How the Hustler Fund and credit scoring could shape Kenya’s banking culture
President William Ruto brought to reality his signature campaign promise on the last day of November, but many borrowers are still oblivious to the credit scoring element braided into the Hustler Fund edifice, probably because it’s still an alien phenomenon.
Going back to the campaign days, Dr Ruto was critical of the high-interest rates levied by popular mobile loan service providers and the outright blacklisting of borrowers who default even on the smallest loan amounts.
Since assuming the Presidency, Dr Ruto engaged in what analysts saw as laying the groundwork for the Hustler Fund.
First, in late September, he met Safaricom, KCB and NCBA bank CEOs over Fuliza charges review where the telco and its partners in the overdraft offereing agreed to lower daily charges by up to 50 percent, to temper the interest accrued on credit facilities and ease the burden on debtors.
Weeks later in November, Dr Ruto’s government through the Central Bank of Kenya (CBK) rolled out a plan dubbed the Credit Repair Framework to give blacklisted borrowers a chance to reset their credit scores in favourable terms.
It is anticipated that the Credit Repair Framework will give nearly five million mobile loan borrowers at least 50 percent discount on defaulted loans to encourage repayment for loans with up to 30 days repayment period.
Tier one lenders such as Absa Bank Kenya andthe NCBA Group have already written off billions of shillings worth of defaulted mobile loans with the latter crossing out more than Kes11.25 billion of bad digital loans, while the former forgave Kes1.8 billion loans for about 400,000 customers.
In light of the preliminary actions taken by the government to set the stage for the Hustler Fund, it is hard to overstate the vitality of credit scoring to the future of mobile lending in the country and our banking culture as a whole.
Read also: Absa Bank writes off Kes 1.8 Billion under credit repair initiative
A credit score is a number lenders use to help them decide how likely it is that they will be repaid on time if they give a person a loan.
The score is one way that banks and other financial institutions will be using to assess the likelihood that a borrower can or will be able to pay off any debts they accumulate.
A higher credit score indicates that your current financial circumstances and your historical behaviour demonstrate a willingness and ability to pay off any loans you may be approved for.
Credit score affects whether you can get approved for a financial product as well as the interest rates a potential borrower may have to pay if you’re approved.
The higher the score, the higher the chances of getting approved for a credit card or loan—plus, it’ll usually reduce the interest rate associated with that particular loan or card.
Lower scores can raise interest rates significantly, or may even disqualify a borrower from a product or service altogether.
During the launch of the Fund, the President emphasized the essence of cultivating financial discipline through timely loan repayments, to graduate through the credit score levels and qualify for bigger loans.
“Those who work hard and pay back their loans will eventually be able to borrow more,” said President Ruto while urging borrowers to grow their loan limits from their current status.
Conversely, borrowers who fail to meet repayment timelines will pay higher interest rates owing to their perceived higher risk.
For instance, Hustler Fund debtors who violate the 14-day repayment period will be subject to a 9.5 percent interest rate, as opposed to 8 percent for conformant borrowers.
The latest disclosures by Monday, December 5th, show that a total of Kes3.691 billion has been disbursed to borrowers with Kes190.6 million repayments being reported. Over 10.6 million Kenyans have so far opted into the Hustler Fund scheme helping to accumulate Kes184.5 million in savings.
