Kenya: Why Ruto’s ‘hustler fund’ is feared to be flawed despite being touted as silver bullet

By Jeff Otieno
Posted on Monday, 12 December 2022 15:10

Kenya's President William Ruto, gestures as he speaks to his newly sworn-in Cabinet Secretaries at the State House in Nairobi on October 27, 2022. (Photo by Simon MAINA / AFP)

Kenya's recently launched hustler fund has been touted by the new administration as the silver bullet for the unemployment problem. But, there is a fear it may become problematic like other state-run schemes that have become conduits for corruption and get-rich-quick deals.

On 30 November, after the launch of the much-touted hustler fund by President William Ruto, John Njoroge rushed back home to apply for an instant loan.

“Immediately after the launching ceremony ended I rushed back home to register and apply for a loan using my wife’s phone. I did not want to miss the opportunity,” says Njoroge.

The 30-year-old fruit seller in Nairobi’s central business district says he used the money to buy food for his three children.

“I did not sell enough that day so I applied for the loan and received KSh500 ($4.07) though I wanted more. It was purely for consumption purposes,” he adds.

Njoroge was one of the 1.14 million Kenyans who registered for the fund less than 24 hours after the launch.

According to Cooperatives Cabinet Secretary Simon Chelgui, a record KSh408m ($3.32m) was disbursed to the 1.14 million Kenyans who registered in record time.

Hustler campaigns

The setting up of the KSh50bn ($407m) a year fund was a key plunk in Ruto’s campaign agenda in this year’s presidential election.

  • Political analysts believe it is one of the promises that resonated well with the poor segment of the population who propelled the then deputy president to victory in the 9 August election.
  • Chelgui welcomed the positive response, describing the fund as a game-changer, adding that the scheme “is what Kenyans had been waiting for”.

However, despite the cabinet secretary’s praise, Njoroge’s colleague James Macharia was disappointed with the launch, arguing that hustlers had been shortchanged.

“I was looking forward to getting a loan of KSh10,000 ($81) to buy new stock but ended up receiving only KSh700 ($5.7) which is too little,” says Macharia, who sells second-hand clothes.

Silver bullet

During the campaigns, the Kenya Kwanza Alliance marketed the hustler fund as the silver bullet to solving joblessness and lack of credit, accusing telecom companies and banks of predatory lending, which it claimed was impoverishing millions of Kenyans.

Those targeted for criticism were telecom giant Safaricom, Kenya Commercial Bank (KCB) and Commercial Bank of Africa (now merged into NCBA) which operate the popular overdraft facility, Fuliza.

At the time the facility was charging as high as KSh30 per day for loans amounting to KSh2,500 and above with the three companies raking in millions of shillings in profit.

“Kenyans are becoming poorer by the day due to the high-interest rates charged on Fuliza loans. We will not allow it once we assume power,” Ruto said at a campaign rally in Nakuru in July.

The charges on Fuliza loans have since been reduced after the three companies bowed to pressure from the new administration to revise the rates.

Free money vs loans

The incoming administration has also warned that there will be no freebies, adding that loans from the hustler fund will have to be repaid.

The latest stand has put Kenya Kwanza on a collision course with the majority of President Ruto’s supporters who were hoping to get free money.

We were promised a grant during the campaigns but now we are being told that we have to repay the money borrowed yet most of us are very poor,” says Francis Hamisi who lost his job in 2020 during the Covid-19 pandemic.

  • According to the regulations, customers can borrow a minimum of KSh500 and a maximum of KSh50,000.
  • The borrowers are required to repay the loans within 14 days at an interest rate of 8% per year or 0.02% daily.

Numerous state-run funds

The reneging of promises aside, experts are worried about the increased number of state-managed funds whose impact on job creation has so far been negligible.

For example, besides the hustler fund, other state-run schemes targeting the same group of people are the Youth fund and the Women Enterprise fund launched by former President Mwai Kibaki and the Uwezo fund and Biashara fund launched by his successor Uhuru Kenyatta.

Kenyans are becoming poorer by the day due to the high-interest rates charged on Fuliza loans. We will not allow it once we assume power.

Biashara fund was expected to consolidate the Youth fund, Women Enterprise fund and Uwezo fund but the idea fell apart after the National Assembly’s Committee on Delegated Legislation opposed the plan.

Apart from their duplicative roles, these funds have also been dogged by corruption, inefficiency, political interference and high default rates.

Misuse of funds

In 2016, for example, a probe by Parliament’s Public Investments Committee revealed how youth fund officials working in cahoots with lawyers and businessmen swindled more than KSh180m ($1.45m) to buy luxury homes and vehicles, pay for expensive holidays and line up the pockets of well-connected individuals.

Last month, Public Service Cabinet Secretary Aisha Jumwa put Women Enterprise fund officials on notice after receiving numerous complaints about corrupt officials demanding bribes from applicants.

“There are complaints that funds disbursed do not benefit the targeted groups and most of the money disappears into people’s pockets. We will deal with those involved,” said Jumwa at a women’s function in Kwale county.

Additionally, the rate of default on loans in old funds is so high to the extent that the revolving aspect, where the chances of the next borrower getting a loan are dependent on the previous borrower repaying, has been extremely compromised.

‘Much ado about nothing’

Former Senator Billow Kerrow is one of the economists unconvinced about the hustler fund.

“Hustler fund is nothing more than a state-run Fuliza. It’s much ado about nothing,” says Kerrow, also a former chair of the Senate Finance and Budget Committee.

The former legislator says the KSh50bn ($407m) allocated to the fund is meagre compared to what Fuliza doles out to borrowers every month.

For example, disclosures by NCBA Group and KCB Group show that Kenyans borrowed KSh1.58bn ($12.86m) daily between January and December 2021.

Kerrow notes that if each person was to get a maximum of KSh50,000 ($407) only one million people would access the fund, terming it a drop in the ocean given the sheer number of jobless people in the country.

“Joblessness aside, the registered SMEs (small and medium enterprises) are over 700 million, which is massive, and yet politicians created so much expectation only to come up with a KSh50bn fund which is inadequate,” he says.

‘Let the private sector manage funds’

Instead, the former senator says the government should have let the telcos and the banks manage the fund on its behalf given the private sector’s efficiency record.

The National Assembly’s Deputy Minority Party leader Robert Mbui concurs, saying there are issues about the hustler fund that need to be relooked.

“We must ask ourselves whether the government is supposed to be doing business and competing with organisations that are supposed to pay taxes to enable the state to run its affairs,” says Mbui.

Kerrow maintains the money should have been a grant the way it is in the United States and Europe.

“The US for example has grants of up to $75,000 for small businesses while in Europe there is 100% guarantee on loans for small businesses mainly because of the Covid pandemic,” he adds.

‘Hustler fund is revolutionary’

However, Belgut Member of Parliament, Nelson Koech, dismisses the critics, saying they are yet to fully understand the hustler fund.

“Hustler fund is an economic revolution. The product that has been launched is for giving out loans of between KSh500 and KSh50,000. It is the first line of the product and so far, more than KSh4.5bn has already been disbursed and registered customers are now more than 11 million,” says Koech, adding that the second product line targeting SMEs will be launched early next year.

The chairman of Micro and Small Enterprises Authority, James Mureu, agrees with Koech, saying the fund will be a game-changer in job creation for millions of youths.

“This fund targets those at the bottom of the pyramid and its advantage over others is its simplicity. You only need a phone to register and access affordable credit,” says Mureu.

He adds that the low interest charged will enable small businesses to repay their loans without affecting their financial stability.

“The most important thing is that we must be disciplined enough to repay the loans to grow the fund and help more Kenyans.”

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