It does not surprise that the Hustler Fund has taken off at a high speed. Kenya has been the epicentre of global micro-digital lending since 2007.
A 2019 study by the research entity, Financial Sector Deepening (FSD) reported 49 loan apps in Kenya. Indeed, this country has been the test laboratory of choice for all manner of digital lenders.
The Hustler Fund has joined a crowded field dominated by six large players- Fuliza, Mshwari, KCB Mpesa, Equity’s Eazzy, Co-op cash and Tala.
I do not wish to join the doomsayers who are predicting that the Hustler Fund is a non-starter.
The important thing is to characterise it correctly for what it is and to accurately define the space where its impact is likely to be felt most.
In terms of size, the Hustler Fund is a very small player when you compare it with some of the big micro digital lenders.
According to the information disclosed in annual reports of Safaricom, NCBA and KCB, Fuliza disburses Sh 502 billion in a year. The Hustler Fund is starting with a mere Sh 50 billion.
What difference has the arrival of Hustler Fund made? For the first time, we have a micro digital lender that is intermediating taxpayer money.
We are shifting resources from a regulated lending side to a poorly regulated lending sector.
For the first time, the state has a direct lever it can use to influence and monitor the pace and direction of the sector.
We have had very big issues with micro-digital lenders. The FSD study found that because of the small size of the loans, most of the money is deployed in consumption.
The study also found that the very low loan limits offered ended up saddling borrowers with multiple debts from multiple digital lenders.
Data protection has also been a major issue. Let’s hope that the Hustler Fund will not be like these modern-day Merchants of Venice.
Mark you, listing borrowers by digital lenders at CRBs was not permitted under the original legal framework that introduced credit reporting and scoring in 2011.
But micro digital lenders continued listing small borrowers at CRBs until they were stopped by the Central Bank of Kenya in April 2020.
Designed well, the Hustler Fund can be the tool for showing these modern-day Merchants of Venice how to lend to small borrowers sustainably, without engaging in predatory practices and without putting households on the debt treadmill.
This leads me to the most important point I wanted to raise about the Hustler Fund today.
Let’s allow it to play its role as a digital micro-lender and provider of subsidised small loans to small borrowers.
We should not treat and regard the fund as a substitute for the big ideas we have been experimenting with in terms of improving the enabling environment for the SME sector.
This is an experiment and a project that must be constantly revised as we continue monitoring and collecting data on borrower behaviour.
In terms of supporting the SME sector, President William Ruto should consider going back to the proposal that has been on the table for more than 10 years, namely, the establishment of a single consolidated SME agency that provides a wide range of services,
We must go back to the proposal to merge and collapse KIE, the Women Fund, the Youth Enterprises Development Fund and Uwezo Fund into the proposed Biashara Bank to run a national credit guarantee scheme.
As opposed to an entity such as the Sh50 billion Hustler Fund, a credit guarantee scheme will unlock more money for SMEs from the regulated lending side.
SMEs don’t just need credit alone. They need a transparent system of registering and establishing themselves, sheds and working benches, linkages to labour markets and linkages to technology.
Most crucially, SMEs need linkages to the value chains of large corporations. A vegetable farmer linked to Naivas, Quick Mart or Twiga Foods has better chances of success than a mama mboga selling cabbages on the roadside.
The proposed Biashara Bank must be made the priority of priorities for this sector.
I applaud the idea of introducing a saving component in the Hustler Fund project. But I am worried about savings that are not protected by deposit insurance.
The idea of bringing in pensions in the Hustler Fund framework also makes sense to me. Yet I still consider this idea as a poor version of an already existing product- the Mbao Pension Plan under the RBA.
We must build on predecessor programmes and stop when we realise that we are only re-inventing the wheel.
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