Hustler Fund: The legal insufficiencies and money meant to 'alleviate Kenyans from poverty'

It was a pet topic for their presidential campaign and it took the hearts of many of their ardent followers. It was aimed at providing access to affordable credit to the public specifically those hitherto could not access any facility. 

The notion by itself is commendable and a move in the right direction however, its establishment and operations have to be within the law to ensure its impact and sustainability. 

The Hustler Fund Hustler, on its website, describes itself as a digital financial inclusion initiative designed to improve financial access to responsible finance for personal, Micro, Small, and Medium-sized Enterprises (MSMEs) in Kenya. The fund declares that you do not have to move to receive credit, it brings it right where you are! The motto reads… “credit on the go!”

Oparanya’s view 

What however brings this fund into sharp focus now comes from the recent vetting of the Cabinet Secretary nominee for Cooperatives and MSMEs Development Wycliffe Oparanya. 

He was of the opinion that the Hustler Fund is capable of alleviating Kenyans from poverty but its implementation was rushed.

Oparanya further insisted that the legal structure of the fund launched by President William Ruto’s administration needs to be re-considered to ensure its impact on the society. 

In his own words, “If hustler fund is managed well it will take people way from poverty. This fund was launched in a hurry without legal structure in place.” 

What now awaits the incoming Sherrif (Oparanya) is policy amendments to see that the fund is ‘managed well’ to alleviate lives of Kenyans. 

The Genesis 

In November 2022, the newly-elected Government of Kenya rolled out the much-touted Hustler Fund, which first popped up on the campaign trails as the Kenya Kwanza Coalition fought for the hearts and minds of Kenyans during the 2022 general elections.

The Hustler Fund gets its legal placement under the Public Finance (Financial Inclusion Fund) Regulations 2022 (referred to herein as the ‘Regulations’). It was gazetted in November 2022 vide Legal Notice No 213 under Legislative Supplement No 91 and Kenya Gazette Supplement No 190 in readiness to support the operations of the fund.

A look at section 24(4) of the Public Finance Management Act (PFMA) shows that the Cabinet Secretary (CS) responsible for finance is empowered to establish a national government fund with the approval of the National Assembly. This is the specific legal anchorage that ties down the Hustler Fund to work within legality, but does it sufficiently cover its creation and operations in totality? 

Public Participation paradox 

An advocate of the High Court of Kenya, Kiongera opines that the public, in looking at some recent Bills hastily passed through the process of public participation, must be wondering at the end game. Is it not to incorporate the views sought from the public for inclusion into the resultant laws? 

The fact has not been lost on many observers that the public participation process conducted by parliament has at times been a charade made more to fulfil a requirement than incorporate the views of the people it is going to affect.  

The demand for public participation is a constitutional requirement under Article 10 of the Constitution and section 5 of the Statutory Instruments Act (SIA). 

The Statutory Instruments Act affords that where the statutory instrument is likely to have direct and substantial effect on people or business, consultations with the persons likely to be affected is a requirement.

Private sector credit funds 

There are a number of credit products offered to the public, in particular the low income earners and businesses, involving mainly the youth and women to give them access to credit lines that they can use to uplift their lives through setting up low scale business. 

The Hustler Fund, with higher availability and low interest was tipped to have a deep reach among the low income trading public as a boost to their businesses. However, a lot of factors will come into play to ensure that the noble idea is actualized by having a firm foundation of its operations in clear legal waters.

The Hustler Fund was set up to rival other products from private lending institutions such as Mshwari, KCB-Mpesa, and Fuliza, among others. 

In the heat of politics leading up to 2022 General Elections it was touted as the panacea to the endemic shortage of private sector financing among low scale traders. 

What is clear is that there was a publication of a regulatory invitation to the public participation on 12th November 2022 on the impact of the Fund. 

Mandate to appoint Fund custodians 

An advocate of the High Court, Kiongera is of the view is that The Constitution of Kenya gives express mandate to the Public Service Commission under Article 234, part IV of the Public Service Commission Act (PSC Act) (Herein after the Commission) to establish public offices. 

This could either be done directly by the PSC or indirectly by requesting the President to intervene but in all cases the primacy of establishing a public office remains with the PSC. 

Oddly, the regulations that guide the establishment of the Fund seem to establish several public offices through the cabinet Secretary responsible for Micro, Small and Medium enterprises (hereinafter MSMEs). 

These offices include the Board of the Hustler Fund (Regulation 10), the office of the Chief Executive Officer (Regulation 14) and the secretariat (Regulation 16). The aforementioned offices were not in existence prior to the promulgation of the Regulations. They are a creation of the Hustler Fund Regulations. 

As expressed in Article 260 of the Constitution, these are public offices which only the Commission has the mandate to establish under Article 234 of the Constitution and part IV of the PSC Act. 

