This government should listen to Kenyans. It should not develop thick skin, yet. And it should not be elitist in its policies. It’s the only way they can be in touch with reality on the ground and avoid pitfalls of Uhuru administration. A month ago, I wrote that the Hustlers Fund should be a grant, not a loan and drew parallels with similar funds targeting small businesses in the US and Europe, among others. I also explained why many of the existing affirmative action programmes targeting this sector did not work.
National Treasury had released draft regulations of the ‘Financial Inclusion Fund’ whose purpose shall be to “promote financial inclusion through expanding access to credit by persons, proprietors, micro, small and medium enterprises (MSMEs), chamas, table banking groups, groups, sacco societies, associations and start-ups for economic growth and job creation’. The regulations provide for penalties on misuse of the fund, and recovery by debt collectors on defaulters.
Even before public hearings on the regulations are complete, the Cabinet released terms of the loan, calling it a “revolutionary financial product to liberate the people of Kenya from the bond of predatory lending”. Sh500 to Sh50,000 loan at eight per cent interest, with a compulsory five per cent saving amount is unlikely to create a “momentum for sustainable development” as suggested, and is not revolutionary either.
The Sh50 billion fund was meant to be a game-changer for MSMEs. It started off as a grant during the campaigns, and mutated fast to be a conditional loan. To many, it appears too little and much ado about nothing. A new boda boda costs Sh80,000 and above. Can it fund start-ups? No! For sure, it can buy a half dozen quality wheelbarrows, and can help mama mboga stock up on her vegetables. If the borrowers were given the maximum of Sh50,000, which is highly unlikely, only a million Kenyans at most will benefit.
At best, the fund will compete with Fuliza and other digital credit providers on the interest rate. Fuliza overdraft charges Sh25 daily for loans of Sh25,000 to Sh70,000, which is about 18 per cent per annum. But Fuliza has simplicity. The access is fast, one can take several loans at a time, their upper limit is up to Sh70,000 and there are no debt collectors, or threats of fines.
Small businesses usually take these loans for a short time, and are used to meet essential demands. In 2021, Fuliza disbursed Sh585 billion to 1.7 million users. The default rate is nil as the debt is recovered instantly when the customer’s M-Pesa wallet receives money. Even with the high charges, default rate was also low with KCB M-Pesa and M-Shwari, with average loan sizes of Sh6,000.
Is this a government-run Fuliza, albeit cheaper? It appears so. The similarity with existing digital credits is pretty obvious. The size of the loans speaks to the people targeted by this fund. And it is not MSMEs. It would be difficult to imagine any of them would find the proposed fund useful. Any fund that excludes the 7.5 million registered MSMEs would thus be misplaced. Clearly, it does not appear to achieve objectives outlined in Treasury’s regulations.
According to Kippra, 72 per cent of MSMEs funding is family income or personal savings and they say most collapse because they “fail to demonstrate creditworthiness or lack sufficient cashflow to sustain loan repayments” due to inability to provide “required documentation such as bank statements, audited financial statements, and financial projections”.
In 2021, the government merged several affirmative action funds to create a Sh2.5 billion Biashara Kenya Fund, merging the Women Enterprise Fund (WEF), Youth Enterprise Development Fund (YEDF) and Uwezo Fund, to provide loans at six per cent interest rate, through registered groups to marginalised segments of the society such as women, youth and persons with disabilities. In all these funds, the loan amount, bureaucracy, processing and registration requirements as well the high cost of finance was a major hindrance to successful uptake.
The writer is former senator of Mandera County
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