An imminent collapse is pending within Malaysia’s private higher education sector that could potentially permanently close the doors of up to half of the country’s private institutions, leaving only a few with strong backers to financially guarantee their survival.
The onset of the Covid-19 coronavirus, which has closed more than half of the country’s small and medium enterprises and almost certainly plunged the country into recession, is exacerbating the outlook for a university sector already in deep trouble. According to research by Professor Geoffrey Williams, a former deputy vice chancellor at University Tun Razak, on Malaysian private higher education institutions, 55 percent are making trading losses.
Around 44 percent are technically financially insolvent, with debt levels continuously increasing in order for these institutions to continue operating. That resulted in a situation in 2018 in which 64 percent were in dire debt distress and current and fixed assets were less than balance sheet debt, eroding the value of shareholder equity.
The only way the majority of private universities and colleges are continuing to operate is through continuing new funds from lenders, and/or continual equity injections by shareholders.
Of the approximately 105 private higher education institutions (HEI), most have been awarded the designation of either university or university college over the last decade in the Ministry of Education’s frenzied attempt to put the best persona on local institutions. According to Professor Geoffrey Williams in a public lecture at Monash University Malaysia, late in 2018, about half of private campuses have less than 3,000 registered students, where the 25 percent have less than 1,000 students. Some institutions only have a couple of hundred registered students on their campuses.
The Covid-19 crisis is potentially catastrophic. Private institutions rely on receiving income twice a year, with September student registration coming up. However, with foreign students all out of the country and not knowing when they can return, and many students deferring their studies a year over the uncertainty, incoming revenue will be extremely low. This will present cash flow challenges far beyond what has ever been faced before. Many institutions don’t have any unencumbered assets as security for further loans, so they will rely on increases of shareholders equity, or government emergency grants to survive, which would be improbable.
After the Covid-19 crisis, opportunity can be expected to emerge for the private higher education sector as the weak elements of the sector are destroyed and the stronger elements regain their footing. But that is liable to take considerable time as the global economy faces a coming downturn.
Murray Hunter is a Southeast Asia-based development expert. He is a frequent contributor to Asia Sentinel