One in Every Three Hustler Fund Borrowers in Default

Nearly nine months since the launch of the Hustler Fund in November 2022, it has been revealed that the default rate is currently at 29%.

This means that nearly one in every three borrowers of the currently outstanding Ksh10.2 billion loans is not servicing their loans.

Effectively, loan amounts totalling about Ksh2.9 billion from the financial inclusion initiative are not being repaid by the borrowers according to the agreed-upon schedule. These are termed as non-performing loans.

Read Also: How Long Will the Hustler Fund Last if One in Every 4 People Default?

These revelations are contained in a report by the Business Daily that quotes the technical lead for financial services at the Executive Office of the President, Moses Banda, who divulged that the default rate was actually above 30% in the earlier stages of the Hustler Fund rollout. 

The improvement in the quality of the Hustler Fund loan book was in part attributed to the introduction of credit-scoring for all borrowers earlier in February 2023.

“It used to be over 30% and now it is coming down. It is doing pretty well compared to many other funds that the government has run in the past,” said Banda as quoted by the Business Daily.

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Consequences of Hustler Fund Default

One of the strategies the government is using to encourage Hustler Fund borrowers to repay on time is the linking of other affirmative action funds with the Hustler Fund such that defaulting on one would bar a borrower from qualifying for another fund until they regularise their accounts. 

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This is done through the credit-scoring programme alluded to above that is reviewed once every four months as a way of ensuring better risk management.  

“We have developed new products which are tied to the Hustler Fund platform, which then means that if you don’t repay on time you cannot access another and this is helping a lot,” Banda said. 

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Since launch, the Hustler Fund has disbursed Ksh33.3 billion with Ksh10.2 billion currently outstanding. Of this outstanding amount, Ksh7.9 billion (71%), according to Banda, is performing on time. 

This amount has been borrowed by a total of 17.2 million borrowers with 7.2 million of them being repeat borrowers. From this, the average loan size is approximately Ksh1,936. 

About Ksh1.8 billion is held in savings - a third (30%) of which is accessible after one year while the rest counts as the borrower’s retirement savings. 

Hustler Fund Default Rates Compared to Other Loan Types

The significantly high rate of default on the Hustler Fund sheds light on the challenges digital lenders have been facing trying to recover amounts advanced to the public without collateral. 

When compared to commercial banks, for example, Hustler Fund borrowers are twice as likely to default (29%) than borrowers of bank loans generally as the default rate in the banking sector stood at 14.5% as of June 2023.

Read Also: How to Apply for the Hustler Fund on Your Mobile Phone

Saccos have some of the lowest default rates (Non-performing loans) that according to 2021 data from the regulator, Sacco Societies Regulatory Authority (Sasra), stood at 8.86%. This is attributable to the majorly secured lending model of Saccos where guarantors or member’s shares are used as collateral. 

Microfinance Banks that majorly lend to small enterprises at a higher interest rate than banks have a significantly higher default rate of 23% as of December 2022. 

Digital lenders that recently came under the supervision of the Central Bank of Kenya (CBK) are yet to start releasing data on NPLs for comparison. Data on specifically the default rates on mobile lending products offered by banks is also not independently available yet for comparison with the Hustler Fund. 

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