Malawi Savings Bank (MSB) has withdrawn from the public university students’ loan scheme and it goes out owed K387 million in non-repaid loans by the students.

But students who borrowed the money will still be required to pay, in keeping with the conditions of the loan, the bank has said.

A memo we have seen from Finance Minister, Ken Lipenga, to President Joyce Banda appraising her on funding situation in the University of Malawi says MSB expressed intention to withdraw from the scheme.

“Your Excellency might wish to note the Malawi Savings Bank has notified us of its intention to withdraw from the student loan scheme since they are owed K387 million,” reads in part the memo dated August 8, 2012.

Lipenga recommended a new loan scheme delinked from the university.

MSB took over the administration of the scheme in July last year from the government-run Public University Students Loan Trust (PUSLT) which has itself struggled for more than a decade to enforce repayment from alumni.

In a brief response, MSB’s Business Development and Marketing Manager, Dora Banda, said as the government is in the process of “reviewing the administration of the student loan scheme”, students that owe it money are obliged to pay back.

“Loan repayment obligation by students cannot be affected or changed due to this review. Those who accessed loans will still be required to repay [the] loans in accordance with terms and conditions,” she said.

She declined to give more details on the matter, citing “banking ethics” reasons.

Director of Higher Education in the Ministry of Education, Dixie Maluwa-Banda, said in light of MSB’s decision to withdrawal, government is working on a new structure to ensure that needy students access university education.

Currently, the ministry is drafting a student loan policy and bill, the legal instruments which he said will facilitate the disbursement and the recovery of the loans.

“We hope that the legal instruments will address the present challenges including the non compliance to pay back the loans,” he said.

Civil Society Education Coalition (CSEC) said MSB’s pulling out of the loan scheme on the grounds of non-repayment tells the story of a seriously flawed loan structure.

Executive Director for the coalition, Benedicto Kondowe, observed that the schemes have had no clear money recovery plans.

“In addition, the criteria for identifying needy students lacked focus such that the scheme ended up financing non-needy students,” he said.

He urged for transparency and accountability to be “the strategic virtues guiding the [new] scheme”.

He also backed government’s decision to raise tuition from K25, 000 per annum to K55, 000 per annum, saying the increment is in fact too low to enable the universities raise enough money for their operations.

In the past year, the scheme has been mired in controversy with over 3,000 students from Chancellor College, Bunda College of Agriculture and Mzuzu University protesting that their loan applications had not been considered.

An MSB Public Universities Student Loan Application Form stipulates, among other conditions, in terms of recovery, where the student is employed, the bank shall request the employer to recover the funds by way of salary deductions.

“In the event that all recovery avenues have proved futile, the Bank shall recover the loans using prevailing collection programmes which may include legal action to protect its interests,” reads one of the conditions

It is not clear though whether the repayments to MSB were due within the one year that the bank has been administering the scheme.

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