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Keep costly pension out of Hustler Fund
President William Ruto and Prime Cabinet Secretary Musalia Mudavadi during the launch of the Hustler Fund at Green Park Terminus, Nairobi. FILE PHOTO | NMG
The government should rethink the commitment it has made to contribute to the pension for people borrowing from the Hustler Fund, a State-backed platform issuing short-term loans.
While a noble idea, the policy risks raising government expenditure by billions of shillings per annum and is at odds with the tight fiscal space that has seen the executive order a budget cut to the tune of Sh300 billion.
Under the terms of the fund, a borrower is receiving 95 per cent of the amount he or she applies for, while five per cent is split into short-term savings (at 30 per cent of the amount) and pension remittance (70 per cent).
A person borrowing Sh1,000, for example, will be deducted Sh35 as pension savings. The government will then match half this amount, contributing Sh17.5.
Given the cheap interest rates on the Hustler Fund, the platform is likely to witness high-frequency borrowing that automatically binds the government to chip in on the pension component.
With millions of users borrowing regularly on the platform, the State’s contribution could rise substantially despite efforts to address this risk by capping the State’s contribution at Sh6,000 yearly per borrower.
Just two million individuals hitting the Sh6,000 cap will see the government contribute Sh12 billion a year.
For a recurring commitment, the pension match is too generous for the individuals and too costly for taxpayers.
Taxpayers are already facing a heavy pension burden. The Hustler Fund should stick to providing cheap loans.
Pension savings should be addressed through existing schemes including NSSF.
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