Two million Hustler Fund borrowers to access commercial bank loans
Susan Mang'eni, the PS for the State Department of MSMEs confirmed that these two million borrowers have achieved higher credit scores by repaying their Hustler Fund loans on time.
At least two million borrowers from the Hustler Fund are set to transition to commercial banks, marking a key milestone in the government's efforts to integrate informal sector workers, known as 'hustlers,' into the formal financial system.
This initiative is part of the broader goal of the Bottom-Up Economic Transformation Agenda (Beta), aimed at uplifting millions of Kenyans and expanding financial inclusion across the country.
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Susan Mang'eni, the Principal Secretary for the State Department of Micro, Small and Medium Enterprises (MSMEs), confirmed that these two million borrowers have achieved higher credit scores by repaying their Hustler Fund loans on time.
She stated that the visibility offered by the Fund has played a critical role in improving the creditworthiness of the beneficiaries.
"The borrowers we are targeting have demonstrated good repayment habits, and this is due to the visibility accorded by the Hustler Fund. I see this happening in the next six months," Mang'eni said.
The initiative will allow these borrowers to access loans from commercial banks without the need for physical collateral, such as title deeds or logbooks, which have traditionally been barriers for many in the informal sector.
Already, the government has begun issuing bridge loans to these high-credit-score borrowers, helping them move from smaller personal loans to more substantial, business-oriented loans.
By the end of December last year, over 22 million Kenyans had benefited from the Hustler Fund, with a total of Sh62 billion in loans disbursed.
Transitioning to commercial credit
The Hustler Fund, launched in December 2022, has been a critical component of President William Ruto's agenda to lift Kenyans out of poverty.
The Fund offers loans ranging from Sh500 to Sh50,000 directly through mobile phones and also includes a savings component.
The initiative is designed to help individuals in the informal sector, where access to traditional banking services has been limited.
However, the programme has faced challenges, including concerns about loan repayment.
Despite initial reports of widespread defaults, with up to 19 million borrowers reportedly missing, PS Mang'eni reassured that the repayment rate is strong, standing at 80 per cent.
"We are not seeing the level of defaults that were initially feared. The repayment rate is at 80 per cent, which is encouraging," she said.
The government has also addressed concerns about the Fund's financial constraints. Despite a dip in the disbursement rate from Sh12 billion in the previous financial year to Sh800 million in the last one, Mang'eni confirmed that Sh2 billion has now been released from the exchequer.
Financial inclusion
The ultimate goal of the Hustler Fund is to increase financial inclusion by moving individuals from the informal financial system into the formal banking sector.
As PS Mang'eni explained, the move to banks is a key step in ensuring long-term financial empowerment for the millions who have been excluded from traditional banking.
"The main objective of the Hustler Fund is to transition individuals who have no known security into the formal financial system," she said.
One of the key advantages of the Hustler Fund over traditional bank loans is its relatively low interest rate.
While commercial banks typically charge higher interest rates, often in the double digits, the Hustler Fund charges an annual interest rate of just 8.0 per cent.
Additionally, the loans are repaid within 14 days, with the option to extend up to 30 days.
A unique feature of the Hustler Fund is its built-in savings and pension components. Borrowers are required to contribute to both short-term savings (30 per cent of the loan amount) and pension remittance (70 per cent), with the government matching every shilling for every two shillings contributed, up to a maximum of Sh3,000 annually.
While the government has refrained from blacklisting defaulters, it has implemented a new credit scoring system that helps identify responsible borrowers for the transition to commercial bank loans.
This system will allow individuals who have demonstrated creditworthiness to access larger loans for business growth.
"We will continue to engage with commercial banks to ensure that these borrowers can seamlessly graduate into accessing larger loans," Mang'eni added.
The Hustler Fund, which was conceived to support the most vulnerable in society, has shown signs of success in helping Kenyans at the bottom of the pyramid gain access to credit.
By easing the pathway from micro-loans to commercial financing, the initiative promises to unlock new opportunities for millions of Kenyans, helping them grow their businesses, improve their livelihoods, and ultimately, secure a brighter future.
