President William Ruto Wednesday unveiled the much-awaited Hustler Fund in his first step to fulfilling one of the key campaign promises.
The new kitty offers affordable credit, taking on popular mobile phone lenders in the battle for quick loans.
President Ruto said the Sh50 billion kitty, which is backed by three mobile phone service providers and financial institutions, will bring to an end the era of predatory lending that has been characterised by high-interest rates.
“This is a momentous occasion that today we have a product that does not need an application, guarantee or approval by a committee. It just needs a citizen and his/her phone and they can borrow as much as they want so long as they keep a track record.”
He said the Fund ushers freedom for cash-strapped low-income individuals and groups, referred to by the moniker hustlers, and who formed his core support base.
He noted that this group has been enslaved by scores of mobile-based loan apps offering quick, collateral-free credit, but at high-interest rates.
“The dream we envisioned with millions of Kenyans during the campaigns has been achieved,” said Dr Ruto at the Green Park Bus Terminus, Nairobi.
Borrowers will get between Sh500 and Sh50,000 at eight per cent interest rate per annum via mobile phone. To access the loan, one must be 18 years and have a national identification card. They must also have either Airtel Money by Airtel, Safaricom’s M-Pesa or T-Kash by Telkom Kenya.
The increase in loan limit will depend on the individual customer’s performance on consistent borrowing and repayment on time. The limit shall be reviewed and adjusted based on the borrowing and repayment history of previous Hustlers Fund loans taken.
To access, one will dial *254# or use mobile phone app platforms of any of the mobile operators in Kenya.
The four available products are personal finance, micro loans, SME loans and start-up.
President Ruto asked Kenyans not to abuse the Fund by ensuring prompt payments for it to be sustainable.
He said Kenyans previously blacklisted by credit reference bureaus (CRBs) would be given a reprieve under the new credit scoring system.
“Today we have approximately eight million Kenyans who cannot access credit because of their bad credit history. Even if in the past you have been locked out, the Hustler Fund is giving you a fresh start,” he said.
“Those of you who will be given a second chance, please do not abuse that second chance, use it well. It will work for you.”
Dr Ruto defended the interest rate, saying this is 500 times lower than the average loan in the market and will be a running cost for the Fund.
The loan repayment period will be 14 days. For instance, if a customer borrows Sh1,000, they will 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.
The Fund will have a savings component.
The President said the plan will enable the country enhance a saving culture, adding that the State is targeting Sh30 billion in savings on the Fund platform in a year. The government says it will 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.
The scheme will split savings into 70 per cent long-term (pension) and 30 per cent short-term.
President Ruto said, going forward, micro, small and medium enterprises (MSMEs) and Saccos will be able to access between Sh50 million and Sh100 million.
“Today we are replacing the collateral system that has always been built around title deeds, logbooks and securities. Today, we are starting the journey to build a collateral system that is based on credit scoring,” he said.
Deputy President Rigathi Gachagua reiterated the President’s call that borrowers should not abuse the Fund.
“We are asking all the beneficiaries to know that there is no free money in this country. What is there is a bold facility that has no complication that is available to the ordinary people that cannot walk to any bank and get money,” he said.
Mr Gachagua dismissed critics of the plan. “Let all critics and theorists and analysts give the Hustler Fund a break.”
Family Bank and KCB are the implementing institutions. KCB Group CEO Paul Russo said the Fund will be instrumental in availing affordable credit.
“KCB believes that the MSME sector bears the biggest influence on the economic trajectory of East Africa,” he said.
Dozens of micro-lenders have invested in the credit market in response to the growth in demand for quick loans, where borrowers can get credit within minutes via their mobile phones, rivalling commercial banks.
The micro-lenders have, however, faced calls for regulations amid criticism that they have saddled borrowers with high interest rates, which rise up to 520 per cent when annualised, leading to many defaulters who have been listed with CRBs.
Some of the top players in the mobile digital lending market offer annualised interest rates of 84 to 152.4 per cent, and 156 to 348 per cent.