The Kenyan government, under President William Ruto’s administration, has announced transformative changes to the Hustler Fund, a flagship program aimed at empowering low-income earners and small-scale entrepreneurs. The adjustments are intended to expand credit accessibility for borrowers who demonstrate timely repayment behavior and to integrate more Kenyans into the formal financial sector.

Creation of a Behavioral Credit Rating System

One of the key initiatives unveiled is the Hustler Fund Behavioral Credit Rating System, which assigns credit scores to borrowers based on their repayment habits. These scores, ranging from A1 (very good) to C3 (very poor) across nine bands, will serve as collateral for borrowers seeking higher credit limits.

“We are assigning a credit score to every borrower so that this becomes their new collateral,” said President Ruto.

Borrowers with high credit ratings can double or even triple their loan limits. For instance, a borrower currently eligible for KSh 50,000 can see their limit increase to KSh 150,000, while those at KSh 5,000 can progress to KSh 15,000.

Bridge Loan Product

The newly launched Bridge Loan product aims to transition borrowers from reliance on the Hustler Fund to the formal banking sector. By encouraging beneficiaries to establish relationships with financial institutions, the government seeks to introduce them to mainstream banking while leveraging their Hustler Fund credit history to determine their creditworthiness.

Extended Loan Terms

Responding to borrower feedback, the repayment period for Hustler Fund loans has been extended from 14 days to 30 days, offering borrowers greater flexibility. Despite this change, the interest rate remains fixed at 8% annually, a competitive rate designed to encourage borrowing.

Performance of the Hustler Fund

Since its inception, the Hustler Fund has disbursed over KSh 60 billion to 24.7 million Kenyans. Borrowers have collectively saved KSh 3.4 billion through mandatory savings tied to their loans, with 70% allocated to long-term savings and 30% to short-term savings.

These savings are managed by the Kenya National Entrepreneurs Savings Trust (KNEST), a government pension scheme for informal sector workers. President Ruto emphasized the benefits of saving through KNEST, highlighting its competitive interest rates.

“Instead of putting your money in the bank where it earns 4, 5, or 6 percent interest, KNEST will give you the Treasury Bill’s rate, which currently stands at 11 percent,” he noted.

Encouraging Transparency and Financial Independence

President Ruto stressed that the Hustler Fund’s credit rating system eliminates the need for traditional guarantors or political influence to secure loans. Borrowers only need their mobile phones to access and manage their loans.

“You don’t have to know the chief, the Principal Secretary, or the President to get a good credit rating – all you need is your phone,” Ruto said.

Integration with Financial Institutions

Banks and financial institutions have been encouraged to incorporate Hustler Fund credit ratings into their assessment processes. This integration aims to broaden access to capital for borrowers, especially those transitioning from the informal to the formal financial sector.

Empowering Small Entrepreneurs

The Hustler Fund is a cornerstone of Kenya’s strategy to uplift small-scale entrepreneurs, known locally as “hustlers.” By providing accessible and affordable credit, the program seeks to reduce economic disparities and foster grassroots development.

Challenges and Future Outlook

While the Hustler Fund has been widely praised, some critics argue that its success depends on ensuring robust systems to prevent defaults and misuse. The government’s emphasis on behavioral credit scoring and mandatory savings is seen as a proactive approach to address these concerns.

As the program evolves, its focus on digital accessibility, financial literacy, and integration with banking systems will likely set a benchmark for similar initiatives in the region.

Conclusion

The enhancements to the Hustler Fund underscore Kenya’s commitment to fostering financial inclusion and empowering its citizens. By rewarding responsible borrowing and introducing innovative products like the Bridge Loan, the government is building a foundation for sustainable economic growth. The program’s success will depend on its ability to maintain transparency, adapt to borrower needs, and integrate seamlessly with the broader financial ecosystem.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

11th December, 2024