Hustler Fund to rival banks with Sh2.5m limit small business loans


SMEs Cabinet secretary Simon Chelugui. FILE PHOTO | NMG

The State will offer a Sh2.5 million limit loan for small businesses through the Hustler Fund as the Kenya Kwanza administration moves to fulfil its campaign promise to ease access to credit by small and medium enterprises (SMEs).

SMEs Cabinet secretary Simon Chelugui announced on Monday that the facility, which would rival banks with a lower eight per cent interest, will be launched next March following the successful launch of small loans last month.

The high-limit Hustler Fund will target youth and women-led businesses that struggle to raise capital to start and scale their businesses.

“The second product of microloans will be unveiled in February 2023 by His Excellency the president and will target groups, chamas and cooperatives,” said Mr Chelugui.

President William Ruto's administration hopes that the Hustler Fund, which has low interests and no processing fees, will be attractive to small businesses that struggle to secure funding from banks and other financial institutions.

The loans will range from Sh100,000 and will target over three million SMEs across the country in what promises to step up competition on the banking sector.

The President had in his campaigns promised a new economic order that would address unemployment and the lack of opportunities for low-income earners through affordable credit. He has pledged to pump in billions of shillings to support small traders such as mama mboga [grocery retailers] and the boda bodas [two-wheel taxi operators].

The establishment of a ‘hustler fund’, which he previously said would initially have Sh50 billion, is geared towards providing cheap and easy loans for low-income earners without collateral under his bottom-up economic model.

The government has not disclosed the conditions for the new large-limit credit, but the facilities are likely to be given through commercial banks for onward lending.

Banks shun SMEs citing the high default risk of SMEs, especially following the Covid-19 economic disruptions, for their reluctance to lend to small businesses.

A survey conducted by the Central Bank of Kenya (CBK) last year showed that banks turned away 28 per cent of small businesses. At the same time, microfinance institutions declined 96 per cent of their loan applications.

Despite banking industry data showing over the years that the rate of default among small businesses was lower than that for corporates, lenders continue to assign a higher risk profile to the MSMEs, which usually prices them out of the credit market.

Findings of a 2016 survey by the Kenya National Bureau of Statistics (KNBS), for instance, suggested that about 71 per cent of the 7.4 million MSMEs in 2015 got fewer loans than they had applied for from the banks, with about 86 per cent forced to rely on family and friends for funding.

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