“Knock, knock. Who’s there? It’s the new Cabinet Secretary for Cooperatives in town, coming to collect from 19 million defaulters.” This is the new reality for over 19 million Kenyans.
The Kenya Kwanza administration was elected on the strength of their hustler movement. The ‘hustler’ narrative was coined to speak to the many Kenyans who are engaged mostly in informal economic activities. These Kenyans, forming the majority of the population (85% according to the Kenya Kwanza manifesto) are perceived to be at the bottom of the economic pyramid, and are seen as having entrepreneurial potential, but remain poor and excluded. This is happening in an economic environment of mushrooming unemployment, marginalisation, high poverty rates and the high cost of living. Cognizant of that fact the Kenya Kwanza administration came up with the 50 billion Kenya shilling hustler fund under the ministry of Cooperative and MSMEs was coined.
The fund, launched on 30 November 2022, was designed to offer loans ranging from Kshs. 500 to Kshs. 50,000 to small-scale entrepreneurs to support their businesses. The fund is available digitally via a lending app, with an interest rate set at a maximum of 8% per year. While updating Kenyans on the status of this noble initiative, Hon. Chelugui, the pioneer cabinet secretary in charge of this initiative asserted that the fund had issued over Sh54 billion since rollout. Its repayment stands at over 42 billion shillings and 23 million Kenyans had opted in and had already subscribed to this program as at July 2024. The Hustler Fund comprises four products – personal, micro business, SME and start-up loans and for groups. According to CBK FinAccess report 2023, 68.6 per cent of borrowers use monies borrowed from the Hustler Fund for personal and household purposes, 18.1 per cent for business purposes only, and 13.3 per cent for both business and personal purposes.
The fund has encountered significant challenges, with the Cabinet Secretary for MSMEs and Cooperative Development Wycliffe Oparanya reporting that 19 million borrowers have defaulted. From the onset, it appeared to many Kenyan youth that the president was returning a favour after being elected, and that this was their money to keep. This attitude complicated the fund’s repayment effort. The political campaigns primed the public to believe that it’s a grant, as opposed to a loan requiring repayment. Given this fact, the fund was never used for entrepreneurship as was intended, but rather for household consumption which then makes loan repayment an extra unsustainable expense.
Most people operating in informal set up experience income volatility. This leaves them in a situation where they could likely prioritize immediate household needs over loan repayment, a behaviour known in economics as consumption smoothing. Additionally, behavioural economics suggests that many low-income borrowers exhibit a present bias, focusing on immediate needs rather than long-term financial obligations, which increase the likelihood of defaults.
The Hustler Fund, is evidence of one financial truth; access to credit alone cannot spur entrepreneurship or alleviate poverty. It’s a reminder that while access to credit is important, it is not a silver bullet. True financial empowerment requires a comprehensive approach—one that includes education, support, and a realistic understanding of the challenges at the grassroots level.
Before the inception of the Hustler Fund, Kenya had several other funds aimed at enhancing financial access and inclusion, such as the Uwezo Fund, Youth Enterprise Fund, and Women Enterprise Fund. Despite specific conditions designed to ensure their sustainability, these funds equally faced significant challenges with defaults. A 2019 report by the Cabinet Secretary for Public Service, Youth, and Gender Affairs revealed that the Youth Fund had a repayment rate of 54%. The 2024 Uwezo Fund strategic plan showed a 63.7% repayment rate. In contrast, data for the Women Enterprise Fund were less clear, but policy briefs highlighted high default rates as a major challenge. Of the funds highlighted however, the Kenya Youth Employment Opportunity Programme (KYEOP) run by NITA and Ministry of Labour was the most successful in its approach. It combined training, mentorship, funding and access to market opportunities. This comprehensive approach, made it successful across the country.
Looking beyond Kenya’s borders, valuable lessons can be drawn from Israel’s strategic approach to fostering innovation and entrepreneurship. Israel’s journey toward becoming a ‘Start-Up Nation’ began decades ago, with visionary leaders like Shimon Peres laying the foundation for a robust tech ecosystem. In the late 1970s, Israel and the United States established the BIRD Foundation, which provided substantial grants for R&D in joint ventures between Israeli and U.S. companies. This initiative not only helped Israeli firms penetrate the vast U.S. market but also generated over $8 billion in sales from BIRD’s $250 million investment. Building on this success, Israel launched the Yozma program in the 1990s, which invested $100 million in venture capital funds and offered favourable terms to spur private investment. This strategic focus on deep-tech and advanced sectors has led to Israel’s emergence as a global leader in technology and innovation, attracting billions in global investment annually, creating thousands of high-tech jobs, and driving sustained economic growth.
In 1976, Muhammad Yunus founded the Grameen Bank in Bangladesh, introducing microcredit to empower impoverished individuals, particularly women, by providing small, collateral-free loans. This model dramatically reduced poverty, improved access to education and healthcare, and promoted gender equality, earning Yunus the Nobel Peace Prize in 2006. In contrast, Kenya’s Hustler Fund, while similarly focused on financial inclusion, targets small-scale entrepreneurs with microloans. The Grameen Bank’s structured support and community-driven repayment model may offer valuable lessons for enhancing the effectiveness of the Hustler Fund.
Modelling of the fund has been an issue from the start. It has a savings component that no one can access and is administered by a system that lacks skilled guidance. At inception, the fund should have adopted a credit guarantee approach, offering guarantee to some key banks to lend to small scale entrepreneurs, who are considered high risk. With this model, the 50 billion shillings availed could have ensured that three times (150 billion shillings) is lent out by banks who have greater capacity in managing credit. This approach would ensure the money does not add to inflationary pressures, and is employed into productive use. As it is modelled currently, the new cabinet secretary might just add to the statistics of failed credit collectors.
by:
Odhiambo Ramogi & Eddy Arnold.