On the other hand, the Public Finance Management Act (PFMA) at section 24 provides that the CS responsible for finance has power to establish a national government fund and to designate a person to administer the fund, such as the Hustler Fund. It does not recognize his power to create offices. Where the CS is to create an office, section 27(1) of the PSC Act provides for the process to follow, after a request is made to the PSC.

One would therefore ask under what legal basis the Cabinet Secretary established such offices? Was the Commission consulted before the establishment of the offices? 

Under the Regulations, the CS responsible for MSMEs is to appoint persons into the created offices (Regulations 10(e), 14 and 16). Nowhere do the Regulations speak of consultation with the PSC in the appointment of these public officers. 

Are the Hustler Fund Regulations in disregard of the PSC as a constitutional office? These are just food for thought…

Ambiguous Provisions, Contradictions and Gaps in the Fund’s regulations

In looking at Regulation 10(4), it provides that the Fund Board achieve quorum on simple majority of the members. But then, what is simple majority? In different spheres the term ‘simple majority’ has drawn different interpretations and it therefore would helpful to indicate a certain given number to avoid controversy. 

Looking at Regulation No. 20, it seems to impute that other agents have the freedom to borrow from the Hustler Fund and on-lend to the public. The strange part is that the agent is not restricted to lend-on at a certain set rate and therefore he is not beholden to the fund on how much interest to charge the borrower. Should the agent decide to charge exorbitant interest rates, it might wipe out the purpose for which the fund was set up.

At the same time, should the fund be wound up, the regulations do not guide how the Fund would be treated as posited under Regulation 32; there would be no steps to ensure culpability. 

It asks for no reports to be submitted either to the National Treasury, Auditor General or National Assembly. Similarly, the Fund regulations do not give guidance on its accounts are to be operated.

Do the following provisions stand or fly in the face of the law?

The fund laws under Regulation 25, says its administrative costs will be settled through appropriations by the State Department responsible for MSMEs. This by itself is contrary to Regulation 207 (1)(d) Public Finance Management (National Government Regulation) 2015 requiring a limit of 3% of approved budget as the maximum administration costs.

Regulation 26 of the fund states that the existing financial and procurement regulations are to apply. Section 53 of the Public Procurement and Asset Disposal Act (PPADA), requires that procurement plans be prepared by accounting officers of respective agencies and submitted to the concerned cabinet secretary in charge annually or before expenses are incurred. 

So the question begs, does the fund have a procurement plan? If it does, who prepared it as there’s no designated officer for the job? Have there ever been assets procured on behalf of the Fund? How was this ever done? 

PFM Regulation No. 207 (1) gives the minimum requirements before establishment of a public fund. The initiation should be done through the cabinet secretary under whom the fund is slated to operate. It will then be subject to approval by the CS for finance who will see how to align the proposed public fund within the bigger context of the overall Medium-Term Plan and Budget Policy Statement among others. Were these conditions met as a prerequisite? Would the courts find these as substantial technical or substantive requirements? 

Is the Hustler Fund a registered digital service provider, licensed to dispatch the credit funds to the public according to the Digital Credit Providers) Regulations, 2022? Does the fund have an anti-money laundering policy in light of section 2 of the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA)? 

Many other points of concern arise… Has it been designated as an institution required to report to the Financial Reporting Centre (FRC)? Do they have an open public data policy which is in line with the data protection requirements in Kenya?  The funds terms and conditions are only available to its clients upon registration. Isn’t this contrary to the Consumer Protection Act on remote agreements?

Hustler Fund was set up hurriedly

From the foregoing considerations, it is evident that the drafting, passage and roll-out of the Hustler Fund was done in a hurry. Serious governance issues abound as it is currently constituted. Sense seems to have informed the separation of the offices of administrator of a public fund with the office of the CEO. 

The same sense may also have informed the requirements that there be at least two signatories to the accounts of the funds. This sense may have been due to governance requirements and accountability purposes. This sense seems to lack in the Hustler Fund, whether intentional or otherwise.

Starting off the roll-out without the proper governance structure remains ill-advised. There is no one to be held accountable in the interim and pending the appointment and designation of the Board and secretariat. Further, the Constitution established the office of the PSC for a reason. The fact that the Hustler Fund does not recognize this office in the appointment of its officers is unfortunate.

There remains an urgent need to go back to the drawing board and make the requisite amendments to ensure the Fund complies with the Constitution and the law is therefore necessary. The inconsistencies and outright illegalities need to be relooked. 

The gaps equally need to be addressed. This will ensure the smooth roll-out and running of the Hustler Fund. The fund has the potential to be a game changer in ensuring an affordable and available credit facility to all Kenyans.