The first year that the Hustler Fund has been in operation has been marked by unmet expectations for many borrowers even as the government touted it as a major success when it celebrated the fund's first anniversary on Thursday.
The backers of the fund noted that it has enabled millions of Kenyans to access cheap credit and for many of the borrowers, it is the first time they are getting credit from a credible institution away from predatory lenders.
Critics, however, note that factors like the lower loan limits and the short repayment period have only resulted in borrowers taking loans largely for consumption.
During the celebrations yesterday, President Ruto said the fund had been a major success when it came to its core mandate of enabling Kenyans access cheap credit.
The fund, Ruto said, had cumulatively advanced Sh39.5 billion to over 19 million Kenyans. Of these, 7.7 million were repeat borrowers.
“Where would these 7.7 million Kenyans go to borrow, if we did not have the Hustler Fund?” he said.
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The Hustler Fund – also referred to as the Financial Inclusion Fund — was one of Kenya Kwanza’s key promises during the campaigns last year. It charges an annual interest rate of eight per cent, lower than commercial banks where interest rates are hovering at between 14 per cent and 19 per cent.
Borrowers, however, have access to low limits and also have to repay within a month, which limits how much they can do with the loans.
Ruto yesterday sought to address one of the major challenges borrowers experience by increasing the borrowing limits. For some borrowers, their limits will go up by as much as 100 per cent.
“We will increase the limit of the money that you can borrow from the Hustler Fund,” he said. “We will enhance the limit for 1.2 million regular borrowers. For those who have borrowed more than 10 times, your limit will increase by 100 per cent. If your limit is Sh10,000, it will increase to Sh20,000.”
“If you have borrowed five and 10 times, your limit will go up by 60 per cent and if you have borrowed between two and five times, your limit will go up by 40 per cent.”
The low limits that borrowers have could partly be due to the fund's seed capital. The fund was initially expected to be a Sh50 billion revolving fund. However, it appears this might not come to fruition.
The fund has grappled with a deep budget cut this financial year. The government allocated the fund Sh5 billion in the first supplementary budget for the current financial year, a 50 per cent reduction from the Sh10 billion it had been allocated at the start of the financial year in July.
Other than the budget cut, President Ruto yesterday said there might not be need to increase the allocation, with the fund having taken off on its own.
He said the government has so far advanced Sh12 billion to Hustler Fund and because of its revolving nature, it has been able to become self-sustaining, with the repayments being used to lend both repeat and new borrowers.
“The money that we had committed that we will invest in the kitty, after putting in Sh12 billion, we have seen that the fund does not require more money...it is self-sustaining,” said Ruto.
When one borrows from the fund, they do not get the whole amount. Instead, five per cent of the money is retained for the savings portion. Kenyans accessing the fund had so far saved Sh2 billion.
The President said the government would honour the promise of matching the savings in the ratio of 2:1 – whereby for every Sh2 saved, the government will give the savers Sh1.
While earlier communication from the fund said this incentive would have a ceiling of Sh3,000 per year, Ruto yesterday capped it at Sh6,000.
This might mean the State will spend Sh1 billion in matching savings that currently stand at Sh2 billion.
“We had promised that for every Sh2 that you save, the government would give you Sh1,” he said. “By tomorrow morning, 1.2 million Kenyans will have their savings matched funds. If you have borrowed at least five times, your savings will be matched. The ceiling is Sh6,000, so if you have saved Sh6,000 or more, we will give you another Sh3,000.”
The money saved, which is deducted upfront whenever one’s loan is disbursed, is divided into 30 per cent short-term and 70 long-term. The 30 per cent can be accessed after one year of being in the fund and the balance of 70 per cent on retirement.
“You can withdraw 30 per cent of your savings today. The other 70 per cent will remain in the long-term saving,” Ruto said. “If you do not withdraw the 30 per cent, we will use this to give you a new limit after one month.”
Analysts note that the fund has huge potential to bridge the funding gap for many low-income earners and SMEs but it appears to be falling short. 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.
In a past analysis, 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 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.
“The fund should also let borrowers take more money 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,” he said.