Is there need to rethink risk mitigation in Hustler Fund loans?

President William Ruto has directed the Central Bank of Kenya to lower the entry-level in Treasury bills and bonds trading to accommodate a wider pool of retail investors. This move aims to democratize investments in government securities and stimulate the economy. In a recent interview with CNBC Africa, Edgar Andagalu, CEO of Viffa Consult, provided insights on the challenges and opportunities facing the Hustler Fund and the government securities market in Kenya. The Hustler Fund, initiated to provide affordable credit to businesses, has encountered obstacles in meeting the funding needs of small businesses effectively. While the fund was designed to be accessible, the loan limits have proven insufficient for many small enterprises, thus hindering their growth. Despite discussions to increase loan sizes through cooperative partnerships, concrete actions have not materialized, leaving small businesses struggling to leverage the fund for expansion. Moreover, the lack of transparency regarding the allocation and utilization of funds raises concerns about the fund's effectiveness in supporting business growth. With defaults amounting to three billion Kenyan shillings in nine months, there is a pressing need to reevaluate risk mitigation strategies within the Hustler Fund. Andagalu emphasized the importance of transitioning the fund's management from the government to existing financial organizations or public-private partnerships to enhance scalability and effectiveness. By leveraging data collection and analysis, financial institutions could tailor loan products to better serve the MSME sector. Additionally, Andagalu suggested that the government should focus on creating an enabling environment for financial service providers rather than directly managing lending activities. In line with efforts to democratize investments, lowering the entry-level in government securities trading could open doors for retail investors, including small businesses, to participate in the market. Specialized desks within the stock exchange could facilitate small business capital-raising initiatives, further advancing financial inclusion and economic growth. While challenges persist in aligning the Hustler Fund with the needs of small businesses, strategic partnerships and policy adjustments could pave the way for a more robust and inclusive financial ecosystem in Kenya.