Recently published Hustler Fund regulations thrust the fund deep into classic government bureaucracy.
First of all, it will have an advisory board headed by a non-executive chairman who is a Presidential appointee.
Other board members will consist of Principal Secretaries drawn from the Treasury and State Departments responsible for Trade and MSMEs, as well as the Attorney General.
There shall only be two non-public officers as members of the board, who will be appointed by the Cabinet Secretary responsible for matters relating to micro, small and medium enterprises.
The fund shall also have a secretariat headed by the administrator of the fund, or a chief executive officer.
The regulations state that the staff of the secretariat, including the CEO, shall be competitively appointed by the Cabinet Secretary responsible for matters of micro, small and medium enterprises, upon recommendation by the board.
Essentially, the top echelons of the fund are political appointees (which, as usual, provides a breeding ground for a cult of personal benefits).
Beyond the bureaucracy, the regulations state that the fund shall consist of, inter alia, budgetary allocations by the National Assembly up to a maximum of Sh50 billion.
It’s really not clear whether the seed funding will be in the form of a single allocation or a series of running allocations over a period of time (given the current weak state of public finances).
Nonetheless, in running the fund, the secretariat will need people as well as establish systems and processes for executing its objectives.
Specifically, two processes will be key. The first is establishing eligibility criteria and I would imagine there will be a credit committee to review and approve/decline applications based on pre-set guidelines (not every hustler will be eligible).
The second one is credit monitoring and remedial, which will be a crucial process in ensuring that borrowers meet their repayment objectives as agreed in the contract.
Which introduces the first dilemma for the Fund: what is the recourse in the event of a default?
Since the fund has largely been touted as an unsecured facility, how the administrator recovers funds becomes the big question.
Another crucial aspect will be funding of defaults (and there will be defaults).
Since this is a non-depository fund, meaning it will not be able to create money out of thin air (as is the case in fractional reserve banking) and will only lend what it has, funding gaps occasioned by either defaults or increased demand will need to be filled, either externally or internally.
Just like in Chamas, where member contributions, as well as profits, are used to fund the lending pool. This then means the creation of a whole fundraising team.
In discharging its mandate, automation will also be key for the fund. With disbursements capped at Sh50,000, essentially making it a micro fund, it should expect to deal with voluminous applications.
This then means the fund has to establish an automated credit factory that can handle thousands of applications in an instance.
Credit decisions may also need to be automated. I don’t think the secretariat will be well-equipped to manually review thousands of applications and deliver credit decisions in the quickest turnaround time (since immediacy is a key proposition for the fund).
Rather, it will take time to build such a capacity (and I don’t think the promoters of the fund have the patience to wait either).
Probably to circumvent the wait, the administrator can consider teaming up with micro-lending platforms that have already built systems to automate the credit process (and there are a number of them); or the promoters of the fund can consider scaling it up to a hustler bank.
The writer is an investment analyst.