About 40 per cent of money borrowed from the Hustler Fund after its launch had not been repaid within the mandatory 14-day window it fell due, underlining the potential crisis the new administration faces in managing its pet empowerment Sh50 billion fund.
The government revealed yesterday the Hustler Fund has disbursed a total of Sh9.58 billion to a total of 16.59 million borrowers since it was unveiled by President William Ruto on November 30 in his first step to fulfilling one of the key campaign promises.
At the same time, only Sh2.64 billion of the borrowed funds has been repaid.
Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Cabinet Secretary Simon Chelugui explained that as of December 14, when the loans issued on the first day of the Fund were due, about 60 per cent had been repaid. This meant that 40 per cent could be at risk of default.
“On the 14th December 2022 being the first day of collection a record of 59.30 per cent in repayments was achieved,” he said.
Chelugui revealed that recorded payments on the fifteenth and sixteenth day stood at 52.45 per cent and 47.77 per cent respectively. This means between five and six loans taken had not been repaid.
There has been mounting concern about potential abuse of the Fund. This saw President Ruto and his Deputy Rigathi Gachagua ask Kenyans not to abuse the Fund by ensuring prompt payments for it to be sustainable during its launch.
Yesterday, however, the CS played down the high rate of unrepaid loans saying the repayment record was “impressive” according to the State.
“This demonstrates an impressive positive trend by the Hustlers to repay the borrowed amounts and apply for more funds,” said Mr Chelugui.
President Ruto had earlier asked Kenyans not to abuse the Fund by ensuring prompt payments for it to be sustainable.
He said earlier Kenyans previously blacklisted by credit reference bureaus (CRBs) would be given a reprieve under the new credit scoring system.
Yesterday, Chelugui revealed five million borrowers had under the reprieve been removed from the listing.
The loan repayment period for the Fund is 14 days. For instance, if a customer borrows Sh1,000, they receive Sh950. They may re-pay the loan as a lump sum or in part, provided the full repayment is done within the 14 days.
Defaulters risk higher interests as well as the freezing of their accounts. They may also be subjected to debt collection raids.
“Persistent default spanning 30 days and over will see you lose your existing credit score and your account frozen… Interest continues to accrue pegged on the in duplum rule and recovery methods will be initiated,” says the Fund rules.
At the same time, the Ministry said Kenyans using the kitty had saved Sh479 million as of yesterday.
The Fund is designed to have a savings component, which is expected to enhance the saving culture in the country. During the product’s launch on November 30, President Ruto said the State is targeting Sh30 billion in savings on the Fund’s platform in a year.
The government said it would match every shilling by a saver on a ratio of 2:1.
Consequently, out of the total approved loan amount, 95 per cent will be deposited to a borrower’s mobile money wallet, and the remaining five per cent deposited to their savings account scheme.
For example, if a customer borrows Sh1,000, they will receive Sh950, with the Sh50 channelled to the savings scheme. The scheme will split savings into 70 per cent long-term (pension) and 30 per cent short-term.
The scheme will split savings into 70 per cent long-term (pension) and 30 per cent short-term.
“We are establishing a culture of saving, investment and social security,” said President Ruto during the launch.
The State could seize savings accrued by borrowers of the Hustler Fund in case they default on loans to mitigate against losses, The Standard earlier learnt.
This will help the State ring-fence the Fund against abuse – a fate that has befallen past similar Government-backed funds.
“To mitigate against the risk of total default by the borrowers, the (implementing) bank shall retain the 30 per cent intended for short-term savings in a suspense account until full repayment of the loan,” secret terms of the Fund seen by The Standard show. “Upon full repayment of a loan, the amount shall be released to the customer who will be at liberty to withdraw it or keep it as savings.”
Data released by the government yesterday showed the newly launched Fund, which attracts a low-interest rate of eight per cent per annum, has proven an early hit with younger borrowers aged between 18-29 years.
The government said it will next year roll out the second phase of the Hustler Fund allowing small businesses to access higher limits of the Fund.
“The second product of micro-loans will be unveiled in February 2023 by the President which will target groups, chamas and Co-operatives and will be channelled through Saccos, MFIs and Banks,” said Chelugui.
“The loan range will be Sh100,000 to 2.5 million targeting 3 million enterprises under this category.”