The government will deduct five per cent from every amount given through the Hustler Fund and save it on behalf of the borrower.
The objective of the Fund, which will have a seed capital of Sh50 billion, is to promote lending mainly to the informal sector.
Cooperatives and MSME Development Cabinet Secretary, Simon Chelugui, yesterday said the decision is aimed at promoting a saving culture among Kenyans.
He added that the government would contribute Sh1 for every Sh2 a borrower saves.
The Fund will have four products – Personal Finance, Micro-Loan, SME Loan and Start-Up Loan.
President William Ruto will launch the Personal Finance product on November 30, with the others to be launched at later dates.
The minister said borrowers can start accessing loans from the Personal Finance category as soon as it is launched.
The loans range from Sh500 to a maximum of Sh50,000.
Money given in the Personal Finance category has to be repaid within 14 days at an interest of eight per cent, which will be calculated pro-rata or on a daily basis, Mr Chelugui said.
“A revolutionary aspect of the Fund is the saving component. Every time one borrows, five per cent of the amount will go to a scheme where the money earns interest. In addition, for every Sh2 saved, the government adds Sh1,” Mr Chelugui said.
“This will boost national savings and provide those who borrow from the Hustlers Fund some cushion for a rainy day.”
The CS added that the money would be saved in the National Social Security Fund (NSSF) account of the borrower.
He added that the government is working with other schemes to save money.
Mr Chelugui said borrowers would not need collateral, guarantors or file paperwork to access the loans, which will be issued through mobile phones.
The creditworthiness of borrowers will be assessed through their mobile lending history.
“The Fund is working with leading mobile operators – Safaricom, Airtel and Telkom – to deliver the money to borrowers. The mobile operators are also setting up a joint call centre that will disseminate information and respond to issues and questions of borrowers,” Mr Chelugui said.
Kenyans aged 18 and above and businesses with a turnover of Sh100 million and below qualify for loans.
According to the Public Finance Management (Financial Inclusion Fund) Regulations 2022, published by Treasury Cabinet Secretary Njuguna Ndung’u, borrowers with poor credit scores will be charged higher interest, while those who service their loans on time will have the advantage of lower rates.
The Board of the Financial Inclusion Fund will have the power to set conditions for access and rates for borrowers using a credit scoring framework.
This is expected to reveal the profile of borrowers that the Kenya Kwanza government is targeting.
Other functions of the board will be to develop policies to guide savings for borrowers, the eligibility criteria, online application procedure, approval, disbursement and loan repayment.
“Anyone who intends to take a personal loan, start a business or is in a business whose turnover does not exceed Sh100 million will be eligible to borrow from the Fund,” the regulations say.
Banks, micro-finance institutions, cooperative societies and other associations will be allowed to borrow from the Fund for onward lending.