Cheap loans dry up as Hustler Fund budget cut to Sh5bn

The Treasury has signalled a reduction in the disbursement of cheap State-backed mobile loans with a cut in the budget for the Hustler Fund by almost half to Sh5 billion in the latest budgetary changes.

This is from the Sh10 billion that the Treasury Cabinet Secretary, Njuguna Ndung’u, initially set aside for the Hustler Fund, officially known as the Financial Inclusion Fund, in June for 2023/24.

The Fund is designed in line with the Kenya Kwanza coalition’s Bottom-Up election campaign promise of facilitating low-income earners and small businesses to access cheap loans on phone.

In the previous financial year ended June, the Hustler Fund, one of President William Ruto’s campaign promises, was allocated Sh20 billion.

Read: Treasury halves Hustler Fund budget to Sh10bn

The budget cut came at a time Dr Ruto launched new product lines, including the Hustler Fund for groups which seek to provide cash mainly to informal traders who must register as a group to qualify for the loans.

“I think it is just in line with the austerity measures that the government is taking,” said Elizabeth Nkukuu, the Acting CEO of the Hustler Fund, adding that the move might also have been taken to re-balance the portfolio.

John Mutua, a programme coordinator at the Institute of Economic Affairs, a think tank, reckons that the cut on the Fund, like many other items under development spending, is always a low-hanging fruit for a government tight on the fiscal space.

“For budget cuts, the first culprit is always development,” said Mr Mutua, noting that such spending can always be deferred while recurrent spending like wages and debt repayments cannot wait.

The budget cut follows a turbulent period characterised by defaults of the micro-loans borrowed by individuals and small and medium enterprises under the Hustler Fund, a central plank of the government’s Bottom-Up Economic Transformation Agenda (BETA).

With a default rate of 29 percent as of August, this is higher than those at commercial banks, saccos and microfinance banks, mirroring the headache mobile lenders face when advancing unsecured loans to the informal sector.

The government, however, is optimistic that the default rate has been trending downwards as it used to be more than 30 percent.

“It is doing pretty well compared to many other funds that the government has run in the past. We have developed new products which are tied to the Hustler Fund platform, which then means that if you don’t repay on time you cannot access another and this is helping a lot,” Moses Banda, an advisor to President Ruto on matters of financial inclusion, told the Business Daily in an earlier interview.

But this delinquency has attracted the attention of the head of State who is banking on the inclusion fund to drive his campaign agenda of uplifting the ‘hustlers’ who include motorcycle taxi operators, commonly known as boda boda, and vegetable sellers (mama mboga).

“The Hustler Fund is not for free and should be returned to the government,” said President Ruto in May while in Embu County.

“We know there is a percentage of Kenyans who are yet to repay their debts but I can tell you that they will not run far. We have put money in the business loans account but they will not get the loan until you clear your arrears,” added Dr Ruto.

The government says that credit scoring under the Hustler Fund is reviewed every four months to ensure that risk is managed prudently.

The latest data shows that personal loans valued at Sh36.87 billion had been disbursed to 21,245,811 customers. Interest is charged at an annual rate of eight percent.

These borrowers had also made savings of Sh1,843,656,056 under this plan, which also seeks to encourage a savings culture.

Read: Hustler Fund budget Sh10bn ahead of private sector entry

Another Sh155.6 million had been disbursed to 50,011 groups or chamas. These groups had saved Sh7,781,505.

The repayment period for the group loans product is six months with borrowers having the option of paying lump-sum or in instalments.

While the government —through KCB and Family Bank —has been lending at eight percent, it has been borrowing at higher rates with the yields of the 91-Day Treasury Bill, a short-term government security, touching a high of 15.11 percent, figures from the Central Bank of Kenya (CBK) shows.

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