Skip to main content
Read page text
page 8
8 African Business October 2024 Business Intelligence News More than half of Kenya’s Hustler Fund borrowers are defaulting Critics claim the Kenyan authorities are reluctant to enforce repayments and argue there are no serious consequences for Hustler Fund defaulters, writes Harry Clynch. New data from Kenya’s State Department for Micro, Small, and Medium Enterprises (MSMEs) has shown that default rates for loans from the country’s “Hustler Fund”, a government initiative that allows citizens to access credit at cheaper rates than commercial banks, now surpass 50%, as questions continue to be raised over the viability of President William Ruto’s flagship economic programme. Government data has shown that more than half of Hustler Fund borrowers have defaulted on repayments totalling KSh11bn ($85m). In his manifesto prior to the last general election in 2022, Ruto pledged to launch the Fund in a bid to offer poorer Kenyans instant loans at affordable rates. The interest rate of Hustler Fund loans is 8% annually, calculated daily at a rate of 0.02%, in a country where some commercial entities charge more than 100% in annual rates. Some industry figures raised questions about the sustainability of the project at the time of its launch, given that central bank interest rates, currently at 12.75%, are higher than the Hustler Fund rate of 8%. Furthermore, some criticised the expense of the scheme – President Ruto launched the Hustler Fund with KSh50bn ($388m) – given that the Kenyan government is often at high risk of defaulting on its external debts and has pledged to tr y and bring spending down. The need to cut spending has become even more of a priority in recent months after the government was forced to backtrack on its plans to increase revenue via tax rises, after deadly protests broke out in Nairobi and other major cities across t h e c o u n t r y. ‘No serious consequences for defaulters’ A financial industry insider tells African Business that one reason for the high default rate is the fact that the Kenyan authorities have been reluctant to enforce repayments. “There are no serious consequences for defaulters – the Central Bank of Kenya previously excoriated fintech leaders for listing low-income borrowers on a Credit Reference Bureau, despite telcos also engaging in this practice – as the government is reluctant to take on the collection responsibility which goes with responsible lending.” President Ruto defended the Hustler Fund, saying “22 million Kenyans are beneficiaries, and today, 2 million Kenyans borrow daily.” “It is delivered on a technology platform, and it is the only government project that has no corruption,” he adds. But an industry figure tells African Business that the Hustler Fund is a politically motivated project that makes little economic sense. “The government was elected on a ticket of supporting the “hustler” informal economy… the public from the outset perceived the Hustler Fund as a ‘thank you’ from a new government for their successful election.” “Repayment behaviour is strongly influenced by the realistic cost to the borrower as long as the loan is outstanding, by the value conferred by the loan, and by the consequences of default,” they say. “The Hustler Fund’s price point is marketdistorting and would have seriously worried Kenya’s well-established and muchneeded credit industry, were it not for the near limitless demand for debt which needs to be ser viced r e s p o n s i b l y.”
page 9
October 2024 African Business 9 Business Intelligence News The Lobito Corridor, a major transit scheme including mineral-rich Angola, DRC and Zambia, could be extended to Tanzania, reports Luke Kilian. The US has unveiled plans to extend the Lobito Corridor, a major transport route snaking through mineral-rich Angola, DRC and Zambia, to the Indian Ocean shores of Tanzania. Speaking at the end of a week-long trip to the DRC and Tanzania, Helaina Matza, acting special coordinator for the Partnership for Global Infrastructure and Investment at the US State Department, detailed early discussions to include Tanzania in what she called the “Trans-Africa Corridor,” which will facilitate the export of copper, cobalt and other critical minerals. “Our mission on this trip is to continue expanding the Trans-Africa Corridor. That includes relaunching our partnership with the DRC and engaging with the Tanzanian government and private sector on next steps towards extending the economic corridor to the Indian Ocean,” Matza said. “We are working with the government and throughout the region and the private sector to really get a deeper understanding of what some of those local needs are and how to best extend the Trans-Africa Corridor, both physically by the backbone rail that we have helped invest in, but by thinking about important layered projects that help leverage what happens when you actually bring down the amount of time it takes to transit in a region.” Matza also provided an update on investments elsewhere in the Corridor, including the refurbishing of Angola’s Benguela rail line, US unveils plans to extend Lobito Corridor to Indian Ocean which has seen an initial investment by the US Development Finance Corporation of $250m. Another planned project is the building of 800 kilometres of greenfield rail in Angola, DRC and Zambia, which according to Matza is “the most ambitious commercially led infrastructure (project) on the continent that the US has supported.” According to the Harvard International Review, the corridor’s cost will be between $1bn and $2.3bn. Matza said the Africa Development Bank has committed $500m, while Italy has pledged $320m towards the project. Further fundraising for the project is currently under way, with commercial lenders being sourced. Competition with China The Corridor is seen as a key way for the US and its allies to increase their access to Africa’s critical minerals. The International Energy Agency has estimated that between 2020 and 2040, demand for nickel and cobalt will increase by 20 times, for graphite 25 times, and for lithium more than 40 times. Access to critical minerals is crucial to facilitating the transition away from fossil fuels and fundamental to new hardware and software developments in technology. In November 2023 the EU and US signed – together with Angola, DRC, Zambia, the African Development Bank and the Africa Finance Corporation – a memorandum of understanding (MoU) to define the roles and objectives of the Corridor’s expansion. A key aim is to link mines on the Copperbelt directly with the Atlantic Ocean, reducing the time and cost of export from the current trucking corridor to South African ports. Speaking of the projected time savings, Matza said: “when you bring trade routes down from 45 days to 36 hours, it opens up a whole new world for the market.” The US is currently highly reliant on China for critical minerals, making the nation vulnerable to China’s export curbs. US leaders have highlighted the importance of the US securing its own supply of critical minerals. However, according to Wala Chabala of the Africa Policy Research Institute, the challenge is steep. The US and their EU counterparts are way behind China, which signed MoUs with most African countries a decade ago, and has already locked in supplies of critical minerals.

