13 November 2007
South Africa's Department of Education, in partnership with the private sector, is giving low-income earners the opportunity to save for their children's college or university education from as little as R40 a month.
The Fundisa Fund is a three-year pilot fund that will offer financial assistance to academically deserving students, while rewarding parents for saving towards their children's education - savers will receive up to a quarter of what they save each year as a bonus.
Speaking at the launch of the fund on Monday, Education Minister Naledi Pandor said that recent protests against fee increases at several tertiary institutions highlighted the need for the Fundisa Fund.
"It is a complementary fund for academically deserving students - the fund can't meet the full costs of higher education - but it is an opportunity for people to start saving," she said.
She said the fund would create an incentive for low-incomer earners. "It's an affordable and long–term investment; most people spend more than R40 on beers and [prepaid] airtime."
The education department has so far allocated R20-million to the fund, while the National Student Financial Aid Scheme (NSFAS) has committed R21-million.
Pandor challenged the private sector to show their support by investing in the fund, pointing out that responsible and competent members would manage the project.
According to a statement by the education department, potential investors in the fund must have a Mzansi or similar banking account and be South African citizens, and will be able to access Fundisa through most collective investment companies as well as Absa, Nedbank, Standard Bank and the South African Post Office.
'Education key to better living'
"Education is a key factor in promoting wealth generation and higher living standards, and we believe Fundisa can play a meaningful role by incentivising families to plan for a child's education beyond basic high schooling," Association of Collective Investments chief executive Di Turpin said.
"South Africa needs to take urgent action to reverse the dismal savings rate, and Fundisa is one of the iniatives being launched by the industry to encourage a savings habit. Collective investments, because of the low costs and highly regulated environment, are an ideal vehicle for savings."
The collective investments industry will work closely with the NSFAS, while Fundisa will be complementary to existing funding mechanisms provided by the NSFAS in the form of accessible student loans for qualifying low-income families.
The Fundisa investment portfolio will initially invest in low-risk instruments such as money market securities, bank deposits and government bonds.
In the longer term, however, the fund may consider offering an equity option giving investors the opportunity to earn the higher returns of equities for beneficiaries who are very young and therefore have a long investment horizon.
"If the pilot scheme is a success, we'll be able to expand Fundisa's reach," Pandor said. "We will not see the impact of Fundisa for many years, but when children begin to redeem their Fundisa funds, we'll be able to see how far sighted we've been.
"In future, I hope that qualifying families will be able to draw on a combination of their Fundisa savings and NSFAS funding to support their children's higher education. It is a future that will bring new hope to many of our people."
