Ndegwa had a small shop in Wangige town, Kiambu County, when the Hustler Fund was launched. He, like many other Kenyans, secured a loan to invest in his business. He managed to borrow four times from the fund.
Unfortunately, the fourth time round, his wife fell ill and he spent the loan to pay for her hospital bill. In the months following her illness, he was unable to restock his shop and was eventually forced to shut down.
Ndegwa’s story is not unique. Over 13 million other Kenyans were unable to repay their Hustler Fund loans by August 2023, with about two-thirds unpaid for over a year, and likely unrecoverable. Official data indicates that about 70 percent of Kenyans have used Hustler Fund loans for personal uses.
Despite the government’s ambitious goals, the Hustler Fund is not effectively reaching the micro entrepreneurs – famously known as ‘hustlers’ – who need it most.
A high default rate with half of the borrowers failing to repay their loans, uptake of the fund by just over one-third wealthier Kenyans and data showing that more than two-thirds of loans are used for personal rather than business purposes illustrate that the fund is missing its mark.
The government’s Bottom-Up Economic Transformation Agenda is focused on economic turnaround and inclusive growth geared toward the bottom of the pyramid.
A key pillar of this economic agenda is the Micro Small and Medium Enterprises (MSME) sector with the Hustler Fund as the key driver. The Fund aims to provide low-income communities with affordable and accessible financial services.
There have been different approaches tested to grow enterprises at the bottom of the pyramid with mixed results. For example, microloans, like Hustler Funds, on their own have proven to be ineffective in lifting marginalsed populations out of poverty as they are often left in debt distress.
Entrepreneurs at these income levels are often susceptible to economic shocks like Ndegwa and lack the economic muscle to pay back their loans. This may be inferred as one of the main reasons for the high default rate of the Hustler Fund.
A successful model for low-income entrepreneurs is the Ultra-Poor Graduation (UPG) model, first implemented by BRAC in Bangladesh, and implemented by Village Enterprise in Kenya. This cost-effective and evidence-based model has been proven to lift people out of extreme poverty.
The UPG model targets the most vulnerable households with cash transfers, mentorship, business and financial literacy training, and support for the formation of savings groups over a one-year period.
A Randomised Control Trial of the Village Enterprise graduation programme in Uganda showed that the programme led to increased consumption, assets, and income of the entrepreneurs.
In 2021, Village Enterprise undertook a long-term study of more than 400 entrepreneurs in Kenya and Uganda who had graduated from extreme poverty in 2018.
The study found that the impact of the programme continued five years after the end of the programme with an 83 percent increase in consumption and a ten-fold increase in household savings.
The programme had a lifetime 5.34:1 cost-benefit ratio; which means for every dollar invested, the entrepreneur makes US$ 5.34 in return.
These numbers are evidence that the model sustainably and cost effectively increases the income of entrepreneurs putting them on a sustainable path out of poverty.
Access to credit is vital for Kenyan entrepreneurs, but alone it cannot ensure sustainable businesses. According to the State Department for MSMEs, these enterprises also struggle with skills gaps, limited funding and markets, weak entrepreneurial culture, and regulatory hurdles.
President William Ruto, in his November 2024 State of the Nation address, said the Hustler Fund could boost financial inclusion, strengthen MSMEs and build economic resilience.
To turn this vision into reality and meaningfully empower entrepreneurs among low-income communities, the government should: pilot a grant-based model targeting microentrepreneurs; integrate financial literacy and mentorship programmes; and, strengthen fund monitoring and evaluation.
If fully realised, the Bottom-Up Economic Transformation Agenda’s target of enabling MSMEs to grow and thrive has the potential to significantly boost job creation and incomes, driving a more inclusive and dynamic economy.
The government stands at a critical juncture with a unique opportunity to transform the Hustler Fund into a true game-changer for microentrepreneurs.
By strategically integrating grants, capacity-building, and mentorship, as is done under the UPG model. Kenya can establish a robust financial ecosystem that genuinely empowers those at the bottom of the pyramid — laying the foundation for sustained and equitable economic growth for all.
The writer is the Global Director of Strategy, Policy and Advocacy at Village Enterprise.
