The term hustler became more famous in Kenya during the build-up to the concluded 2022 general elections. The current president Dr. William Samoei Ruto used it to refer to the masses of economically underprivileged Kenyans who are at the bottom of the income pyramid. This hustler narrative resonated with millions of Kenyans who grapple with issues such as poverty, unemployment, poor housing, diseases, and illiteracy. According to data from Statistica, 17% of people live below the poverty line in Kenya( below 1.90 dollars a day). Translating to around 8.9 million Kenyans who face extreme poverty. The majority of the people are young people who struggle to get jobs even after successfully completing formal education in Kenya.
Hustler – Dynasty narrative
Since 2017, President William Ruto embarked on a strategy that would eventually help him win the 2022 August general elections. He came up with this narrative of hustler and dynasty which attracted both love and criticism in equal measure. According to him and his supporters, dynasties are families that have been ruling Kenya for the longest time and those that have been on the political scene in Kenya since independence. This strategy was smart since his primary opponent Raila Odinga is the son of Kenya’s first Vice president Jaramogi Oginga Odinga. Raila Odinga also received support from former president Uhuru Kenyatta who is the son of Kenya’s first president Mzee Jomo Kenyatta.
President William Ruto and his team accused the “dynasties” of plundering Kenya into poverty. They also accused “the dynasties” of using their power to capture the country denying the common citizens of economic opportunities and upward socioeconomic mobility. Together with his UDA party and other allies, they presented themselves as hustlers who had to work their way up the ladder. In fact, President William Ruto claims that he used to be a small-scale chicken farmer.
Kenya’s Macroeconomic Situation
For a while now, Kenyans have been facing tough economic times. This can be attributed to the overlapping crises in the country and the world for the last few years. For instance, the effects of the Covid 19 pandemic are still being felt in the country. The illegal invasion of Ukraine by Russia exacerbates the issues since Kenya is heavily dependent on oil from outside the country. In addition, poor macroeconomic decisions by policymakers have plunged the country into more economic distress. More notable is the country’s massive public debt which currently stands at more than Ksh 9 trillion which is the debt ceiling. Most of the debt was incurred in the last ten years to fund capital-intensive infrastructure projects in Kenya.
Even though Kenya’s gross domestic product ( GDP) is growing year on year, the ordinary low citizen is still struggling to afford basic needs. This can be attributed to the high inflation level in Kenya and the world at large. The cost of living has become unbearable, especially for households that live hand to mouth with little or no savings and investments. Such households make up a huge chunk of Kenya’s population.
Access to credit at the moment in Kenya
Today, access to credit in Kenya has significantly improved. More Kenyans have been included in the financial system. This is attributed to the innovations around mobile money payments and the increased number of mobile loan applications. Financial innovations like Fuliza mpesa have continued to provide Kenyans with overdraft facilities and short-term overnight borrowing avenues. In addition, the number of microfinance lending institutions has increased over the years. These institutions continue to provide credit to poor and low-income households and businesses who would otherwise not access funds from traditional banks.
However, most of the credit facilities available for ordinary Kenyans are expensive. For instance, before the new administration came to power, fuliza mpesa used to charge a 1% access fee and 1.083 interest rate daily which was around 392.5% annually. However, mpesa slashed the interest rate on fuliza by 40% after President Ruto assumed office. Microfinance institutions, banks, and other lenders require collateral to lend to young entrepreneurs who operate small and medium-sized enterprises. Making credit inaccessible for young people who are just starting out in their entrepreneurship journey.
For young entrepreneurs who need capital to start businesses, there are a lot of barriers. They can either access capital from the Capital Markets or the commercial banks. In Kenya, banks provide more capital than the capital markets since they heavily dominate the market. Even after the Nairobi Securities Exchange ( NSE) created a new segment for small and medium-sized enterprises called the Growth Enterprise Market Segment ( GEMS), SMEs are still struggling to access affordable capital.
Ruto’s Hustler Fund
One of the biggest campaign promises of President William Ruto was empowering the Micro small and medium-sized enterprises (MSMEs). This was to be done through a fund that was supposed to offer credit to this very important segment of the market. According to the Kenya Institute for Public Policy and Research Analysis( KIPPRA), MSMEs employ 90% of Kenya’s labor force. This clearly shows the importance of this segment when it comes to economic inclusion, growth, and development. KIPPRA research also shows that MSMEs get 80% of funding from their pockets or family. Credit from banks only makes up 5.6% of funding.
Also referred to as the financial inclusion fund, the 50 billion hustler fund was launched on the 30th of November 2022 and is expected to reduce the cost of borrowing. The fund charges a single-digit interest rate ( 8% per annum) which is around 0.02% per day. The government is targeting to channel these funds through formally organized groups and individual persons. Individual financing starts from as low as 4.2 dollars ( 500 Ksh) to around 417 dollars ( 50k Ksh). This will increase to around 2,050 dollars for group financing later on. To add, Equity bank is considering adding $2 billion to the hustler fund. When one pays the hustler fund loan two times, they will graduate to Equity lending and have a loan limit of 1,230 dollars.
The hustler fund is considered to be a game changer due to its low-interest rates and also no collateral requirement. The amount of money an individual qualifies for depends on their credit rating. The credit rating of an individual improves as they pay back the loan in time ( 14 days). For instance, an individual who borrows 500 Ksh will receive 95% in their personal accounts while 5% is credited to their hustler savings account which is linked to the National Social Security Fund ( NSSF). Increased savings mean more money available to fund development projects in Kenya. After 14 days, they will be required to pay back around 501 Ksh. However, when an individual fails to pay within the required time, the loan attracts a 9.5% interest per annum. Defaulters also face the risk of losing their credit rating and being removed from the scheme when they persistently default for 30 days. According to the deputy president, Rigathi Gachagua, women will make up 70% of the beneficiaries since they will repay their loans.
More efforts to increase affordable credit
International financial institutions such as the World Bank have also put in the effort to increase access to affordable credit in Kenya. For instance, in 2019, the World Bank Group through the International Bank for Reconstruction and Development ( IBRD) invested in an affordable housing project in Kenya. The bank extended around $250 million towards increasing the number of households with homes in Kenya. Most mortgages in Kenya are financed by commercial banks that charge interest rates that are out of reach of ordinary citizens. Better housing has been linked to better life outcomes. The project was done in partnership with the Kenya Mortgage Refinance Corporation ( KMRC) which is under the Central Bank of Kenya.
There are still doubts about where the hustler fund will achieve its intended purpose. Some people consider it to be a state-run fuliza since its designed to be a short-term lending facility. Once an individual gets access to the funds, how will they overcome other challenges like access to markets? How will they learn to scale their businesses? Will the percentage of nonperforming loans increase? Is the amount being offered enough to empower Kenyans? All these are credible questions that still remained. Perhaps time will tell. However, this initiative is a step in the right direction. The government should also work on allowing the private sector to provide capital to businesses by pursuing favorable policies and getting rid of unnecessary regulatory barriers.
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