Why the Hustler Fund still raises concerns, a year later

President William Ruto inspects bags during a ceremony to mark the first anniversary of the Hustler Fund. [PCS]

The Kenya Kwanza administration celebrated the first anniversary of the Hustler Fund with pomp and pageantry at the beginning of December, last year.

Although the fund has been lauded by government supporters as the best thing to happen to unbanked hustlers since sliced bread, it continues to attract criticism from sceptics who view it as a political gimmick. 

Historically, opposition to government involvement in projects like the Hustler Fund emanates from concerns that governments are inefficient and cannot replicate the innovativeness of the free market.

In Kenya, inefficiency covers other sins that include everything from corruption to the type of undisciplined lending that characterised government involvement in the banking sector in the past.  

Kenyans old enough to remember the banking crisis of the 90s, government involvement in the banking sector birthed political banks that were used to siphon money from cash-rich public institutions and to advance loans to politically connected individuals. Not only did the government involvement lead to a massive loss of public funds, but political lending weakened political banks so much that many had to shut down.

Given this poor track record, it is not surprising many Kenyans are wary of attempts by the Ruto government to inject itself into the financial sector through the Hustler Fund.

Undeterred by public reservations, the government has defended the fund as an important vehicle that will extend banking services to unbanked Kenyans.

Additionally, the Kenya Kwanza administration promises to use the fund to provide affordable credit and rescue many Kenyans starved of loans because of being blacklisted by the credit reference bureaus.

As a political party that campaigned under the banner of fighting for the hustling masses, standing up to the banking industry fits well with its campaign promises. However, while bashing the banking industry is consistent with the Kenya Kwanza narrative of fighting for the downtrodden, the criticism does incalculable damage to an important sector of the economy.

The profiling is especially unfair because not only does the banking industry contribute millions of shillings to the exchequer, but it has also added many unbanked Kenyans to the financial sector through innovation.

Up to the late 80s for instance, the coverage of the banking sector was quite limited since the industry operated on manual systems. Computerisation in the 90s enabled banks to introduce new banking channels such as ATM and card products that extended services to unbanked Kenyans.

Through consistent investment in customer service, the banking sector today offers an array of sophisticated technical and bricks and mortar channels that extend financial services to millions of Kenyans.

Today, Kenya is ranked number one globally in mobile banking services which was an ingenious innovation aimed at addressing the unique needs of our customer base. 

Admittedly, although the banking industry has excelled in extending its retail outreach, it has struggled to meet the demand for loans by ordinary Kenyans who do not have appropriate collateral.

This challenge was finally resolved by the formation of the credit reference bureau that facilitates lending by rating customer creditworthiness by their borrowing history.

The introduction of a credit reference bureau put Kenya’s financial sector on the same footing with developed economies where consumers cannot even buy a mitumba on credit without a borrowing history.

Either out of ignorance or merely playing to the gallery, the Kenya Kwanza administration has demonised the Credit Reference Bureau as a tool by the banking industry to embarrass ordinary Kenyans unable to pay their loans. For this reason, the Ruto administration pressured financial institutions to forgive debts in order to improve the CRB scores.

Such interference not only illustrates how little the administration understands the dynamics of the Kenyan banking industry, but such uninformed populism only strengthens opposition to political involvement in the financial sector.

Besides financial illiteracy, the government management of the Hustler Fund raises additional concerns about how much political consideration is influencing important operational decisions.

For instance, how is it that lending rates of the Hustler Fund are at 8 per cent when market rates are in double digits? Is the public unwittingly subsidising Hustler Fund customers so that the administration can look good?

Secondly, what was the economic justification for doubling Hustler Fund-related savings and did the public get a good return on their taxes?

Thirdly, given its high non-performing loan book, how does the government justify channelling billions of public funds in what is clearly a risky venture? Is the government seeking political or economic capital?

In the 90s, the government printed money to buy votes. The consequent hyperinflation destabilised Kenya’s economy for subsequent decades and confirmed the inherent risks of politically driven economic projects.

Given the many unanswered questions around its operations, the Hustler Fund feels and looks like such projects and the public has good reason to be concerned.

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