Fired State officers and public servants look set to continue enjoying cheap repayment of car loans in a controversial move aimed at spurring uptake of the State Officers and Public Officers Motor Car Loan Scheme Fund.
The Treasury has proposed that officers and civil servants dismissed on disciplinary grounds will not have their repayment terms revert to higher commercial rates. The average commercial bank lending rate stood at 14.88 percent as at November last year.
Additionally, the Treasury wants to lower the interest rate on the loans to four percent from the current five percent.
Since its inception in 2015, the State Officers and Public Officers Motor Car Loan Scheme Fund has grappled with dismal uptake, with slightly above Sh324 million disbursed. The fund is allocated hundreds of millions of shillings every financial year.
The controversial move comes amid growing disciplinary cases in the public service, with the number of civil servants fired rising to 858 in the year ended June 2024, a jump of 67.5 percent from 512 a year earlier.
“Following consultation between the National Treasury, the Salaries and Remuneration Commission and the Public Service Commission, it has also been found necessary to effect the following amendments to the regulations; Reduce the applicable interest rate from five percent to four percent,” Treasury CS John Mbadi says in the proposals.
“Delete clause stating that the interest rate will revert to commercial terms for officers leaving the service on disciplinary grounds.”
The government rolled out the State Officers and Public Officers Motor Car Loan Scheme Fund in 2015 in a bid to make public service more attractive amid increased competition from the private sector for top talent.
Under the scheme, beneficiaries enjoy interest rates of five percent and a loan repayment period of five years. The fund is open to all civil servants and State officers, excluding those earning less than Sh20,000 and those serving in the Judiciary and Parliament.
Treasury projects that adoption of the two proposals will help lift the number of beneficiaries from 106 in June 2024 to 1,125 by June 2028, and also push uptake from Sh324 million to Sh2.267 billion over the same period.
A survey conducted by Treasury across ministries, departments and agencies shows that the five-year repayment period and restrictions barring beneficiaries from deploying the vehicle for commercial use during the repayment period are derailing uptake of the loans.
The Auditor-General has on several occasions flagged the dismal uptake, warning that billions of shillings lying idle in the kitty should be channelled to pressing and priority items, concerns that Treasury has cited in its latest push.
“The low absorption of loans threatens the very existence of the Fund. It is a pointer to an issue concerning the sustainability of the Fund. There is a risk of the funds allocated to the Fund being recalled,” Mr Mbadi added.
→ jmutua@ke.nationmedia.com
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