Gathungu expresses doubt over recovery of Sh8.7 billion given out in Hustler Fund loans
It was found that the department has no internal information management system to handle loan records, disbursements, repayments, withdrawals of savings, or outstanding balances.
Kenyans who borrowed billions of shillings from the Hustler Fund and have yet to repay may not be held accountable for the unpaid amounts, Auditor-General Nancy Gathungu has warned.
Gathungu expressed doubt over the government’s ability to recover Sh8.7 billion that has remained unpaid for over a year.
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“Records indicated that 64 per cent of the fund’s total loans were outstanding for more than a year, hence casting doubt if the fund will recover the loans issued to borrowers,” she said.
As of June 30, 2024, a total of Sh13.5 billion was outstanding, consisting of Sh12.3 billion in principal and Sh1.2 billion in interest.
“In the circumstances, the recoverability of the non-performing loans of Sh8.7 billion couldn’t be confirmed,” Gathungu stated.
No real-time information
The audit further revealed that the fund lacks a system to provide real-time information on loan management.
It was found that the department has no internal information management system to handle loan records, disbursements, repayments, withdrawals of savings, or outstanding balances.
“The fund doesn’t have control of the loans management including disbursements, repayments, withdrawal of savings, and maintenance of records of the outstanding loans,” the audit report states.
Instead, Gathungu noted, the fund relies entirely on external service providers for data and systems.
“This exposes the fund to operational, financial, and data integrity issues. In the circumstances, the accuracy of the loan management couldn’t be confirmed.”
Despite its mandate to oversee lending and savings activities, the fund has not invested in a proper loan management system.
“The challenges would have been avoided if the fund had its own loan management systems,” Gathungu said.
No credit policy
The audit also found that the fund lacks a credit policy and a collection strategy for non-performing loans. A credit policy helps protect the fund from late payments and ensures a stable working capital.
“It was not possible to determine management’s ability to provide real-time information on loan management status,” Gathungu said.
President William Ruto introduced the Hustler Fund, officially known as the Financial Inclusion Fund, to support small traders.
The Kenya Kwanza administration allocated Sh12 billion as seed capital for the initiative. However, two years later, a large portion of the loans remains unpaid, with the government struggling to recover the outstanding amounts.
Official data shows only Sh3 billion has been saved in the fund.
Efforts to enforce repayment, including threats of sanctions such as denial of government services, have failed.
Tough questions
Susan Mang’eni, the Principal Secretary of the Micro, Small and Medium Enterprises Development recently faced tough questions over the government’s plan to recover the funds.
She stated that the government had introduced measures, including downgrading loans and implementing a credit-rating system to track defaulters.
“All the 23.5 million Hustler Fund beneficiaries have been subjected to a credit rating system as a way of enhancing financial discipline,” Mang’eni said.
While appearing before the National Assembly’s Trade Committee, Cooperatives Cabinet Secretary Wycliffe Oparanya and PS Mang’eni said the department was working on an internal system to manage loans better.
The audit also revealed that the fund has no internal audit unit or audit committee, leaving it without an audit function.
“In the circumstances, the effectiveness of internal controls and risk management could not be confirmed,” Gathungu said.
According to the Public Finance Management Act, 2012, the national government must ensure appropriate arrangements for internal audits. The audit also highlighted discrepancies in records management, rendering them unreliable.
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