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 as a Non-banking Finance Company (NBFC).
• The HEFA would be jointly promoted by the identified Promoter and the Ministry of Human Resource Development (MHRD) with an authorized capital of Rs.2,000 crore.
• The Government equity would be Rs.1,000 crore.
• The HEFA would also mobilize CSR funds from PSUs/Corporates, which would in turn be released for promoting research and innovation in these institutions on grant basis.
• Government of India has appointed M/S Canara Bank as Promoter for the HEFA and it is expected that the HEFA’s operations would begin by April 2017.
• 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 of HEFA:-

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 Inflows 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.

Financing Arrangement for the Higher Education Institutions:-

• 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.
• The HEFA would finance the academic and research infrastructure projects through a 10-yr loan. 
• The principal portion of the loan will be repaid through the ‘internal accruals’ of the institutions. 
• The Govt would service the interest portion through the regular Plan assistance.
• All the Centrally Funded Higher Educational Institutions would be eligible for joining as members of the HEFA.
  • For joining as members, the Institution should agree to escrow a specific amount from their internal accruals to HEFA for a period of 10 years.
  • This secured future flows would be securitised by the HEFA for mobilising the funds from the market.
  • Each member institution would be eligible for a credit limit as decided by HEFA based on the amount agreed to be escrowed from the internal accruals.