Headache for Ruto as Hustler Fund Default Shoots to Ksh3 Billion

Hustler Fund defaulters have increased over the past nine months since President William Ruto launched the program, on November 29, 2022, summing up a total of Ksh3 billion.

Borrowers of the fund are defaulting at higher rates as compared to those at commercial banks, saccos and microfinance banks.

Moreover, 29 percent of Hustler Fund’s outstanding Ksh10.2 billion worth of loans, is considered to be portfolio-at-risk.

This implies that it has not been serviced by the borrowers as per the agreed schedule, meaning borrowed amounts worth about Ksh2.9 billion in Hustler Fund loans fall in the category of non-performing loans.

The state-backed fund that was rolled out at the end of November 2022 issues loans as low as Ksh500.

Also Read: President Ruto Unveils Second Product of Hustler Fund.

Non-Performing Loans Ratio

Moreover, by the end of June this year, the overall ratio of non-performing loans to loan book (NPL ratio) in the banking sector stood at 14.5 percent, even though the lenders do not segregate their loan book to show the share of mobile loans.

However, the Central Bank of Kenya (CBK), last year disclosed that when rolling out its credit repair framework, banks held Ksh30 billion in non-performing mobile loans as at the end of October 2022, equivalent to 0.8 percent of the gross banking sector loan portfolio that stood at Sh3.6 trillion at the time.

The NPL ration for Sacco lenders stood at 8.86% at the end of December 2022. As such, the Sacco Societies Regulatory Authority’s (Sasra) latest date attributes the low default rate to their model of lending which has guarantors and collateral tied to members’ shares.

Likewise, by December 2022, Microfinance banks had recorded a default rate of 23% on their loan books, owing to high exposure lending to small enterprises and higher interest rate charges compared to banks.

“Out of the Sh33 billion that has been lent out [under the Hustler Fund], the outstanding loan book is about Sh10.2 billion; remember these are short-term loans so they get repaid pretty fast. Out of the outstanding amount, 29 percent is not performing on time,” the President’s adviser on matters of financial inclusion, Moses Banda, stated as reported by Business Daily.

“So, about Ksh7.9 billion of the outstanding amount is performing on time. Just like any other lending, there will always be challenges of non-performing loans,” he added.

According to Banda, the quality of the Hustler Fund loan book has witnessed a general improvement since the introduction of credit scoring for all borrowers at the end of February.

Penalty to Hustler Fund Defaulters

The government has set up measures to boost payment of hustler fund loans and recoveries.

In June 25, President William Ruto outlined his government’s strategy to deal with Hustler Fund Loan defaulters.

Also Read: 800,000 Kenyans Default in Hustler Fund Loan Repayment

As such loan defaulters are barred from accessing another until they repair their credit scoring.

Therefore, they will not be able to access other state services until after they have cleared their loan arrears.

Likewise, the Head of State noted that defaulters will not be allowed to apply for group funding as they cannot make a second transaction if they have a pending payment on the platform.

“We have increased money for borrowing and we have said that there is an option to borrow as groups and we will give you between Ksh.20,000 to Sh.1 million you plan yourselves. There is just a small problem before we have given you that Ksh20,000 you will first need to pay the Sh.500 which you borrowed the first time,” he said then during his visit to the Coastal region.

Ruto expressed confidence that this approach will control defaulters of personal loans as they will not be able to escape.

“You cannot escape that. Even when you plan I am not sleeping, I am also planning on my end. Even if it were you, if a person has made away with Ksh.500 will you give them Ksh.20,000?” the president posed.

According to the state, credit scoring under the Hustler Fund will be reviewed once every four months to ensure that risk is managed prudently.

“It used to be over 30 percent and now it is coming down. It is doing pretty well compared to many other funds that the government has run in the past. We have developed new products which are tied to the Hustler Fund platform, which then means that if you don’t repay on time you cannot access another and this is helping a lot,” Mr Banda said.

Hustler Fund Disbursement

Nonetheless, the Hustler Fund is reported to have so far disbursed Sh33.3 billion worth of loans to 17.2 million borrowers.

Out of these numbers, 7.6 million are repeat borrowers, translating to an average loan size of Sh1,936.

Furthermore, Hustler Fund has mobilized about Ksh1.8 billion in savings, 30 percent of which are accessible after one year while the remaining 70 percent is ring-fenced towards borrowers’ pensions.