Universities worldwide are facing different crises, ranging from constricting finances to dwindling student numbers and diminishing academic autonomy. Nepali universities cannot be expected to remain independent of the global and local environments. Some of the challenges they face are unique, and so they require tailor-made responses.

As the number of students opting to study abroad increases yearly, Nepali universities are scrambling to fill their seats. Recent data from the Ministry of Education show that Nepali students sent Rs104.25 billion as tuition fees to foreign universities in the first 10 months of Fiscal Year 2023-24, as per the Nepal Rashtra Bank. Such payments stood at Rs112.52 billion and Rs75.14 billion, respectively, in the same period of the previous year.

A whopping 97,000 students have obtained the no-objection certificate (NOC) for education abroad in the first nine months of FY 2023-24. A total of 110,000 and 113,000 students obtained NOC in fiscal years 2022-23 and 2021-22, respectively, a 300 percent rise in a decade, as per the ministry.

These figures are staggering. Even as they show a dangerous trend of the country’s exodus of human capital and financial resources, they leave us with the question: How do Nepali universities survive? As the students leave the country in droves, universities face half-filled classrooms and depleting financial resources. For now, publicly funded universities like Tribhuvan University and Nepal Sanskrit University may not have to worry about their finances. However, self-funding universities like Kathmandu University (KU) and Pokhara University, which largely sustain on tuition fees, face an existential question as the number of students falls and their earnings plummet.

Diversifying revenue sources

For university administrators, not having to worry about financial problems is a great advantage, for one can concentrate on academics and research, the major functions of the university. Kathmandu University faced this gruelling question of long-term financial sustainability, especially during the Covid-19 pandemic. Technically, the university was not likely to face a financial crisis in the short run, even during the pandemic, for it had a comfortable financial cushion. But we could foresee a looming crisis in case the pandemic dragged on. We could not expect students to continue paying tuition fees if the income sources of their parents or guardians took a hit. In any case, KU generates only 60 percent of its revenue from tuition fees, while it receives about 10 percent of funding from the government. Exploring funding sources for the remaining 30 percent is a persistent challenge, as an unhindered university operation hinges on this.

Diversifying funding sources is crucial to the financial sustainability of universities, particularly those not publicly funded. It is also critical for the autonomy of academic governance. Despite having to keep an eye on the financial resources all the time, one advantage of receiving a minuscule amount of funding from the government is that universities can exercise relatively better academic freedom, ranging from faculty appointment to curriculum design and research. But how are we to diversify financial sources when the student numbers are coming down and the country's economic growth is nearly stagnant year after year?

This is where the endowment model comes in as a major funding source, even for Nepal's self-funded universities.

Endowment model

Globally, endowments form a successful model for diversifying funding sources in universities. Thousands of universities worldwide run on different kinds of endowment funds institutions and individuals provide. Usually, a portion of the earnings from the endowments is used towards running costs or specific university projects, thus ensuring long-term financial security for the university.

The US-based Harvard University has 14,000 endowments today, with the total size exceeding $50.7 billion. The endowments contributed $2.2 billion to the university's operating budget in 2023 alone. Stanford University's endowment fund was valued at $36.3 billion in 2023, with the endowment payout standing at $1.74 billion, covering 23 percent of the university's operating expenses. Top American universities continue to tap the goodwill of donors and alumni to strengthen their financial standing. These generous endowments allow the universities to pay their faculty and staff well, fund their students' tuition and research and innovate.

Culturally, endowment is not a new concept in Nepal. The guthi system has been in operation for centuries, where the community chips in resources to fund initiatives that are especially relevant to community work. The Newar community in the Kathmandu Valley and elsewhere is the best example of communities coming together to finance their common objectives. The guthis established by wealthy rulers, business persons and landowners in the past helped educate a significant number of Nepalis in Indian cities like Benares and Calcutta. The Madan Puraskar Library, offering two scholarships every year for studying medicine in Calcutta, is a continuation of this culture. The Rajkiya Sanskrit School in Matihani, Mahottari and the Ramswarup Ramsagar Multiple Campus in Janakpur, Dhanusha are some examples of endowments strengthening Nepal's education system.

Public-spirited individuals who wanted to contribute to Nepal's future through education laid the financial foundation of KU in its formative years. These individuals include a businessman named Rana Bahadur Shah, who helped build the university's library and offered his mansion in Lazimpat to set up the university’s offices in its initial days. As a gesture of gratitude to Shah, the university founded the Rana Bahadur Shah Gold Medal fund. The university continued to receive generous funds from individuals and institutions along the way, with notable contributions from its alumni as well as businesspersons and philanthropists, including Mohan Gopal Khetan, Gopal Rajbhandari, Juddha Bahadur Shah, Krishna KC, and Prof. Bidya Nath Koirala.

Growing endowments

Acquiring endowments and making them grow requires a systemic approach to financial management. KU’s efforts at organising dedicated fundraising programmes and strategically mobilising its surplus funds have been quite successful. The number of endowment funds has grown from around 12 to 53 in the past three and a half years, and the size of the fund has grown over tenfold, from around Rs60 million to Rs650 million. This growth has helped set up scholarships, fellowships, medals, awards, and educational loans for students while also strengthening the capacity of faculty and staff.

The sources of such endowments have been pretty diverse—from individuals offering money in memory of their loved ones to national and international institutions providing funds, alumni giving back to their university, and faculty transferring the earnings and savings from external research projects.

To ensure steady growth from the endowments, universities can follow the conservative route of investing in fixed deposits at “A Class” commercial banks that offer competitive interest rates and investment security. One way to utilise this scheme is to spend 50 percent of the income from interests and reinvest the remaining amount in the principal investment. However, conservative investments such as bank interests come with fluctuating returns. Diversifying the investment portfolio by investing in non-collateralised assets while devising clear guidelines and risk-hedging strategies is paramount.

The experiment with the endowment model has proved to be a significant alternative funding model for KU. This could be a blueprint for self-funding and even public universities in Nepal, especially if we can incorporate international fund management practices for sustainable operation and growth through endowments.