Government to Comply with Data Protection Laws in Hustler Fund Recovery Efforts

In a bid to recover Ksh 7 billion in defaulted loans from over 13 million beneficiaries of the Hustler Fund, the Government of Kenya has reaffirmed its commitment to ensuring compliance with data protection laws. The announcement, made by Susan Mang’eni, the Principal Secretary in the Ministry of Co-operatives and Micro, Small, and Medium Enterprises (MSMEs) Development, comes in the wake of growing concerns over the management and recovery strategies of the fund.

The Hustler Fund was established as part of President William Ruto’s initiative to support small businesses and individuals through accessible loans. However, with a significant portion of the loans now in default, the government faces the challenge of recovering the funds while adhering to legal and ethical standards.

The Recovery Challenge

Since its inception, the Hustler Fund has disbursed over Ksh 13 billion to millions of Kenyans, particularly targeting low-income earners, small-scale entrepreneurs, and informal sector workers. Despite the positive impact the fund aimed to have on the Kenyan economy by providing affordable credit, the default rate has soared to an alarming 78%. This high default rate translates to Ksh 7 billion in unpaid loans, which has prompted the government to implement recovery measures.

Speaking during a public event, PS Susan Mang’eni encouraged Kenyans to repay their loans on time to avoid further complications. She emphasized that the government will take necessary actions to recover the outstanding loans, but reassured the public that these efforts will be in strict adherence to data protection regulations.

“We wish to assure Kenyans that the Government remains committed to the adherence of data protection laws, and default recovery measures will be within the law. We also encourage Kenyans to repay their loans on time to build their individual credit scores for higher limit access,” said Mang’eni.

Data Protection and Recovery Measures

With the rising concerns over data privacy and security in Kenya, Mang’eni’s statement comes as a relief to many Kenyans who feared that aggressive debt recovery methods might infringe upon their rights. The Government has committed to upholding the Data Protection Act, 2019, which provides a legal framework to protect the personal data of individuals and ensures that their privacy is respected during such operations.

The Principal Secretary emphasized that any recovery measures will follow legal procedures, including the use of legally authorized channels for contacting loan defaulters. The Ministry will ensure that all data, including the names, contact details, and loan amounts owed by defaulters, is handled in compliance with the law. This guarantees that the recovery efforts will not involve unlawful practices such as public shaming or sharing of personal information without consent.

Scrutiny from Lawmakers

The management of the Hustler Fund has faced scrutiny from the National Assembly’s Special Funds Accounts Committee, chaired by Migori Women Representative Fatuma Zainab. During a recent session, lawmakers expressed serious concerns over the high default rate and the operational challenges that the Hustler Fund is grappling with.

The Committee has demanded a detailed report from the Financial Inclusion Fund, the body managing the Hustler Fund, outlining the list of defaulters, categorized by constituency. This report is expected to include the names of defaulters, amounts owed, and their telephone numbers. The request for such detailed information underscores the urgency with which lawmakers are treating the issue of recovering the defaulted loans.

Additionally, the Committee raised concerns about the audit issues surrounding the fund. Principal Secretary Susan Mang’eni, alongside Acting Chief Executive Officer Elizabeth Nkukuu, was grilled by legislators regarding the management of the Hustler Fund. Lawmakers pointed out the inconsistencies in the fund’s audit reports for the 2022/2023 financial year, noting that 19 audit queries remain unresolved.

The session ended abruptly after the Hustler Fund management failed to produce crucial documents related to these outstanding audit queries. This has further fueled scepticism among legislators about the fund’s ability to manage such a large-scale initiative effectively.

Staffing and Operational Challenges

One of the key issues raised by lawmakers is the apparent staffing inadequacies at the Hustler Fund. Despite having disbursed over Ksh 13 billion in loans, the fund’s management cited a shortage of staff as one of the reasons behind the operational challenges it faces. Acting CEO Elizabeth Nkukuu noted that the fund has been relying on guidance from the Office of the Auditor-General to navigate these challenges.

The Committee, however, was not convinced by this explanation, with some members questioning how the fund was able to manage such a significant disbursement of loans without the necessary personnel in place to monitor and follow up on these transactions.

Legislators expressed frustration that, despite being entrusted with billions of shillings meant to uplift small-scale entrepreneurs and low-income Kenyans, the Hustler Fund has failed to put in place adequate mechanisms to ensure proper management and recovery of the loans. The Committee has now demanded a comprehensive plan from the Ministry of Co-operatives and MSMEs Development on how it intends to address the staffing shortages and operational gaps in the fund’s management.

The Role of Credit Scores

In her remarks, PS Mang’eni highlighted the importance of building a good credit score as part of the broader objective of the Hustler Fund. She encouraged loan beneficiaries to repay their loans on time, noting that doing so would improve their credit scores, thereby increasing their chances of accessing higher loan limits in the future.

The Hustler Fund was designed to provide financial inclusion by offering affordable loans to individuals who have traditionally been excluded from the formal credit market. By repaying their loans, beneficiaries can build their creditworthiness, which will allow them to access other financial services, both from the government and from private lenders.

The push to build credit scores is part of a wider financial inclusion agenda aimed at integrating more Kenyans into the formal economy. However, with the default rate as high as 78%, the government faces the challenge of balancing between enforcing loan recovery and maintaining the fund’s objective of supporting small businesses.

Next Steps for the Hustler Fund

The high default rate presents a significant challenge to the Hustler Fund’s sustainability. While the government has reaffirmed its commitment to recovering the outstanding loans, the path forward will require a careful balancing act. On one hand, there is the need to recover the loans to ensure the fund can continue providing credit to other Kenyans. On the other hand, the government must navigate the sensitive issue of loan recovery in a manner that respects the rights of borrowers and adheres to the legal framework set out by the Data Protection Act.

The Hustler Fund’s management has been tasked with addressing the operational and staffing challenges that have contributed to the current situation. Legislators have demanded more transparency and accountability in the fund’s operations, and the coming weeks will likely see more scrutiny on how the Ministry of Co-operatives and MSMEs Development handles the recovery efforts.

As the government continues to encourage repayment, it remains to be seen how effectively it can implement its recovery measures without infringing on the privacy rights of Kenyans. For the millions of Kenyans who have benefited from the Hustler Fund, the message is clear: repay your loans on time to avoid legal consequences and build your credit score for future financial opportunities.

Conclusion

The Hustler Fund, while a noble initiative aimed at supporting small-scale businesses and low-income earners, now faces a significant hurdle due to the high rate of loan defaults. The government’s commitment to ensuring that recovery efforts are in line with data protection laws is a step in the right direction, but the success of these efforts will depend on addressing the underlying operational challenges within the fund.

Moving forward, the Hustler Fund will need to strike a delicate balance between enforcing loan recovery and maintaining its original mandate of financial inclusion. With millions of Kenyans depending on this fund for access to affordable credit, how the government handles this situation will be critical in determining the future of the Hustler Fund and its impact on Kenya’s economy.