During the launch of Kenya’s official data, last week Treasury Cabinet Secretary said a Kenyan had borrowed from the hustler fund 300 times over the last 180 days almost twice daily, indicating how Kenyans have become addicted to the state debt.

Since its launch six months ago, about 15 million Kenyans have borrowed via President William Ruto's signature campaign offer, Hustler Fund, a product that seeks to deploy billions of shillings to power the growth of small-scale businesses through low-interest loan tickets.

More often than not, a significant number of Kenyans turn to hustler fund to meet everyday needs such as shopping for household items or paying for regular domestic bills.

"At one time, we found that someone had gone in for 300 times to borrow and pay. So it means that they must be doing very fast business, they must be generating income and they're also generating savings on a new, different stream," Prof

Overall, a total of Kes27 billion has been lent in just six months out of which millions of borrowers have repaid Kes17 billion. The latest data shows roughly Kes10 billion remains outstanding with a good fraction of it likely to be unrecoverable.

Whereas it remains unclear what percentage of unpaid hustler loans can be classified as bad loans, the rising share of debt in the past few months remains a source of concern.

In early March, the Ministry of Cooperatives reported over 800,000 hustler fund borrowers were in a default position. Consequently, the close to a million people had seen their accounts frozen for breaching the stipulated timelines when one is supposed to pay back loans.

Out of the Kes19 billion that was due for payment in March, Kes11.87 billion had been repaid, leaving out a balance of Kes7.4 billion or 38.9 percent of the loan book.

According to hustler fund regulations, a borrower who fails to pay back within 14 days automatically loses his or her credit score points.

Read also: The NFT’s short-lived fad

One is, however, given a further 15 days to reset their credit standing, albeit at a higher band of 9.5 percent interest rate from the initial 8 percent.

In the event one does not honor their loan obligation past 30 days, the defaulter is stripped of all their credit scores, and their account is frozen, effectively kicking them out of one of the most affordable sources of credit in Kenya today. To return to the fold, one has to clear their debt in full.

As the CRB listings make a return this month, it is unclear whether hustler defaults will be included in the mechanism.

Kenyans are also eagerly awaiting higher loan limits for business as the government tries to move the facility from just a consumption loan to productive capital that can help scale small enterprises.

President Ruto pledged to launch hustler fund for business next month even as the government prepares to expand the tax net to these small businesses making over Kes500,000 a year or just Kes1400 daily.

The new credit product, which targets Micro Small and Medium Enterprises (MSMEs) in Kenya, will be collateral-free and based on an entity’s credit history, the President explained.

“Beginning next month, we will launch the second phase of Hustler Fund, in which you, as a kiosk owner, barbershop operator, or boda-boda operator, will be able to borrow from Sh10,000 to Sh200,000,” Dr Ruto, said on Labour Day.

One of the key benefits of digital loans in Kenya is their convenience and accessibility to millions of people.

Borrowers can apply for loans and receive funds quickly and easily using their mobile phones or other devices, without having to visit a physical bank branch.

This ease of doing transactions has made credit more accessible to many Kenyans who may not have had access to traditional banking services.

As a result, digital lending has become increasingly popular in Kenya in recent years, with many mobile money providers, fintech companies, and other online lenders offering quick and easy access to loans.

These digital loans are typically small, short-term and designed to meet the immediate financial needs of borrowers, such as paying bills or buying groceries.

However, there are also some risks and challenges associated with digital lending in Kenya. One of the biggest concerns is the high-interest rates charged by some lenders, which can make it difficult for borrowers to repay their loans and can lead to debt traps.

In April, Nation.Africa published the story of a digital loan borrower who found himself hard-pressed to explain to family and friends why he was about to take out his life for defaulting on a loan. The case would later turn out to be a very cunning scheme by his digital lender to press him into servicing his loan without undue delays.

Across Kenya, there have been concerns about aggressive debt collection practices by some digital lenders, as well as issues related to data privacy and consumer protection.

As part of addressing this concern, the Kenya Kwanza administration rode onto power in August last year promising to help borrowers free themselves from the shackles of digital lenders.

By September last year, roughly five million borrowers in Kenya were negatively listed by credit reference bureaus largely on account of poor borrowing habits via digital loan apps.

Like many other countries, Kenya has experienced challenges with non-performing loans in the financial sector. Non-performing loans are loans that are in default or are unlikely to be repaid, and they can create significant challenges for banks and financial institutions.

In Kenya, however, the problem of non-performing loans has been exacerbated by factors such as weak credit risk management practices, inadequate collateral and guarantees, and a tough economic environment.

To address these concerns, the Central Bank of Kenya has introduced new regulations to govern digital lending and protect consumers.

These regulations require lenders to provide clear and transparent information about the terms and conditions of loans, to ensure that interest rates are reasonable and affordable, and to comply with data protection and consumer protection requirements.

Currently, CBK has licensed 32 digital credit providers in the country out of 401 applications made in March 2022.

[email protected]