Kenya to Target M-PESA Accounts to Recover Sh7 Billion from Hustler Fund Defaulters

Kenya's Strategy to Recover Sh7B from Hustler Fund Defaulters

The Government of Kenya is gearing up to take assertive measures to reclaim nearly Sh7 billion in unpaid loans from the Hustler Fund. Launched in November 2022, the Hustler Fund was designed to provide affordable credit to millions of Kenyans who had been previously excluded from mainstream financial institutions. However, within a few months, the government is already facing a substantial challenge with defaults, prompting heavy-handed methods to ensure recovery.

Elizabeth Nkukuu, Acting Chief Executive Officer of the Hustler Fund, disclosed to a parliamentary committee that the bulk of the defaulting funds were borrowed within the first two months of the Fund's creation. Of particular note is that these defaulters, numbering more than 13 million, are believed to be capable individuals who simply opt not to repay. Their monthly transactions, averaging Ksh. 21,000, indicate that they have the financial capacity to settle their debts.

To address this, the government is negotiating with telecommunications giant Safaricom. The plan involves raiding the M-PESA accounts and airtime balances of defaulters to recover the owed amounts. Nkukuu emphasized that the defaulters had been given a reasonable grace period and are fully capable of repaying their debts. She highlighted the importance of retrieving the funds to ensure the sustainability and growth of the Hustler Fund.

The Role of M-PESA in the Recovery Process

Kenya's principal mobile money service, M-PESA, will play a central role in the recovery initiative. As one of the most widely used financial services in Kenya, M-PESA's extensive reach makes it an effective tool for the government to trace and recover funds. Both Safaricom and the government are exploring how M-PESA accounts can be accessed to deduct outstanding loan amounts from defaulters. According to Nkukuu, the government plans to use mobile numbers, unique identifiers, and national ID numbers for this effort, ensuring that the recovery process is efficient and comprehensive.

Principal Secretary for Micro, Small, and Medium Enterprises (MSMEs), Susan Mang'eni, echoed Nkukuu's sentiments during the parliamentary briefing. Mang'eni stated that defaulters had been given ample time—two years—to settle their debts and that the measures under consideration were necessary to maintain the integrity of the Hustler Fund. She asserted that the government would segment the defaulters to tailor its recovery approach based on individual profiles.

Who Are the Defaulters?

A closer look at the profile of the defaulters reveals some telling details. While 98% of the defaulters remain active on their M-PESA accounts, implying that they are still financially engaged, a smaller fraction—estimated at 2-3%—have passed away, leaving no possibility for recovery. The active defaulters continually transact through mobile money, which the government sees as a clear indication of their ability to repay the loans. The defaulters mainly borrowed various amounts in the early months of the Fund, with an average monthly transaction profile suggesting that these individuals are not financially bereft but rather unwilling to comply.

Nkukuu stressed that the Fund’s structure retains 5% of each loan amount as savings, which currently stands at Sh3.5 billion. Out of the 24 million Kenyans who have utilized the Hustler Fund, approximately 2 million individuals have maintained good financial credit. The Fund’s 8% interest rate is fairly distributed among mobile operators, banks, the secretariat, and is also used for the growth of the Fund.

The 'Nagging' Technique

As part of its strategic arsenal, the government plans to employ a persistent technique commonly referred to as a 'nagging' strategy. This would involve calling defaulters repeatedly, pressing them to reimburse their loans before moving on to more aggressive recovery methods such as legal action. Through this method, the government hopes to remind defaulters of their obligations and prompt them to settle their debts before more stringent measures are enacted.

The intended use of legal action and M-PESA deductions marks a significant turning point in the government's approach to managing the Hustler Fund. The authorities are unequivocal in their determination to recover the Sh7 billion, reinforcing the need for defaulters to be accountable. The government’s strategy is multidimensional, combining reminders, negotiations, and eventually enforced recovery actions.

Impact on Kenya’s Financial Ecosystem

The implications of this aggressive recovery strategy will ripple through Kenya's financial ecosystem. On one hand, it underscores the government’s commitment to maintaining the stability and viability of the Hustler Fund. On the other, it raises questions about the transparency and fairness in accessing personal finances for debt recovery. Safaricom and other stakeholders will play a pivotal role, ensuring that while funds are recovered, user trust in mobile money services does not erode.

The outcome of this initiative will be closely watched both locally and internationally, as it could set a precedent for how digital financial ecosystems can be leveraged in managing public funds and loans. Kenya’s situation is emblematic of broader global trends where mobile money services are becoming increasingly integrated into financial governance and policy implementation.

In the coming months, the efficiency and fairness of this recovery operation will be tested, providing valuable lessons for stakeholders on both sides of the aisle. For now, the government's message is clear: the era of leniency for defaulters is over, and the responsibility to repay the Hustler Fund loans is non-negotiable.

As Kenya moves forward with its ambitious recovery plan, the eyes of many will be watching, not only to see the efficacy of the strategy but also to measure its impact on the nation’s evolving financial landscape.