A new report by the Financial Services Deepening (FSD) Kenya now shows the government’s Hustler Fund has become the second biggest source of loans for micro and small enterprises since its launch last November.
According to FSD’s report, Safaricom’s Fuliza and Mshwari were the leading digital credit providers for small and medium enterprises (SMEs) in Kenya.
“Meanwhile, mobile banking loans (including MShwari, KCB MPesa, Fuliza) remain the most prevalent source of credit for MSEs, although the percentage of MSEs with outstanding mobile banking loans has declined slightly from 57% in October 2022 to 52% in June 2023,” the report reads in part.
FSD said the performance of the Hustler Fund facility loan has been driven not by its low interest rates, but by how easy it is to access.
Read more: CBK increases mobile money limits to boost financial inclusion
“Ease of access is the main driver of uptake, with 39% of Hustler Fund borrowers citing that was what they liked most about the fund. Despite the fact the Fund offers credit at relatively low interest rates compared with commercial providers, only 11% of Hustler Fund borrowers cited low interest rates as their preferred feature of the Fund,” said FSD in the report.
This Hustler Fund milestone is part of a larger strategy within the Ruto administration of providing financial services directly to consumers.
In late July the government launched an application allowing Kenyans to purchase government bonds and Treasury bills directly from the government. However, this strategy comes with certain risks for the Kenyan government.
“Since October last year, the rate of defaults has also risen. In June, 61% of MSE borrowers said they had recently defaulted on their loans or paid late, up from 43% in October last year. 49% of borrowers said they had defaulted or paid late,” said FSD in a statement.
Read more: Hustler Fund Performance
With a default rate that high the government needs to be careful in managing the risks associated with lending directly to its own citizens.
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