How Hustler Fund is eating into leading lenders' mobile money lunch

Presdient William Ruto purchases potatoes from a vendor during the Hustler Fund launch at Railways on November 30, 2022. [Kelly Ayodi, Standard]

The government's multi-billion-shilling Hustler Fund has taken the battle for the lucrative fast-growing market for quick digital credit that does not require collateral to market leaders, including Safaricom, NCBA and KCB.

Fresh data shows nearly half of Kenyan soft loan borrowers have at some point tapped the Hustler Fund, underlining its emerging entrenchment in the Kenyan economy.

The fund is aimed at supporting Micro Small and Medium Enterprises (MSMEs) by "correcting market failure," according to the Kenya Kwanza administration. New data appears to show the Fund could be well on its way to achieving this goal.

"Besides the traditional sources of financing such as savings and loans from friends and family, businesses have embraced emerging alternative sources such as Hustler Fund and digital credit providers," says a new Central Bank of Kenya (CBK) and Financial Sector Deepening (FSD) backed study.

"In particular, among those who reported having active loans at the time of the survey, about 45.0 per cent of them had borrowed from Hustler Fund, 28.0 per cent from mobile banking platforms such as Mshwari and KCB M-Pesa and 23.7 per cent had borrowed from chamas or groups."

According to the study, the awareness of the Hustler Fund among respondents (both those running active and closed businesses) was very high, at 95.1 per cent.

"About 45 per cent of MSEs indicated they had borrowed from the Hustler Fund. Uptake of mobile banking loans by MSEs reduced to 28.0 per cent in June 2023 from 57.2 per cent in October 2022," says the survey.

President William Ruto said recently that a total of Sh31 billion had been borrowed from the Hustler Fund with about 7,100 users daily.

The top two reasons for those who accessed the Hustler Fund also known as the Financial Inclusion Fund, were to meet personal or household expenses and to finance their businesses.

"The overall borrowing from Hustler Fund among respondents was reported at 51.3 per cent," it says. The Hustler Fund comprises four products - personal, micro business, SME and start-up loans and for groups to promote financial inclusion.

The findings reveal that 68.6 per cent of borrowers use monies borrowed from the Hustler Fund for personal and household purposes, 18.1 per cent for business purposes only, and 13.3 per cent for both business and personal purposes.

But while the Hustlers Fund is gaining popularity fast, those polled said there is a need to pursue possibilities to increase loan amounts.

The multi-billion-shilling Hustler Fund was launched last November by President Ruto to offer hope for affordable and quick credit to low-income groups and individuals without collateral.

It can be accessed through a USSD or mobile phone AppFund.

The Fund was a core campaign promise by the Kenya Kwanza administration, which was elected on a platform of lifting low-income earners (hustlers).

The launch of the microloans service added to the many competitors offering a similar service, including KCB M-Pesa and NCBA's M-Shwari.

Growth driver

Telecom market leader Safaricom also operates the Fuliza overdraft facility, which was launched on January 5, 2019, in partnership with Commercial Bank of Africa (which merged with NIC Bank into NCBA) and KCB Group.

Launched in 2012 on the Safaricom mobile money application M-Pesa, M-Shwari has become a key growth driver for both Safaricom and NCBA.

But the lender appears to be taking a hit, going by its latest half-year financial results. NCBA said last month its net profit rose to Sh9.3 billion over the first half of this year, up from Sh7.8 billion last year.

Its assets grew nine per cent year on year to Sh660 billion, while customer deposits rose 10 per cent to Sh517 billion. However, the bank's earnings from its digital lending services suffered following the lowering of charges on the Fuliza overdraft facility it operates together with Safaricom and KCB Bank.

Following a push by President William Ruto, the firms lowered the daily charges for Fuliza loans between Sh100 and Sh500 to Sh3 from Sh5. It also lowered the daily fees for loans between Sh500 and Sh1,000 to Sh6 from Sh10.

NCBA said its earnings from its digital business in Kenya, which includes Fuliza and M-Shwari, dropped to Sh821 million in the first half of this year from Sh1.8 billion over a similar half last year.

"There were changes that were made to Fuliza, which we talked about at the end of last year, based on conversations about the tough economic period," said NCBA Group Managing Director John Gachora during an investor briefing in Nairobi.

He added that while there was a decline in earnings from digital loans, the disbursements remained high, with the bank disbursing Sh457 billion in digital loans, a 35 per cent increase year on year.

KCB M-Pesa, on the other hand, was launched in March 2015.

Until now, Safaricom had for long dominated the mobile loans segment where borrowers get loans within seconds via their mobile phones, making digital loans a quick fix for daily needs.

Mobile money has grown to be a lucrative revenue stream for telcos and credit providers, as customers use it to send cash, pay for goods and services and take short-term credit.

Small businesses

President Ruto is keen on implementing his access to cheap credit campaign pledge that would see individuals and small businesses charged single-digit interest rates to access the money.

The cheap credit targets the President's support base, which included jua kali (informal sector) artisans, boda boda (motorbike taxi) operators and roadside traders.

The Fund is a lending service via mobile phone aimed at giving credit to small- and medium-sized businesses. Borrowers need to be aged above 18 and have a national identity card to access up to Sh50,000 and a minimum of Sh500. The loans are priced at eight per cent per annum on reducing balance, meaning they are cheaper than the market rate of commercial loans.