IN recent years, higher education institutions (HEIs) have been considered the main contributor to the country’s development. However, due to the impact of the Covid-19 pandemic with its accompanying reduction in student enrolment, HEIs face the challenge of crafting a focused strategy that will allow them not just to survive, but also thrive with a sustainable financial base.
Due to the recent financial crisis, economic recession and pandemic, the whole sector is experiencing further difficulties in accessing funding opportunities, as well as identifying financing options.
Most HEIs, especially private universities, rely on a tuition-based revenue model to maintain operational budgets. This directly affects their financial performance if student enrolment declines.
About 10% of the 435 private HEIs – which are mainly small and medium-sized enterprises – are facing serious financial problems due to a sharp decline in student enrolment.
Strategic intervention is therefore required to mitigate the impact of the pandemic, which will have adverse impact on employment and students’ welfare.
With the increased demand for quality higher education, and in the face of increasing cost and budgetary constraints, private HEIs need to take a more proactive and strategic approach to managing their finances and increasing their own income generation.
The latter is even more important as it can reduce reliance on public funding, if any.
Most varsities have mechanisms such as a university policy, a dedicated office and incentives to support income generation.These, however, need to be strengthened.
HEIs can explore ways of generating income from academic and research programmes, consultancy services, asset monetisation, retailing and services, financial management activities and investment, corporate alliances for business ventures, endowment and waqaf, and fundraising and public contribution.
In September 2016, the Higher Education Ministry launched the University Transformation Programme (UniTP) to assist public and private HEIs in creating and implementing their own tailored transformation plans for enhanced income generation and successful income diversification.
Three revenue streams (RS) were introduced, namely:
• RS1 (tuition, accommodation, registration and resource fees)Most private HEIs rely heavily on this stream; • RS2 (endowment including zakat, waqaf, contribution or donation, in-kind contribution and professorial chairs) This endowment fund is an important source of income for HEIs. It is developed to provide long-term support for HEIs and their programmes, and both spendable income and principal growth to allow future spending to be at least equal to inflation; and
• RS3 (asset monetisation and professional services)
Research grants, commercialisation and consultation are the key contributors to these components.
Based on the survey conducted among the Vice Chancellors’ Council of Private Universities (VCCPU) members in September last year, 71% of private HEIs’ revenue generation was based on RS1, followed by 20% from RS2 and the remaining 9% from RS3 and others.
Besides seeking options for financing investment, institutions need to reposition themselves to bring activity, resources and infrastructure into a sustainable balance, while optimising output for any given mix of resources and opportunities. This is a complex equation which requires difficult choices.
Financial sustainability, however, is not an end in itself. The aim is to ensure that the objectives of a university are reached by guaranteeing that the institution produces sufficient income to enable it to invest in its future academic and research activities.
All in all, HEIs should be financed by equity and strong revenue streams, and not by debt, to survive, sustain and provide high-quality education.
The outlined initiatives would not only facilitate the recovery of private HEIs in times of crisis, but also ensure their financial sustainability, hence allowing their delivery of vision, mission, and educational objectives.
This in turn will strengthen the position of private HEIs to nurture talents, develop society and drive our national economic growth.
PROF DATUK DR KAMAL NASHARUDDIN MUSTAPHA
Universiti Tenaga Nasional