Page Text

View plaintext

8 African Business October 2024

Business Intelligence News

More than half of Kenya’s Hustler Fund borrowers are defaulting

Critics claim the Kenyan authorities are reluctant to enforce repayments and argue there are no serious consequences for Hustler Fund defaulters, writes Harry Clynch.

New data from Kenya’s State Department for Micro, Small, and Medium Enterprises (MSMEs) has shown that default rates for loans from the country’s “Hustler Fund”, a government initiative that allows citizens to access credit at cheaper rates than commercial banks, now surpass 50%, as questions continue to be raised over the viability of President William Ruto’s flagship economic programme.

Government data has shown that more than half of Hustler Fund borrowers have defaulted on repayments totalling KSh11bn ($85m).

In his manifesto prior to the last general election in 2022, Ruto pledged to launch the Fund in a bid to offer poorer Kenyans instant loans at affordable rates. The interest rate of Hustler Fund loans is 8% annually, calculated daily at a rate of 0.02%, in a country where some commercial entities charge more than 100% in annual rates.

Some industry figures raised questions about the sustainability of the project at the time of its launch, given that central bank interest rates, currently at 12.75%, are higher than the Hustler Fund rate of 8%. Furthermore, some criticised the expense of the scheme – President Ruto launched the Hustler Fund with KSh50bn ($388m) – given that the Kenyan government is often at high risk of defaulting on its external debts and has pledged to tr y and bring spending down.

The need to cut spending has become even more of a priority in recent months after the government was forced to backtrack on its plans to increase revenue via tax rises, after deadly protests broke out in Nairobi and other major cities across t h e c o u n t r y.

‘No serious consequences for defaulters’ A financial industry insider tells African Business that one reason for the high default rate is the fact that the Kenyan authorities have been reluctant to enforce repayments.

“There are no serious consequences for defaulters – the Central Bank of Kenya previously excoriated fintech leaders for listing low-income borrowers on a Credit Reference Bureau, despite telcos also engaging in this practice – as the government is reluctant to take on the collection responsibility which goes with responsible lending.”

President Ruto defended the Hustler Fund, saying “22 million Kenyans are beneficiaries, and today, 2 million Kenyans borrow daily.”

“It is delivered on a technology platform, and it is the only government project that has no corruption,” he adds.

But an industry figure tells African Business that the Hustler Fund is a politically motivated project that makes little economic sense.

“The government was elected on a ticket of supporting the “hustler” informal economy… the public from the outset perceived the Hustler Fund as a ‘thank you’ from a new government for their successful election.”

“Repayment behaviour is strongly influenced by the realistic cost to the borrower as long as the loan is outstanding, by the value conferred by the loan, and by the consequences of default,” they say.

“The Hustler Fund’s price point is marketdistorting and would have seriously worried Kenya’s well-established and muchneeded credit industry, were it not for the near limitless demand for debt which needs to be ser viced r e s p o n s i b l y.”

read next page

My Bookmarks

Buy this Book
Skip to main content