Hustler Fund Watershed: Why Gov’t may have dug itself a debt hole

By Steve UMIDHA

The combative ‘Hustler Fund’ could have wider implications for Kenyan taxpayers, who likely will be tapped to make up the ‘yet to be understood’ shortfall.

While loans disbursed crossed the Sh10 billion mark by the time this article was uploaded, curious observers – without giving timelines, believe that the digital financial inclusion initiative designed to improve financial access to Kenya MSMEs will flop ‘bigly.’

What’s worse, analysts are fully convinced that the State dug itself a debt hole in creating the fund.

Statistics from the Cooperatives and MSME Development – the office where the kitty is domiciled, show that a total of Sh11.3 billion had been disbursed by Tuesday 27, 2022 while the repayment was Sh4.1 billion translating to 37 percent.

About 17.2 million Kenyans have been registered—and, are accessing the financial inclusion ante launched on November 30 by President William Ruto, with the savings account hitting Sh570 million from some 20 million transactions.

Why the fund’s model is likely to miscarry

While these numbers may look impressive in the eyes of the reader, analysts are convinced that it is just a matter of time before the effects of low lending interest rates, coupled with a higher cost of bad loans, cost of operations as well as the cost of money begin to impede the fund’s honorable idea.

Venture predictors at Cytonn – an investment firm headquartered in Nairobi, Kenya say that to ensure long-term sustainability, the fund should develop partnerships and collaborations with other public sectors and NGOs and use their competency, financial capacity, and established networks to meet the objectives of the fund at cost-effective rates, and put in place Governance Framework.’

“The government should ensure that the fund is professionally managed and free from political interference to ensure transparency and avoid mismanagement of funds which has been witnessed in the past,” they noted.

Further, they want the government to set up an independent oversight body to ensure accountability.

Such plans are already in motion with regulations in place thus far after the previous murmurs over how the Fund is disbursing personal loans ranging from Sh500 and Sh50, 000.

The regulations, to be known as Public Finance Management (Financial Inclusion Fund) Regulations, 2022 establish an eight-member Advisory Board including, a non-executive chairperson appointed by the President, the Principal Secretaries for National Treasury, State Department for Micro, Small, And Medium Enterprise (MSME) Development and State Department for Co-operatives.

The Advisory Board, to bid oversight on the administration of the Hustler Fund, shall also consist of three other persons who are not public officers, and the Fund’s administrator who will be an ex-officio member.

There will also be the chief executive officer, to be appointed by the Cabinet Secretary in charge of MSMEs, currently Simon Chelugui.

Azimio spokesperson Makau Mutua is also convinced that the Hustler Fund will collapse because the government has no capacity to go after defaulters. Arguing that Kenyans borrowing the Hustlers Fund do not have the ability to repay.

“The government has no capacity, or political resolve, to go after defaulters of the so-called Hustler Fund, nor do most borrowers have the ability to repay. It will collapse in a heap of recriminations,” said Mutua three weeks ago.

Rising loan Defaults

The rate at which Kenyans are unable to clear their debt has been alarming, with the latest Central Bank of Kenya (CBK) showing a total of Ksh514. 4 billion as of June 2022 in loan defaults – surpassing the half trillion shilling mark for the first time in history.

Bank loan defaults crossed the half-a-trillion shilling mark for the first time in August 2022, according to figures by the Central Bank of Kenya (CBK) which show that defaulted loans rose by Sh30.6 billion in June to Sh514.4 billion – the sharpest monthly increase in recent history.

A default on debt happens when a borrower fails to repay the funds according to the initial agreement.

Those concerns have in recent months set up thousands of borrowers for property seizures in an economy hit with reduced cash flows and inflation that has squeezed household budgets and demand for goods.

The mounting number of defaults is a reflection of the struggles of workers and businesses in an economy that is yet to fully recover from a coronavirus-induced slump, which triggered job cuts and business closures.

Economist Peter Macharia who also runs a digital lending firm Jijenge Credit Ltd is convinced that heavyweight investors in the sector will continue to surrender their buildings including large parcels of land if the State doesn’t come to their rescue.

“What needs to happen as a matter of urgency is to inject money into the economy, like what is being tried with the Hustler Fund, whose impact – if well-managed, should kick-start the economic revival by businesses. But if not well managed, the spillover effect will affect other industries like the energy sector which are seeing imbalanced rate hikes,” he noted.

With Kenya’s financial market still unsettled, it is expected that interest rates on new mortgages could also continue to rise – perhaps higher than what the market experienced last year.

This will impact on household repayments ability, coupled with high fuel prices and unclear economic outlook.

Indeed, Kenya’s annual inflation rate has accelerated over the past months hitting 9.5 percent last month and 9.6 percent in October from 9.2 percent in September and above market forecasts of 9.5 percent. It was the steepest inflation rate in May 2017, breaching the upper limit of the central bank’s target range of 2.5 percent-7.5 percent for the fifth month.

While there’s no clear view of how these changes might be or how exactly businesses will react in the long term as inflation concerns continue to threaten, it is widely expected –judging by economic trends that Kenyan investors in the sector will begin to have less confidence doing business with Counties.