The government and KCB Group have come out in defense of the Hustler Fund after the Auditor General pointed out management loopholes likely to lead to loss of public money.
- The Hustler Fund (Financial Inclusion Fund) was launched 18 months ago as a financial intervention to correct the exciting market failures in the credit market.
- The fund was established to rehabilitate Kenyans listed on credit reference bureaus by offering them a second chance to repair their credit ratings.
- The Auditor General Nancy Gathungu found irregularity in loan disbursement, doubtful recovery of receivables, customers being issued with subsequent loans before repayment of previous ones, and closed loan accounts but not repaid.
Another loophole identified by the report points out to use of duplicate loan IDs. For instance, a data analysis of loan disbursements at Kenya Commercial Bank for revealed that customer loans were uniquely identified through a Loan ID. The audit, however, found that 867 Loan IDs were used to process 1,978 loans amounting to Kshs. 477,928.
“On investigation, we noted that this remained consistent with the product rule of one loan per customer at a time up to their credit limit. These were cases of customers topping up their existing loans, but within their assigned credit limit. For loan top-ups as opposed to new loan requests, the system maintains the same loan contract (loan ID) as a principal increase to the existing loan,” explained Annastacia Kimtai, KCB Kenya Managing Director and CEO, in a statement.
Kenya Commercial Bank said it received two letters from the auditor general’s office which raised a total of nine audit queries out of which four touched on KCB Bank’s IT system. The Auditor shared a file with KCB on five records of customers who had been onboarded on Hustler Fund product without National IDs.
On investigation, KCB said it noted four records were for Safaricom customers while one was for Airtel. “The system failed to update their records over a transient technical issue. We note for the Airtel customer (25473****143), they borrowed once and fully repaid, and as at the time of this response, they had no outstanding loan. KCB Bank is working with Service Providers to identify and update National IDs of the affected customer profiles,” the lender said.
Massive Default Rate
The audit also pointed out that the fund has a remarkably high default rate, making it doubtful that the money will ever be recovered.
“Analysis of the outstanding loan receivables from loan borrowers indicates that 78 per cent of the loans amounting to Kshs 8,219,087,056 had been outstanding for more than three (3) months, this puts the public fund at risk as the recoverability of the outstanding loan is doubtful since they had been in arrears beyond respective repayment period,” the audit notes.
On presentation of financial statement for the period under review, the Auditor General’s office also called out Hustler Fund managers for not disclosing a balance of KShs. 12 billion seed capital it received for the operationalisation of the fund.
In responding to the audit findings, Esther Nkukuu, the CEO of the Financial Inclusion Fund agreed with some of the report findings attributing failure to lack of adequate human resources, inadequate financial muscle, data extraction challenges.
