The State-backed financial inclusion initiative known as the Hustler Fund is facing a higher rate of loan defaults compared to commercial banks, SACCOs, and microfinance institutions. This mirrors the challenges faced by mobile lenders who offer unsecured loans to the informal sector.
Out of the outstanding loans worth Sh10.2 billion from the Hustler Fund, approximately 29 percent are considered to be at risk, indicating that borrowers have not adhered to the agreed repayment schedule. This translates to about Sh2.9 billion in non-performing loans. Launched in November 2022, the fund provides personal loans starting from Sh500.
In comparison, the non-performing loan ratio for the overall banking sector stood at 14.5 percent by June 2023. Although the sector doesn’t differentiate mobile loans separately, the Central Bank of Kenya revealed that non-performing mobile loans totalled Sh30 billion as of October 2022. This represented 0.8 percent of the total gross banking sector loan portfolio of Sh3.6 trillion at that time.
As reported by Business Daily, SACCO lenders maintained a lower non-performing loan ratio of 8.86 percent by December 2022. Their better performance was attributed to their lending model, which involves guarantors and collateral linked to members’ shares.
Microfinance banks, on the other hand, faced a higher default rate of 23 percent due to their increased exposure to lending to small enterprises and comparatively higher interest rates than traditional banks.
Moses Banda, the President’s financial inclusion advisor, noted that out of the Sh33 billion disbursed under the Hustler Fund, an outstanding loan book of Sh10.2 billion exists. He acknowledged that 29 percent of this amount is currently not being repaid as scheduled.
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Banda emphasized that non-performing loans are a common challenge in lending and mentioned that the fund’s loan quality has improved since the introduction of credit scoring for borrowers in February.
To improve recovery rates, the government has linked existing affirmative action funds to the Hustler Fund, meaning defaulters will not access another fund until their credit score is restored. Credit scoring is reviewed every four months to prudently manage risk.
Banda revealed that the non-performing loan rate of the Hustler Fund has decreased from over 30 percent and commended its performance compared to previous government funds. New products tied to the Hustler Fund platform have been developed to prevent borrowers from accessing additional loans until they repay existing ones.
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The Hustler Fund has disbursed loans worth Sh33.3 billion to 17.2 million borrowers, with 7.6 million being repeat borrowers. This translates to an average loan size of Sh1,936. The fund has gathered approximately Sh1.8 billion in savings, of which 30 percent is accessible after one year, while the remaining 70 percent is designated for borrowers’ pensions.
