The quality and accessibility of higher education institutions depend on various factors, including the quality of teaching faculty, the depth of financial resources, its national and international reputation, and the scientific and scholarly work published in peer-reviewed and high impact journals, among others.

The more funds are available to the institution, the more qualified faculty and bright students it can attract. The availability of more funds for financial assistance to students in need also increases enrollment. However, the finances of higher education institutions are quite complex and variable in nature.

This is where the establishment of an endowment fund in perpetuity plays a crucial role in ensuring that the institution continues to receive the financial support it requires irrespective of the short-term financial situations it faces. Furthermore, and equally important, endowment funds enable an institution to initiate new programmes and expand existing ones whenever and wherever required.

University fund — the salient treasurer

Governmental funding for higher education is one of the first to suffer during periods of economic and political crisis such as the current one in Pakistan. Establishing an endowment fund not only helps to reduce the negative impact of economic crisis but also ensure the long-term support of the institution.

It is not difficult to set up and maintain an endowment fund. Promotion of Education in Pakistan (PEP) Foundation, Inc. New York offers basic technical expertise to set up endowment funds (Contact info@pepfoundation.org).

Technically, the fund is made up of many different donations from a variety of sources. Donors include alumni of the institutions, local investors and businessmen, philanthropists, heads of state, people interested in specific programmes offered at the college or university or just funds raised periodically for the purpose of supporting higher education. Thus, endowments can be made toward a specifically designated goal, for example, supporting a certain number of students to attend a specific degree, or to develop a particular department, like the art or sport program in that school.

Other donations have no restrictions or criteria; the donation can be stored in the endowment fund to be used as needed for the current or future needs of the college/university. By definition, money put in the endowment fund arrangement has to last in perpetuity. The institution profits from the investment of the principal that is “locked”.

The endowment fund, which is managed by financial experts, usually employs either saving accounts or is invested in profitable and low-risk, long or short-term financial investments that allow the fund to grow. The more money is added to the fund, the more the institution can spend per year or in times of dire need.

The funds donated to college and university endowments are considered gifts given for the purpose of supporting educational or scholarly activities over a long period of time. In the United States this process is very well known and has been implemented for the last 200 years or so, generating billions of dollars for some universities.

Meanwhile, in Pakistan only a few institutions such as Government College University, Lahore, have introduced an endowment fund. Endowment funds can be used to establish new programmes and departments in existing educational institutions or even completely new educational institutions. The initial endowment of $500,000 by Ezra Cornell in 1874 made possible the establishment of Cornell University, a member of the Ivy League and an institution recognised in the US and abroad for its quality of teaching and superior graduate programmes. That initial fund continues to grow with new gifts and donations, reaching six billion dollars in 2009. Emory University in Atlanta, Georgia, originally founded as a small local Methodist college, became one of the best research universities in the US thanks in part to the generous endowment fund of $1 million dollars and the land it received as a gift from the Coca Cola company president in 1914.

This fund allowed the modest Emory College to relocate to a better location, get its university charter and expand its programmes. Today, Emory has an endowment fund of 5.6 billion dollars. Other world-recognised universities have enormous donations towards their endowment funds that have increased their value to figures like $36.9 billion for Harvard University, $22.8 billion for Yale University and $16.4 billion for Princeton University.

The Harvard University Endowment Trust earned 8.6 per cent on its investments in the latest fiscal year adding more value to its Endowment Fund, while stock markets around the world were losing money. While Harvard University counts many well-known and wealthy businessmen and statesmen among its alumni (even some Pakistanis!) most universities depend on local support for raising funds. Ezra Cornell was a local businessman generously giving back to his community, and the gift of the president of Coca Cola to Emory College is linked to his younger brother who was serving as the College’s president at the time.

The funds at work

Endowment funds provide institutions with financial security, freedom and the opportunity to better invest and expand their resources, both human and capital. Universities and colleges can retrieve funds from the interest gained on the endowment fund to provide for their needs. Endowment funds operate on the definition that the college/university can spend only the investment income generated by the donor’s gift, with the principal untouched and becoming larger over time.

