Examining the Challenges and Opportunities of the Hustler Fund and Government Securities in Kenya

President William Ruto 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. We spoke to Edgar Andagalu, CEO, Viffa Consult, who joined us earlier a bit on that, as well as an overlook of Hustler Fund. The Hustler Fund, really, the drive behind it was to provide affordable credit to businesses. And this is really coming from the backdrop that we don't have a shortage of, you know, sources of financing to businesses. You know, things that we used to talk about, like, you know, accessible finance is no longer an issue for Kenya. The main issue has been whether the finance available, the credit available is a fit for small businesses. It's affordable to small businesses as well. And if it is easy for small businesses to be able just to walk around. And so that is the premise that the Hustler Fund came from. And that there was also, you know, initially when it was rolled out, it was really targeting all the consumers, you know, to kind of test the platforms just to see if they can begin to develop a credit scoring engine that can work for, you know, can be applied in the business space. And which was useful because, you know, most of the small businesses are informal, not registered. And so then being able to look at movement from a personal finance point of view made sense. But then there are those who then, you know, were expecting by now they would be able to access credit for business use, which has not happened. We are still operating with loan limits that are not, might not be very useful for a majority of businesses. So if, for instance, a small business started with the Hustler Fund, you know, right from the beginning, by now they're probably expecting to be able to access credit to the tune of, you know, 50,000 shillings or thereabouts for it to begin to make sense. But that has not been the case. So depending on who you talk to, a formal trader is able to work with you. But then a business that is of luxury in terms of where they would work, then the Hustler Fund may not really be the ideal product for them. There have been a conversation with government talking about plugging in the cooperative movement to be able then to scale up the loan sizes and, you know, really work and be able to commit more funds into the Hustler Fund in an environment that then small businesses can be able to benefit more. But then we've not seen that come into play as yet. So perhaps it's something that will come up, you know, along the way. There was also a conversation with one to take up 300 million for purposes of providing loans to players within its value chain. Again, there's been no report in terms of whether indeed that funds was made available to Twiga and whether indeed they've been able to use that fund in their value chain. So for businesses that really need to grow, there's still a bit of challenge in the Hustler Fund in terms of them being able to use it. But then I believe the government has got by now pretty useful data that then can be used by players within the financial ecosystem to be able to structure loans. Yeah, I mean, Edgar, just even looking at some of the statistics that have been shared, the defaults have hit about three billion Kenyan shillings in just about nine months. I mean, these figures really are to worry. What does this signify? Does it really mirror the larger economy of the current landscape, even looking globally? Well, not really. Remember, at a figure of three billion, M-PESA already processes in their trillions. So it is a very small figure compared to the level of transactions that a small business would be doing if indeed they were relying on the Hustler Fund to finance their transactions. So it is small. And that amount still, at the recent risk of sounding a bit political, it was just the Minister of Businesses was not very clear in terms of whether that three billion, was it all fresh funds or was it funds that have been revoked within the fund itself. So that aspect is not very clear. But then if you look at it in the grand scale of things that if what is being processed through platforms, digital platforms, it's still a small figure. Is there a need to rethink the risk of mitigation or how best could the team spearheading this really rethink it for it to have maximum impact on SMEs within the market? Yes. So one thing is that I don't believe government should be, first of all, running the financial platform as a government, because really their role is to provide an enabling environment. Once they get into the space of trying to run the Hustler Fund on their own, then there will be some of these challenges that are coming around and scaling it might be a challenge. I would look at it and say what they perhaps need to look at for it to have real impact is look at the existing organizations, be it within government like the Youth Enterprise Development Fund, Women Fund and so on, or enter into a PPP arrangement where they completely then can provide the fund itself for it the way the Asharawa Fund had been structured before, where you say you're going to then commit a certain amount of money to a certain kind of institutions to be able to run that. And then these institutions can again be free to mobilize deposits or funds from other sources in order to grow the fund itself. What then the government should have focused on is not really try to play an active role in the lending itself, but then would have used that opportunity to be able to collect useful data that then financial institutions can be able to use. And here the core thing was that, is it possible for our financial to put out, offer it at low interest to small businesses, but still then be able to run a profitable enterprise, which then would then encourage the financial service provider to then put in more funds into lending to the MSME sector. That is what I had expected the government to do with the Hassler Fund, just for that period, and then have a scheme that is run really by those whose core business is in lending. And that's the way we are going. Scaling will become difficult because then if government is going to run the fund directly, and again, the same government has got to consider other things in the economy, expand the infrastructure, a lot more that needs to be done apart from running a financial scheme, then scaling it will be a challenge going forward, in my view. Yeah, I mean, even before I let you go, we've seen the president has said there is need to democratize, if I may use that word, investments in government securities by lowering the entry level in treasury bills, as well as bond trading to accommodate a wider group of retail investors. This will definitely spur up the economy. Do you see that this is also a direction that needs to be taken? Yes, indeed. And there's been talk about also having the small businesses be able to get some preferential treatment, get a specialized desk within the stock exchange so that they themselves, apart from the retail market going for government bonds, but then themselves can also raise capital from the stock market. I think it is something that needs to be considered, of course, and looking at it, whether indeed there are mechanisms or systems that can be able to support that level of trade, because then the way it is right now, it's structured so that then there's what people would call the span of care. If you've got too many people that you need to watch over, then it becomes a bit difficult. But then if there are systems in place or a way of then making it easy to be able to give that care still to investors or players in the market, then yes, I would say it is a way to go.

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. Edgar Andagalu, CEO, Viffa Consult spoke with CNBC Africa for more. 

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. 

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

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

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