On June 30, 2022, Kenya Kwanza launched its manifesto spearheaded by President William Ruto.
One of the promises in the manifesto was a Sh50 billion Fund that would be channelled into micro, small and medium-sized enterprises (MSMEs) to catapult their financial wellbeing. The president finally launched it on November 30, 2022.
The question that begs an answer is: Will the Hustler Fund be a game changer in Kenya's economy or will it join the list of similar failed funds?
Following the Sh4 billion scandal and ultimate collapse of the Uwezo Fund due to failure to implement sustainable financial policies and the gazette notice by the former Cabinet Secretary for the National Treasury to close down two other State-sponsored development Funds, Women Enterprise Development Fund and Youth Enterprise Development Fund in 2019, we should ask, what will change this time?
One of the characteristics of the Hustler Fund is that it will act as a savings vehicle in addition to being a credit facility. The government has pledged to top up members' contribution on a 2:1 basis, bearing in mind that beneficiaries will have to join cooperatives, saccos and chamas, that will act as guarantors, in order to access loan. Kenyans can be loaned between Sh500 to Sh50,000.
There have been mixed reactions to the Fund described by the new administration as a bottom-up framework, painting it as a mouth-watering but short-term approach to addressing the challenges that MSMEs face.
Kenya's MSMEs currently contribute approximately 40 per cent of the GDP, with a majority falling in the informal sector. MSMEs have been struggling to stay afloat due to under-funding and exposure to shocks such as increased cost of living and the effects of Covid-19. The Kenya Kwanza administration made it clear that the funds are not grants but loans that should be repaid with interest. Currently, 45 per cent of small businesses do not live to celebrate their fifth birthday. Many economists argue that a lot of cushioning of investments and financial literacy would have been necessary before rolling out of Hustler Fund, lest mama mboga finds herself deeper in the rabbit hole.
Out of the 7.5 million MSMEs, only about 1.56 million are licenced. This implies that a business will only be eligible for a maximum of about Sh32,015, assuming no processing fees are charged on the loans and that only licenced MSMEs are eligible for funding. Furthermore, it takes a considerable amount of time for businesses to realise a return on investment. In light of this, it would be prudent for government to put a number of small businesses in an incubation programme to establish trends, risks and their potential to repay the loans.
As much as efforts to reverse chronic under-investment in the lower economy are welcome, the Hustler Fund doesn't seem well grounded in proper research.
So far, the Hustler Fund seems to fill a gap left by commercial institutions. But will it be the saving grace of Kenya's economy or yet another flop?
-Ms Mwaniki is analyst at Mentoria Economics