loan characteristics and repayment performance. The study concluded that unemployment has a significant negative relationship with repayment performance. The findings have been presented using tables. The study recommends that loan characteristics (loan size and loan tenure) should be considered by the Higher Education Loans Board and government policymakers. The unemployment rate should also be considered, and beneficiaries are given at least two years after completing school to start paying their loan.