The Hustler Fund is a flagship project for the Kenya Kwanza government whose aim was to chip away from the top-down economics approach.
As part of the Bottom-Up Economic Transformation Agenda (Beta), President William Ruto-led administration unveiled the Hustler Fund, administratively known as the Financial Inclusion Fund, to help millions of Kenyans in the shadowy informal sector access cheap credit through their mobile phones.
These were mostly the petty traders, street hawkers, shoeshine boys and other groups ‘underemployed’ on the streets of the big towns.
But two years later, the philosophy that underpinned the Hustler is changing.
How has the philosophy behind Hustler Fund changed?
Into its second anniversary, the philosophy that underpinned the Hustler Fund seems to be changing as it is confronted by new realities, including a spike in defaults. From a fund that was supposed to disrupt the snobbish big banks into a breeding ground for commercial banks.
According to Susan Mang'eni, the Principal Secretary of the State Department of Micro, Small and Medium Enterprises (MSMEs) Development, the objective of the Fund is to help two million borrowers with a high credit score graduate to commercial banks.
According to the government, the ultimate objective of Hustler Fund is to integrate the so-called ‘hustlers’ into the formal financial system by providing visibility of these borrowers to commercial banks. “That is why it is called a financial inclusion fund,” said Mang’eni.
What informs the introduction of credit scoring system?
President Ruto unveiled the Bridge Loan in December. Beneficiaries of the Bridge Loans will access up to three times their current credit limit at an unchanged annual rate of eight percent, with the repayment period extended to 30 from 14 days, based on a new credit scoring system which has nine categories.
For the bridge loans, the government has cherry picked two million borrowers with a high credit score to transition them to commercial banks.
Cabinet Secretary for Cooperative, Micro Small and Medium Enterprises (MSMEs) Wycliffe Oparanya explained: “Two million people who are borrowing and repaying are been graduated. They are those who have no debts. The good this with this model is that there is no personal interaction, it is computer in-built.”
The government insists that the bridge loans to the two million borrowers are meant to prepare them for the next level: borrowing from commercial banks. Commercial banks tend to demand securities such as title deeds and logbooks to give loans.
Also preferred by banks are salaried employees with a steady source of income, unlike those in the informal sector whose earnings are erratic.
However, the government believes that with the credit scoring system, banks can have visibility of borrowers with impressive repayment record which they can then use to onboard the ‘hustlers’ on to their balance sheets.
What other changes have been made on the Hustler Fund?
When the Hustler Fund started, it only targeted individual borrowers in the informal sector.
Under the fund, which also has a saving component, individual borrowers were to receive between Sh500 and Sh50,000 via their mobile phones.
While the personal loans have been enhanced with products such as bridge loans, the fund has also been extended to registered groups.
A total of 53,724 groups with 1,259,092 registered members have been onboarded. These groups have received loans of Sh179,295,038 and made savings of Sh8,964,752.
What is the government planning to do about the high default rates?
The government says it is aware that there are people who have refused to pay. PS Mang’eni says the government understands the tough economic conditions, and would not like to see a situation where the government is blacklisting its citizens. But plans to recover the loans are ongoing.
Mr Oparanya was quoted saying that of the 21 million Kenyans that had borrowed from the Fund, 19 million had disappeared without paying the loans, raising fears of massive defaults. Ms Mang’eni says that is not true, noting that the Fund’s repayment rate is at 80 percent.
Oparanya put defaulters on notice. He revealed that they were working on a tool that would track them down which some interpreted to mean blacklisting delinquent borrowers. Mr Oparanya would later clarify that no one would be blacklisted.
Will the Hustler Fund keep getting money from the exchequer?
The government insists that because the Hustler Fund is a revolving Fund, it does not need to be funded by the exchequer having received the initial seed capital of Sh12 billion in the Financial Year ending June 2023. In the next financial year, the Fund only received Sh800 million, a reduction of 93.3 percent, a cut that officials of the State Department for MSMEs have attributed to budgetary constraints.
“At the start, the fund received Sh12bilion and now as I speak, Sh2 billion has been released from the exchequer,” said Oparanya.
But the plan is to move away from the exchequer and let the revolving kitty fund itself as people borrow and repay.
