Kenyans have repaid only 5.1 per cent of the loans they took from the Hustler Fund, threatening the sustainability of the kitty launched last week to give low-cost loans to individuals and businesses.
The National Treasury is betting on adequate repayment of the loans to supplement the resources that will be allocated to the Fund each year by Parliament.
The Ministry of Co-operatives and Micro, Small and Medium Enterprises said borrowers have repaid Sh190.62 million of the Sh3.69 billion disbursed so far.
Some 10.62 million Kenyans have opted into the fund, which has processed 6.46 million transactions. The fund is administered by KCB Bank and Family Bank.
Some Sh184.48 million has been saved on behalf of borrowers, while 185,028 individuals have already borrowed more than once.
The high borrowing rates signal a huge appetite for loans among Kenyans, who are heaving under a high cost of living that is forcing them to resort to short-term loans to meet their daily needs.
Customers are required to repay the loans within 14 days at an interest rate of 8 per cent per year or 0.02 per cent daily.
The low repayment rate, however, suggests that the government could struggle to recover the seed capital.
President William Ruto had warned that the loans are not free money and that the government will seriously pursue defaulters.
Some 95 per cent of a loan is deposited in a borrower’s money wallet while 5 per cent is deducted automatically to go to the borrower’s savings.
Of the money that goes to savings, 70 per cent will be put in long-term savings in a pension account, while 30 per cent will be short-term savings.
The two banks will withhold the savings that a borrower has in the fund until they repay their loans.
“To mitigate against the risk of total default by the borrowers, the bank shall retain the 30 per cent intended for short-term savings in a suspense account until full repayment of the loan,” said KCB in its terms and conditions.
Once a borrower repays the loan, he or she will access the short-term savings after one year.
To be eligible, a borrower must be at least 18 years old, have a national identity card, and a registered SIM card and mobile money account with Safaricom, Airtel or Telkom. The line must have been in use for at least 90 days.
It is barely a week after President Ruto launched the much-awaited fund, which was part of his key campaign promises.
Dr Ruto launched the personal finance product, which is among the four loan products to be provided by the Hustler Fund. The others – a micro loan, one for small and medium-sized enterprises (SMEs) and another for start-ups – will be launched at a later date.
“We will unshackle millions of Kenyans from the chains of debts that they are unable to pay,” said Dr Ruto.
The personal finance product offers individuals a minimum loan of Sh500 and a maximum of Sh50,000. For a start, individuals have been given different loan limits based on their creditworthiness.
Thus, borrowers who repay their loans on time will get their loan limits increased gradually up to a maximum of Sh50,000. Thereafter, the loan limit will be adjusted depending on how the borrower services his or her loans.
The performance of the fund will be a key barometer of how it will be sustained going forward, even as the President plans to roll out Hustler loans to regulated Saccos.
Dr Ruto said he will in April next year launch the product that will give loans of between Sh10 million and Sh100 million to Saccos.