EDITOR'S NOTE: This article uses several assumptions to hypothesise the options available to keep the hustler fund afloat when reviewed against prevailing rates of default on personal unsecured loans in the market.
The Hustler Fund was formally launched today by President William Ruto to much fanfare as the Kenya Kwanza election promise was finally honoured about 22 days ahead of his first 100 days in office.
The fund which has been kickstarted by a Ksh50 billion kitty will eventually be offered in four distinct products; personal finance, micro loans, SME loans and Startup loans began offering the first product - personal finance (individual) loans - today.
Deputy President Gachagua bought a Mutumba shirt for Ksh50,000, a smokie vendor walked away with Ksh100,000 from Safaricom CEO Peter Ndegwa, a fishmonger easily bagged Ksh40,000 and a few more select hustlers got huge rewards in an event that symboliZed the fund’s intention of financially including Kenyans shunned by mainstream financial institutions.
But even as the country’s hustlers celebrate for a promise kept and mobile network providers get bombarded with requests via the *254# Hustler Fund USSD code, the question of how long the fund can last still lingers. This is with the assumption that the seed fund of Ksh50 billion is not topped up and accounting for industry default rates.
If all Ksh50 billion of the Hustler Fund went to the 14-day consumer loan product at 8% per annum product we’ve heard about, the Hustler Fund would need to achieve an astounding 99.7% repayment rate on each 14 day-loan cycle to stay afloat.
If the fund only achieves 75% repayment rates, the fund will have lost 90% of its money within 4 just months!
We’ve heard reports that the Hustler Fund plans a direct-to-consumer product that will be offered at 8% per annum for 14 days. That means a 0.31% effective interest rate on each 14 day loan - the 14 day’s share of the 8% yearly interest rate.
Stay with us…
On this assumption, the fund will gain only 0.31% for each 14-day loan repaid. The fund will lose all the money that is not repaid to it, or that which is defaulted. If people default on more than 0.31% of the loans disbursed, the fund will lose money on each loan cycle since it is only making 0.31%.
Unsecured short term digital loans are not new - tech-only industry leaders generally achieve between 70% and 90% repayments on short-term digital loan products in Kenya.
With the government transparently saying there will be no CRB listings for defaults, we can expect repayments to be significantly lower.
The government has tried unsecured short term lending before, with less than 50% of people repaying loans from the Women and Youth Fund.
If the government manages a conservatively optimistic 75% repayment rate on the Hustler Fund loans, the fund will have lost 90% of their money in 16 weeks.
99% of the money is gone by week 30.
If the government pulls a miracle and manages 95% repayment rates, beating most of the highest venture capital backed digital lending startups in Kenya, Ksh25 billion is still lost within 30 weeks.
What does this mean? There are possibly three options.
Option 1: The fund cannot allocate much money to this direct to consumer product and will lend to intermediaries, where it can guarantee better repayment rates
Option 2: The fund has to raise it’s interest rate to recoup losses on each 14-day product (8% per loan vs 8% per annum will be interesting to watch here)
Option 3 - The fund is about to lose a lot of money very quickly.
Will the Hustler Fund be depleted within tens of weeks from today? The above analysis relies on several assumptions including assuming that the seed fund will not be topped up, that the default rates will reflect industry averages or even be lower, that the interest rates and structure will be unchanged for the foreseeable future, that the entire Ksh50 billion will be lent through the ‘personal loan’ product and that the monies will be lent directly to Kenyans without intermediaries who may assure lower default rates.
There are too many unknowns to make a determination of how long the initial Ksh50 billion can last.
Interested in tinkering more with this? Please find the spreadsheet we used to make the above-discussed prediction and play fund manager yourself and let us know on our socials how you long you think the hustler fund can last given the very hypothetical parameters if even there is a possibility of an expiry date on the very generous Ksh50 billion kitty that is a promise kept to Kenyan hustlers.