The Hustler Fund disbursed Sh465 million in loans to 809,351 Kenyans who had not registered for the product, pointing to flaws in the operation of the micro-credit scheme targeted at low-income groups.
Auditor-General Nancy Gathungu has revealed that people who are not registered with the fund got cash in the first seven months of operation even as defaulters surged to cross Sh8.2 billion at the end of June last year.
“It was found that 808,047 people were issued with an initial loan payment amounting to Sh464,700,721 before choosing a financial service or product,” said Ms Gathungu in a report on the operation of the Fund until June 2023.
“Under the circumstances, it is not possible to confirm whether the loan payments made to various customers are in compliance with the regulations and whether the loans are accurate and free from manipulation,” Ms Gathungu said in a report signed last month.
President William Ruto launched the Fund in March 2023 as part of his election manifesto to uplift low-income groups.
The fund issues loans between Sh500 and Sh50,000 to individuals for a tenor of 14 days at an interest rate of eight per cent per annum. For businesses, the fund disburses credit between Sh10,000 and Sh200,000 with individual owners charged seven percent annual interest.
The audit also questioned whether the Fund Management violated the credit score model as a basis for determining creditworthiness, as it granted huge loans of up to Sh220 million which were given to more than 5,000 people who were not eligible for this loan.
“However, an examination of the loan records revealed that the Fund issued loans that exceeded the specified limits as follows; 238,707 people were issued loans amounting to Sh420,312,323, which exceeded the initial loan limit by Sh219,615,242. Included in the loans were 5,070 people who were ineligible for loans, “audit notes, system configuration error Hustler Fund, to ensure that disbursements do not exceed the limit.
It also noted that Safaricom overcharged defaulting borrowers or delayed repayments by Sh368 million, violating the law that limits interest and administration fees to eight percent or 9.5 percent if borrowers default.
It exposes mobile network operators to legal action that can result in fines of up to Sh10 million for breaching the Financial Inclusion Fund Regulations, 2022.
Interest or administrative fees payable by the beneficiary for financial services or advanced products under this Regulation must be a maximum of eight percent per year to reduce the balance: If the recipient fails, interest or administrative fees must be paid. to be nine and a half percent in the reducing balance,” said the regulation.
But the Auditor-General noted that despite legal requirements, Safaricom charged borrowers fines and rollover fees of 4.95 percent and 0.39 percent respectively.
“However, it was noted that Safaricom charged a rollover fee at a rate of 0.195 to 0.392 percent and a penalty fee at a rate of 0.13 to 4.95 percent to the beneficiaries amounting to Sh368,760,229 contrary to the law and regulations,” Ms Gathungu noted.
The audit also questioned the Fund’s failure to provide evidence of spending more than Sh450 million to pay for goods and debt, lending hundreds of millions of shillings to people who have not yet chosen the Fund, holding customers who do not have identity cards, and adding more loans before. pay back the initial package.
The government set up the Hustler Fund in November 2022 and injected Sh12 billion in seed capital to lend to the target group. More than 17 million out of 21.28 million Kenyans who chose to apply and get Sh32 billion loans by the end of June 2023.
But the Auditor noted that in the first seven months of the Fund’s operation, the management has breached the principles of lending and may result in more than Sh8 billion of defaulted loans.
“Out of the total disbursed loans, the balance of Sh10,950,075,614 is unpaid as at June 30, 2023,” the Auditor-General notes, indicating that of this amount, Sh10.5 billion is unpaid principal.
Of the Sh10.5 billion loan, Sh8.2 billion has defaulted as borrowers have not paid for more than three months. “In these circumstances, being able to recover from outstanding debts totaling Sh8,219,087,056 could result in loss of public funds,” Ms Gathungu said.
But what led to the failure was the failure of Hustler Fund’s management, including catching customers who did not have national identity cards, the key identifier for all beneficiaries, disbursing Sh161.9 million in loans to some 114,213 Kenyans before repaying the previous loan and closing it. 129,315 loan accounts with Sh81.6 million unpaid.
“However, the payment of the loan cannot be traced.
“No proper explanation was given by the Management to explain why the loan account was closed before the loan was paid,” the audit said.
The audit also revealed that about 2,701 loan accounts amounting to Sh2 million could not be traced despite being issued.
“Data analysis for loan disbursements at KCB shows that customer loans are uniquely identified through their Loan Identity Number. However, it was identified that there were Loan Identity Numbers used to process more than one loan, 867 loan IDs were used to process 1,978 loans amounting to Sh477,928 . This is an indication that the debt management system is not configured properly,” the audit added.
Ms Gathungu counted the Fund as a ‘disclaimer of opinion’, which means that the financial statements show “serious and significant misstatements,” arising from insufficient information, limitations of scope, insufficient, or lack of proper records “so I unable to form an opinion on financial operations.”
He noted that after the IMF issued its financial report for audit on September 29, 2023, it submitted an amended financial report on May 3, 2024, just one day before he signed the report.
“However, source documents to support financial statement balances such as cash books and ledgers are not provided for audit review. Therefore, it is not possible to confirm the source and authenticity of the balance of the components reflected in the Trial Balance and financial statements,” said Ms Gathungu, while also noting that the statement is inconsistent, including pagination.
