The national government has issued several guidelines before the launch of the Hustlers’ Fund - formally known as the Financial Inclusion Fund.
The Ksh50 billion fund, set to become the biggest affirmative action fund in Kenya, will be launched on December 1.
The Cabinet has already issued guidelines on the maximum and minimum loan amounts (Ksh500-Ksh50,000) per individual applicant. Group applicants, such as chama, will be eligible for loans ranging from Ksh50,000 and Ksh250,000 - in the subsequent phases.
President William Ruto has promised that the new directives will apply in the initial phase of the fund and will be scaled up over time.
The National Treasury has also published the Public Finance Management (Financial Inclusion Fund) Regulations 2022 - which are set to become law after undergoing public participation.
A number of public consultation forums are being undertaken in various parts of the country to collect views on the proposed regulations.
Any Kenyan is also free to deliver their views directly to the office of the Principal Secretary in the Ministry of National Treasury. The comments or inputs or memoranda may be forwarded to the Principal Secretary, National Treasury, P.O. Box 30007-00100, Nairobi.
They can also be hand-delivered to the Office of the Principal Secretary, National Treasury Building, along Harambee Avenue in Nairobi CBD. A soft copy can be emailed to firstname.lastname@example.org, with a copy to email@example.com. The process ends on Friday, November 18 at 5.00 pm.
The available details on the fund, however, offer a chance to compare and contrast the fund with other affirmative action funds that are structured under the Public Finance Management Act.
At the moment, the biggest affirmative action fund is the Biashara Fund that was formed through the amalgamation of Uwezo Fund, Youth Enterprise Fund (YEF) and the Women Enterprise Fund (WEF).
The initial capitalization for Biashara Fund was Ksh2.5 billion, which would make the Hustlers’ Fund 20 times bigger - if the Ksh50 billion annual funding is actualized.
Regarding limitations on maximum credit, the Biashara Fund caps loans at Ksh2.5 million per individual borrower with no stated minimum amount in its PFM guidelines.
One of the unique features of the Hustlers’ Fund is that it has no restrictions in the qualification criteria. Any Kenyan who has attained adult age will be eligible to apply for the funds.
This is unlike other affirmative action funds that have been categorically tailored to benefit groups of disenfranchised Kenyans, including persons living with disability, the youth and women.
However, the Hustlers’ Fund is similar to the Biashara Fund when it comes to the cap on the qualification of groups and businesses. They both limit such beneficiaries to have a maximum of Ksh10 million annual turnover.
In Biashara Fund, the interest payable on a loan advanced to Biashara Fund beneficiaries was capped at a rate of 6% per annum as of June 2021.
The Hustlers’ Fund will have a maximum interest rate of 8% per annum. However, it provides for a risk-based lending model where a member’s credit score can be used to alter the interest rate.
The nitty-gritty of how the varied interest rates will be applied have not been made public yet.
The two funds will have some of the lowest interest rates in the market, with Saccos offering loans beginning at 12%.
An independent study by Money254 shows that even after the increase in the Centrral Bank Rate to 8.5%, some commercial banks have retained their rates at 13% - which remains the lowest for commercial banks.
From the rates reviewed by Money254, the highest lending rate is 15.7%, with the highest change in lending rate among banks being an increase of 1.1%
See the report in detail here.
The Hustlers’ Fund compares strongly to the mobile-based loans and microfinance institutions (MFIs) that have previously served its intended beneficiaries. Review by Money254 shows that some MFIs charge annual interest rates that are as high as 30% per annum.
App-based loans typically have a 30-day tenure but when translated to an annual rate, some lenders charge as high as 300%. With these lenders coming under CBK regulation, it is expected that the rates will be comparable to other lenders.
The lowest rates in this bracket are mobile-based loans offered by banks whose annual percentage rate is around 90%.
Read Also: Only 10 Digital Lenders Have CBK Approval
The regulations published by the National Treasury suggest some new measures in the Hustlers’ Fund that could resolve previous problems faced by other government funds.
Among the challenges that government funds have faced include low repayment rates, poor accountability in the application and distribution,, high operational costs, and low access to the targeted persons and groups.
In January this year, the Ministry of Public Service and Gender - which runs the Biashara Fund - decried that Uwezo Fund had low repayment periods due to a perception that it was meant to be a gift from the President.
“When Uwezo was administered in the beginning, there was a rumour that this money was not to be repaid, it was a gift from the President,” then Chief Administrative Secretary Rachel Shebesh decried.
The national repayment rate for the Youth Fund, by the time it was merged to form Biashara Fund, was 54% - with some constituencies falling as low as 20%. Uwezo Fund had a 39.5% repayment rate. The Women Enterprise Fund had not been adversely affected by the low repayment problem - having an average 95% repayment rate.
The Auditor-General’s report on Uwezo Fund for the year ending June 2021, found that the fund managers could not account for Ksh4.6 billion of the Ksh7.2 billion that had been distributed at the time.
Some of the issues cited in the report include approval of loans to groups without any proof of payment, failure to keep records of loanees, failure to follow up or keep records of defaulted amounts, and high operational costs.
In 2020, the government decried the low uptake of Youth Fund loans which was partly attributed to low levels of awareness on the existence of the loans - as well as low morale due to low success rates.
Indeed, a previous public engagement hosted by then-Government Spokesman Cyrus Oguna - saw several citizens complain that their applications were consistently rejected without relevant explanations.
The Hustlers’ Fund regulations indicate an emphasis on some of the challenges that other funds have faced.
On low repayment levels, the proposed rules indicate that the money given to beneficiaries will be recovered as debt - suggesting the board may come up with additional recovery measures and penalties.
The reference does not apply in the Biashara Fund, where the regulations merely state that the “loan advanced under these Regulations shall be repaid in full within the prescribed period in the loan agreement.
The Hustlers’ Fund will also feature in the borrower’s credit score, which is meant to encourage repayment.
Another distinct feature is that the proposed regulations are specific on the types of misappropriations that will attract a prison sentence (maximum five years) or a fine (upto Ksh10 million). These are specifically targeted at fund administrators and not borrowers as clarified by the Co-operatives CS Simon Chelugui.
The Biashara Fund allows financial institutions to be agents and borrow at 1-3% - then offer loans at a maximum of 10% per annum. The agents are mainly banks and microfinance institutions who help extend the fund’s capitalisation - rather than relying solely on money released by the treasury.
Also Read: How to Apply for Hustler Fund
The Hustlers Fund does not reference the distribution of loans through agents - suggesting the government could be more involved in the distribution process. Its proposed regulations have an active language on the use of existing mobile technology infrastructure to distribute funds to beneficiaries.
“The Fund shall leverage on existing commercial infrastructure, including mobile payments platforms and financial institutions, including agency, co-financing and on-lending partnerships: Provided that such partnerships are not exclusive or preferential, are technology neutral and do not confer market advantage to any partners over competitors.”
Chelugui has stated that no registration will be required as applicants would only be required to use a particular code on their mobile phones.
“Unlike any financial products that require a lot of paperwork, guarantors or collaterals among other hurdles, borrowers will face no such roadblocks. No registration is required and all that will be required is to dial a code. There will be no intermediaries, it will just be the hustler and their phones,” he said on Friday, November 18.
The Hustlers’ Fund is set to become the largest affirmative action funds in Kenya if it is funded as promised.
It is set to be launched in December and its timing may offer a reprieve amid the high cost of living and other economic challenges that have made it difficult for potential entrepreneurs to save up capital for their businesses.
The Ksh50 billion fund will also extend the credit choices available to individual borrowers - particularly those who run small and medium enterprises.