By NATARIO McKENZIE
Tribune Business Reporter
The Clearing Banks Association’s (CBA) president yesterday slammed the “selfish mentality” of delinquent student borrowers who have exposed Bahamian taxpayers to a $100m liability.
Gowon Bowe charged that the Education Loan Authority (ELA) remains in a financial crisis, which has potentially deprived hundreds of students of university and college educations over the past decade, because successive governments have failed to “actively and aggressively” pursue recovery from those with the ability to pay.
He told Tribune Business: “Where we are today is really sort of the chickens coming home to roost. The reason for that statement is more that, ultimately, the loan programme was a contradictory programme because it was called an education loan scholarship programme. I think using the terms ‘loan’ and ‘scholarship’ led to, whether intentionally or otherwise, confusion as to the obligation on the borrower.”
Mr Bowe spoke out after Jeffrey Lloyd, minister of education, earlier this week revealed that the authority’s (ELA) delinquency recovery rate needs to increase seven-fold. Its board is set to hire a private collection agency “with the teeth” to pursue deadbeat borrowers after staff found themselves “overwhelmed” by the sheer magnitude of the task.
“I think that in the initial stages, and certainly in the inception of the programme, there wasn’t the focus on repayment but, rather, on the distribution and so we got to a situation where significant sums were outstanding and the default rates were starting to be experienced,” Mr Bowe added.
“Successive governments continued to distribute funds but not taking what, in my mind, is the necessary actions to recover the funds; not for the purpose of the government coffers but the benefit of the actual Education Loan Authority and [its ability] to continue to provide financial assistance to students.”
The authority’s 2017 financial statements, tabled in the House of Assembly on Wednesday, reinforced the depths of a financial crisis that has suspended the granting of new loans for almost ten years and left Bahamian taxpayers facing another substantial liability they may be called upon to cover.
Mr Bowe said: “There is a selfish mentality on behalf of persons who have borrowed and failed to repay. They are now effectively limiting the ability of others who are coming behind to receive the same financial assistance. If you have the ability to pay and don’t it is certainly a very negative indicator of your character by doing so.”
He added that successive governments had failed to crack down effectively on delinquent borrowers, saying: “I think that the sort of soft gloves that have been used in the past should have been toughened up because legal pursuit, naming and shaming the individuals but, more importantly, actively pursuing the funds really is one that has often been spoken of but very little tangible effort has been expended to actively and aggressively pursue them.
“When we think about the money from a government perspective, these are already funds that have been spent but there are outstanding bonds - bonds that were issued by the Education Loan Authority - which are guaranteed by the government,” Mr Bowe continued.
“As the government continues to extend funds, and is having to honour the guarantee on the loan commitment, it is going to be caught by a double whammy when it is called upon to honour the actual bond commitments if there are not sufficient funds in the authority to pay them. I think this is a programme that shows what not to do.”
The 2017 accounts, audited by the Grant Thornton accounting firm, were heavily qualified as a result of 88 percent of the authority’s $76.844m gross loan book being in default as at June 30 that year.
Some 84 percent, or $64.578m, had been delinquent for one year, with a 12-month incentive programme designed to encourage borrowers to settle their debts or bring them current netting only $3.035m.
As a result, the authority sank into a $6.229m total comprehensive loss for its 2017 financial year compared to the $1.757m worth of “red ink” incurred in 2017. Three single expenses - $3.22m in bond interest; $1.861m in bad debt write-offs; and $1.375m in impairment provisions - exceeded its total income of $1.293m.
Mr Lloyd told Tribune Business on Wednesday that the authority’s delinquency recovery rate needed to increase from the present $60,000-80,000 per month to $400,000-$500,000, or from $1m per year to $6-$7m, if the authority is to “put a serious dent” in what it is owed.
He added that too many Bahamians viewed a government loan as free credit - akin to a grant or gift - that does not have to be repaid. He added that this culture extended well beyond the Education Loan Authority, recalling his career at the Sears & Co law firm and what occurred when it was hired to pursue Bahamas Mortgage Corporation debts.
“People took out a loan and paid not a single dime for years,” he added. “When contacted by the Mortgage Corporation or ourselves they said the government gave it to us, notwithstanding they signed a mortgage agreement committing them to repay over a number of years.
“Their attitude was that it was granted by the government, it’s free and there’s no obligation to pay. That’s prevalent throughout society, and I’m quite sure that attitude has seized a number of our loan holders. No doubt about it.”