Treasury increases Hustler Fund as borrowers struggle to get loans

Treasury Cabinet Secretary Njuguna Ndung'u. [Edward Kiplimo, Standard]

The government has allocated Sh5 billion to the Financial Inclusion Fund popularly known as the Hustler Fund over the 2024-25 financial year even as Kenyans struggle to access funds from the kitty. 

This is in addition to the over Sh25 billion that the Kenya Kwanza administration has allocated to the Fund since its inception.

The money is for microloans at low-interest rates to ordinary Kenyans, whom the current regime notes have been sidelined by mainstream lenders or taken advantage of by mobile phone credit apps that charge exorbitant interest rates.  

Despite the billions set aside for the Fund, not all “hustlers” are getting loans. Many are only too familiar with the apology from the Hustler Fund informing them that it cannot process their request and instead asks them to try after two hours.

While some of the people we spoke to said the request is processed within a day after several requests, they noted that this sometimes comes too late to attend to whatever urgent need they may have had.

Others are still waiting for their limits to be increased, months after the government said it had increased the limits for borrowers who had been repaying loans on time. 

The Fund, one of President William Ruto’s pet projects, has according to the National Treasury allocated more than Sh20 billion in its first year of operation.

It is because of the Hustler Funder that the allocation to the State Department of Cooperatives has gone up 10-fold from under Sh2 billion in the year to June 2022 to Sh23 billion in the last financial year. 

“During the FY2020/21 and the medium term, budgetary allocation to the State Department (for Cooperatives) increased from Sh1.7 billion in FY2020-21 to Sh1.9 billion in FY2021-22 and further to Sh23billion in FY2022-23. The increase in FY2022-23 is mainly attributed to capital expenditure allocation of Sh20 billion for Financial Inclusion Fund (Hustler Fund),” said Treasury in the budget estimates for the 2024-25 financial year.

In the current financial year that ends June 30, the Fund was allocated Sh5 billion in the first Supplementary Budget, a 50 per cent reduction from the Sh10 billion it had been allocated at the start of the financial year in July.

“In order to support individuals and MSMEs (Micro, Small and Medium Enterprises) at the bottom of the pyramid, the government established the Financial Inclusion Fund, or the Hustlers Fund in November 2022 as an intervention to correct market failure problems at the bottom of the pyramid and to cushion the MSMEs against high cost of credit,” said Treasury, adding that borrower had as of November last year accessed a total Sh4.5 million in 816 transactions, while the top voluntary saver had saved Sh631,491.

The Hustler Fund, its management says, has advanced Sh50.3 billion to over 22.9 million Kenyans. Borrowers have also saved Sh2.2 billion.

The Hustler Fund for groups and small businesses, which was launched in November last year as the Fund celebrated its first anniversary, has attracted 53,694 groups that have borrowed Sh177.5 million and saved Sh8.9 million. 

Going forward, the Fund will be enhanced with specific financial products to provide additional enterprise and business facilities for existing mama mboga (greengrocers) and boda boda Saccos,” said Treasury. 

The repayment rate currently stands at about 73 per cent and could mean that of the Sh50 billion that has been advanced to traders and groups, Sh13.5 billion or 27 per cent could be in default, much higher than the average default rate for banking customers that averages at about 15 per cent. 

The Cooperatives Ministry has, however, in the past explained that while the default rate appears to be in the region of 27 per cent, many of the borrowers are still within the repayment period.

Proved wrong

Cooperatives Cabinet Secretary Simon Chelugui said in the past when you exclude those within the loan repayment period, “you find that about 10 per cent are in default.”

Treasury in budget documents said the repayment rates are expected to increase to 80 per cent in the 2025-26 financial year and 85 per cent in the 2026-27 financial year. 

President William Ruto said the Fund has proved wrong the naysayers, adding that it has proved essential to many people who have been turned down by commercial lenders. 

“The public response to the Hustler Fund has exceeded most initial projections and surprised even the most hardened sceptics,” the President had said when the Fund marked its first anniversary.

“The Hustler Fund has proved to us not only the huge pent-up demand for affordable credit but also the readiness of Kenyans to embrace credit and savings and to pay their loans on time with minimum prompting. The notion that Kenyans are not creditworthy or high-risk borrowers is nothing more than unjust financial profiling which has, in many instances, become a needless self-fulfilling prophecy.”

Aside from the micro-loans that the Fund offers to traders and other Kenyans, it also has a mandatory savings component. Whenever one borrows, five per cent of the approved loan is retained and deposited into the Fund’s savings scheme, while 95 per cent is disbursed into their mobile money wallet.

The Kenya National Entrepreneurs Savings Trust (Knest) manages the savings aspect of the Fund, a recently formed outfit mobilising pension savings in the informal sector.

The Hustler Fund’s savings scheme has been split into 70 per cent (of the five per cent retained on the approved loan) long-term or pension savings and 30 per cent short-term savings.

Knest additionally aims at mobilising Sh400 billion from 4.5 million entrepreneurs, such as boda boda riders and mama mbogas within three years.

Knest was registered by RBA in February 2022 to manage micro contributions from the informal sector.

It had been formed following a 2017 study by the Retirement Benefits Authority (RBA) that sought to identify challenges that the sector faced in taking up pension products.

The study identified several gaps that include the high cost of pension products offered by the market as well as factors such as little confidence by the sector in the local pensions industry.

Analysts note that the Fund has huge potential to bridge the funding gap for many low-income earners and SMEs but appears to be falling short of bridging this gap. 

While the low interest rates have made the loans affordable, the low loan amounts as well as short repayment periods could be limiting for many borrowers.

XN Iraki, associate professor at the University of Nairobi, noted that the Hustler Fund should move away from lending money for consumption, while at the same time increasing loan limits and extending the repayment time for the borrowers.

“The government can increase the amount one can borrow but also require the borrower to show the intended use. We need milestones to demonstrate the money is not just for consumption,” he said in a recent interview.

“The Fund should also let borrowers take more money and for a longer period with more focus on investment not working capital or stop-gap measures.

The Hustler Fund should be made self-sustaining like any other fund or even better make it an online bank.”

Small businesses that require capital-intensive equipment also say they have been locked out of the fund.