A very popular form of endowment gifts is the endowed chair of a department, sponsoring a chair or a faculty post for a prominent scholar. Usually these chairs allow for some of the brightest scholars and faculty to be available to students without becoming a financial burden for the institution’s annual budget. Such professorships are extremely important for the university’s quality and reputation, providing students with the opportunity to work very closely with reputable names in different fields and gain from their extended experience.

In addition, if the institution finds that a new programme might be valuable and useful for the community, for example a new department in computer science or a graduate programme in microbiology, the endowment fund helps address this need and provides initial funding for it. However, the bulk support of the endowment is its long-term sustainability. The fund provides a higher education institution with financial security for ongoing programmes and teaching positions, as well as new resources such as libraries or technology, as needed for years to come. Such financial security is crucial for long-term institution planning and development.

The need in Pakistan

Education, especially high quality education, takes a long time and a great amount of efforts and money to be established, maintained and to consistently produce good results. In Pakistan, the standard of education in the public sector, which produces over 75 per cent of the graduates, is really quite modest. Quality education is limited to a few, mostly private institutions that have acceptable international standards, but due to very high tuition fees, these institutions cater to a very small number of upper-class students.

Without affordable and accessible education, Pakistan is closing the door to tomorrow’s brightest entrepreneurs, scientists, engineers, doctors, lawyers, computer scientists, bankers, civic leaders, artists and other intellectuals. Moreover, by not providing opportunities for education to students, the government is neglecting a very effective way to alleviate poverty through economic growth and development. The United Nations has projected that by 2050 Pakistans population will double to about 350 million with the potential workforce at approximately 221 million people. By increasing spending on education several folds from the current 2.42 per cent of real GDP, Pakistan has a unique opportunity to invest in its human capital by providing adequate education and skills to this emerging workforce (see article: “Tailor-made education”, Dawn Education Page, Feb 24, 2008).

The increased value of human capital makes educational attainment and success not only vital to the financial wellbeing of individuals but also of the nation, especially in developing countries. It is part of higher education’s role in Pakistan to produce professionals, scholars and leaders who can lead the country out of the poverty into an economically sustainable nation. A wide access of the masses to quality education is the main engine that brings broader social benefits to a developing nation like Pakistan. Only through an easy accessible system to education that is of a high quality, contemporary and at par with the developed countries, can the national accumulation of knowledge, expertise and economic growth be achieved (see article: “Investing in higher education”, Dawn Education Page, Nov 11, 2007).

Another important factor that impacts the quality of education is the facilities and resources for students and teachers. Insufficient funding of public education institutions has resulted in the unavailability of modern tools and minimal access to computers and the internet, the latest scholarly publications, and properly-equipped libraries and laboratories.

It is very difficult for students to learn the most up-to-date theories without having access to them. Research suffers greatly because of a lack of data, inadequate libraries and insufficient means of laboratory practice. An immediate upgrade of libraries and basic student resources for research are needed to improve the quality of education delivered at all levels of schooling. Institutions of higher learning in Pakistan must meet the new requirements brought up by technological and social changes to provide for the growing workforce.

Pakistans institutions of higher education cannot rely solely on governmental funds. They urgently need to look for alternative funding to save their institutions and secure a better future for students and faculty.

Although endowment funds cannot fix all of the problems at once, they can, however, ensure a better and more secure path for generations to come. If the burden is shared by both the government and the endowment fund institutions we can achieve our goals more and more effectively. Most government funds come with restrictions regarding how the money is to be disbursed. If the institution has an independent income source (i.e., an endowment fund) its needs can be addressed as required. Educational institutions, especially public establishments, are crucial pillars that provide training, research, innovation, and knowledge to the citizens of today and tomorrow’s world. They must be preserved and nourished in the best way possible to perform the challenging tasks with which they are being entrusted.

The writers work for the Promotion of Education in Pakistan Foundation, Inc., USA.

info@pepfoundation.org