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(Stock image for illustration purposes) Private universities have been left much to their own devices and have survived or failed according to the market.
(Stock image for illustration purposes) Private universities have been left much to their own devices and have survived or failed according to the market.

PRIVATE higher education is largely overlooked in the current debate on reform of higher education in Malaysia. Nonetheless private higher education institutions (HEIs) account for almost half of the student and academic populations and absorb large amounts of government subsidised loans through the National Higher Education Fund Corporation (PTPTN) loan system.

In 2016 PTPTN allocated RM2.6 billion or 60 per cent of its funds to private HEIs, which made up around half of the revenues for the sector.

The lack of attention to private HEIs is of concern because of the number of students and the public resources involved but even worse is the urgent need to address reform of the private sector because of significant financial distress which is impacting tens of thousands of students, graduates and staff.

We have recently completed and updated our research on private university finances, presented at a public lecture at Monash University on Tuesday last week, which show the current financial landscape for private universities based on audited financial accounts from Suruhanjaya Syarikat Malaysia for 75 out of 96 private HEIs.

The results show that our private universities are struggling and need help and support if they are to survive and thrive in the coming years.

The majority of private HEIs are loss-making with 53 per cent making losses before tax and 55 per cent making losses after tax. The proportion making losses has risen from 41 per cent before 2013 to 55 per cent after 2013. Even for those that are profitable times are tough. Average profits before tax fell 54 per cent and profits after tax fell 78 per cent since 2010. This causes massive financial stress which grinds down pay and conditions for thousands of staff and impacts the quality of education for tens of thousands of students. Around 121,000 students, and 5,800 academic staff and a similar number of non-academic staff are in institutions affected by the financial stress in loss-making institutions.

Many private HEIs are struggling to pay their bills. Around 44 per cent of all private HEIs were technically insolvent with insufficient current assets to pay their current bills. This has become much worse since 2013 with average insolvency of 26 per cent before and 40 per cent after. Around 137,000 students and 7,000 academic staff are in private HEIs that are technically insolvent and at risk of financial failure.

In the face of poor profitability and under-resourced cash-flows many private HEIs are increasing their debt levels particularly with short-term debt. In 2016, 64 per cent of private HEIs were in some form of debt distress; either their debt exceeds their assets or they have negative equity and high debt.

These are normally indicators of severe financial stress, possible default and bankruptcy. Around 151,000 students and 7,800 academics are in these institutions.

Many years of accumulated losses, poor financial management and increasing levels of debt have increased negative equity in private HEIs. Around 42 per cent of all private HEIs had too few assets to cover their debt levels in 2016. Whilst the situation improved for local private HEIs, for the foreign branch campuses the proportion with negative equity doubled from 30 per cent before 2013 to 59 per cent on average afterwards.

In fact, overall, foreign branch campuses perform much worse in financial terms than their Malaysian counterparts. Two-thirds are loss-making and 67 per cent are technically insolvent. This has risen from 21 per cent before 2013. In 2016, 78 per cent of foreign branch campuses were holding below market cover of current assets over liabilities. Around 56 per cent of foreign branch campuses had too few
assets to cover their debts in 2016.

The financial landscape is putting a great deal of stress on private universities and if things get worse many may not survive. We conducted some stress tests as a form of vulnerability analysis on profitability and solvency. These show that private HEIs are extremely vulnerable to small changes in revenue due to fluctuating market conditions.

If there was a five per cent cut in their income, 69 per cent of HEIs would be loss-making. All of the foreign branch campuses would become loss-making with a 10 per cent cut in income, and 75 per cent of their local counterparts.

A 15 per cent cut in income would make half of all HEIs insolvent. In 2014, the previous government cut PTPTN allocations by 15 per cent for private HEIs, so these types of shock are not unknown.

Private universities and colleges have played a huge role in the development of higher education in Malaysia and this role must be acknowledged and supported. Hundreds of thousands of Malaysians have obtained diplomas and degrees because of the private universities, which they otherwise would not have been able to achieve. The private sector is also home to some of our best academics, leaders and educational pioneers.

So far the private universities have been left much to their own devices and have survived or failed according to the market but now they need and deserve more help and support.

With the new government we hope that they will not be ignored and that we will see a new vision for the private sector to set the foundation for the future generations to come.

Geoffrey Williams is a professor at ELM Graduate School at HELP University. He was formerly deputy vice-chancellor of Unirazak

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