Last Updated on Friday, 11 December, 2020 at 11:03 am by Andre Camilleri
Professor Josef Bonnici
As the world greets the news that several vaccines are approaching market authorisation, the economic mood swings to cautious optimism. Malta is no exception. A number of companies are planning for an eventual economic recovery and in the process considering their resource requirements, chief among which is manpower.
Human capital has always been a critical resource in Malta. As a small open economy, bereft of any precious natural resources, the island saw its economy develop on the strength of the value-added created by the development of its human resources. In the same way, the Malta Development Bank, whose mandate is to contribute to inclusive and sustainable economic growth, considers education as a major pillar in reaching this overarching objective. Indeed, investment in human capital is crucial to expand Malta’s growth potential and ensure long-term macroeconomic competitiveness.
It is for this reason that the MDB, in collaboration with the Managing Authority of EU funds, launched the Further Studies Made Affordable (FSMA) financial instrument in October 2019.
When first introduced, the initial allotment from the European Social Fund was split between a guarantee component to reduce collateral requirements and a subsidy element to reduce interest payable. It was felt that the transition from grants to financial instruments could be made smoother by combining the two components: the grant element makes the instrument more appealing for aspiring students, and the guarantee enhances student access to bank financing by absorbing a substantial part of the risks. A total portfolio of €5.5 million was made available through the intermediation of Bank of Valletta (through BOV’s Studies Plus+) which was the bank selected by the MDB after a public call.
The purpose of the FSMA is to facilitate the financing of cost of students’ studies in Malta and overseas, including tuition, accommodation, subsistence and related expenses. The scheme covers full time, part time or distance learning study courses, at MQF levels 5 – 8, and internationally recognised academic certificates. The maximum loan value can reach up to €100,000 for a term of up to 15 years.
Besides offering a significantly reduced interest rate, the facility offers a moratorium on both capital repayments and interest for the period of study. The interest accumulated during this period is fully covered by the interest rate subsidy, which means that the student is not required to make any payments during the period of study. No additional fees and processing fees are charged and no collateral, life insurance and up-front contribution are requested. It is a scheme designed to fit the requirements of students at a stage in life where they lack financial resources and require peace of mind during their studies, without the anxiety of having to cope with loan repayments.
The FSMA scheme was a real game changer and transformed the student loan market. The size of student loans increased and there was no longer any need for collateral or upfront contributions from borrowers or any reliance on parents’ income and wealth. Access to student loans was thus greatly enhanced, especially for larger amounts, and made more affordable. The take-up was significantly higher than expectations and the allotted portfolio of €5.5million was fully absorbed very rapidly, clearly affirming the need and the impact of this scheme. 145 students have been supported, with the average size loan size of €38,000, which is much higher than what banks are willing to offer in absence of such a guarantee scheme. Moreover, just under 70% of these beneficiaries were youths in the 16 – 24 years age-cohort.
Through MDB’s collaboration with the Managing Authority, additional EU funds were recently made available to extend the portfolio to a maximum of €8.25 million.
By continuing to address this market gap, the MDB encourages students to further their studies and attain higher educational levels. Truly an opportunity in line with MDB’s mission statement, and one not to be missed.