The Universities Fund was established under Section 53 of the Universities Act, 2012 for financing universities in Kenya. The Fund is managed by a Board of Trustees known as the Universities Fund (UF) Board, which has been in operation since 2016.

The specific functions of the trustees include advising the Cabinet Secretary on matters of university education financing, developing a fair and transparent criterion for the allocation of funds to universities, apportioning funds to universities, establishing the maximum Differentiated Unit Cost for the programmes offered, and mobilising and receiving funds for the Fund from the Government, donors, and any other sources.

The Board commenced the apportionment of funds to public universities and issuance of conditional grants to private universities in the FY 2017-2018 in accordance with the established criteria, which is the Maximum Differentiated Unit Cost (MDUC). Previously (1995-2016), university education in Kenya was uniformly funded at a unit cost of Sh120,000 per student, out of which the government paid Sh70,000 per student, and the remaining Sh50,000 was covered by households and loans through Higher Education Loans Board (HELB).

Apart from the inadequate funding levels, there was no resource mobilisation framework to address the gap or a clear and fair criterion for allocating the available budgetary support among existing and newly established public universities. This led to the creation of a transparent, fair, and equitable criterion known as the Differentiated Unit Cost (DUC). The DUC provides for the funding of programmes in the universities in line with the financial requirements of the respective programmes.

In May 2023, the Government announced a new funding model for universities and technical and vocational education and training (TVET) institutions that is student-centered, predictable and that will encourage the institutions to seek other revenue streams. The new funding framework seeks to phase out the DUC.