Safaricom overcharged Hustler Fund borrowers to the tune of Sh368 million in the seven months to June 2023, contravening the law governing the Fund.
The Auditor-General in a report on operations of the Fund between November 2022 when it was established and June 2023, notes that despite there being legally set interest rates for Hustler Fund loans, Safaricom overcharged borrowers for penalties and rollover fees.
“...it was noted that Safaricom charged rollover fees at the rate 0.195 to 0.392 percent and a penalty fee at the rate of 0.13 to 4.95 percent to beneficiaries amounting to Sh368,760,229 contrary to the provisions of the law and regulations,” Auditor-General Nancy Gathungu notes.
The Financial Inclusion Fund (Hustler Fund) Regulations, 2022, caps interest or administrative fees borrowers can be charged at a maximum of eight percent and 9.5 percent if the borrower defaults.
“The interest or administrative fee payable by a beneficiary on a financial service or product advanced under these regulations shall be at a maximum rate of eight percent per annum on reducing balance: Provided that where a beneficiary defaults, the interest or administrative fee payable shall be nine and one half percent on a reducing balance,” the regulations state.
Contravention of the law attracts a Sh10 million fine or five-year jail term, or both.
“An applicant or an agent of the Fund who fails to give proper information or gives inaccurate or misleading information or falsifies information or misrepresents information required under these regulations to obtain a financial benefit, either for himself or herself or for another person, commits an offence and shall be liable to the penalty provided for under Section 199 of the Act,” the Financial Inclusion Fund Regulations, 2022, state.
Safaricom’s action has exposed weaknesses in the Fund management’s capacity to oversee compliance with the law when lending to Kenyans, while also exposing the company to scrutiny in its practices, and in its role of on-lending to millions of hustlers.
The audit also queries failure by the Fund management to provide proof of spending more than Sh450 million on the purchase of goods and payment of debts, lending millions of shillings to customers who had not opted into the Fund, holding customers lacking identity cards and extending additional loans before repayment of initial ones.
The government set up the Hustler Fund in November 2022 and injected Sh12 billion in seed capital, for lending to the unserved and underserved Kenyans.
But the Auditor-General notes that during the first seven months of the Fund’s operations, its management was already flouting lending principles and could have sunk more than Sh8 billion in loans that had been defaulted upon.
The audit also reveals that some 2,701 loans amounting to Sh2 million could not be traced despite being issued as they were not in the repayment or outstanding loan records.
