A fund for every president, no prudent use then loss of taxpayers billions
President William Ruto (centre) and former presidents Uhuru Kenyatta (left) and Mwai Kibaki.
What you need to know:
- The funds have proved ineffective, caught between prioritising the positive action obligation placed on them and proper public financial management. Prudent use has always suffered.
- It is a challenge that has bedevilled the management of funds, both at the national and county levels, where prudent management of resources is often a secondary concern.
A month after President William Ruto was sworn in last year, he announced plans to launch the Hustler Fund, which he sold as the key to unlocking financing for small businesses after years of neglect by the formal financial system.
The government injected close to Sh9 billion into the fund within two months of its launch last December, with some 18 million Kenyans expected to borrow.
"We have saved close to Sh1.3 billion and we have seven million Kenyans borrowing on this platform on a daily basis. We have a product that has given us the opportunity to lend Sh26 billion in a record five months," Dr Ruto said last month.
In the 2022/23 supplementary budget, President Ruto's administration allocated Sh20 billion to the Hustler Fund, officially called the Financial Inclusion Fund.
And now, the President is proposing to introduce a Housing Fund through the Finance Bill 2023, which will, among other things, deduct three per cent of workers’ basic salaries to fund the building of affordable houses.
President Ruto is continuing a tradition by past administrations to create funds to provide solutions to various socio-economic challenges. But experts say the funds haven't always lived up to their billing, as accountability reports show, and they aren't a panacea for all socio-economic challenges and for a government that is keen on prudent public finance management.
A survey of the past three administrations that have led Kenya over the past two decades shows that at least seven key national government funds have been established.
However, most of the funds have had duplicative roles, targeting the same populations, and have also had fundamental problems with their management, leading to losses and wastage.
For example, former President Mwai Kibaki established the Women Enterprise Fund in 2007 to improve access to cheap finance for women-owned businesses as well as the Youth Enterprise Development Fund to address the financial needs of young people.
His successor Uhuru Kenyatta also came up with the Uwezo Fund in 2014 to lend money to groups of youth, women and people with disabilities.
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President Ruto has established the Hustler Fund, which aims to increase affordable lending to small businesses owned by the youth, women and people with disabilities. He is also proposing the Housing Fund.
"It's becoming a fashion in Kenya for every government to set up funds, and it's a lazy way of tackling problems, but it's obviously very populist. The reason we face challenges along the way is because these things are always rushed," says Mr John Mutua, a programme coordinator at the Institute of Economic Affairs.
Mr Mutua says setting up funds is a lazy but populist way for governments to portray themselves as addressing issues affecting groups of citizens and to avoid being accused of inaction.
But this has led to funds being established without proper planning and research, resulting in gaping loopholes in their management, structures and design.
"They are facing implementation problems because, in most cases, the implementation framework and structures are done after the establishment of these funds. When you have these gaps, they are a conduit for corruption," says Mr Mutua.
Past audit reports have raised questions over the use of billions of shillings in the funds, where in 2018/19, of the 13 government entities issued with a 'disclaimer of opinion' by the auditor-general, the worst opinion reflecting the poorest management of public funds, nine were national funds. Of the 14 that received an 'adverse opinion'— the next worst performance — nine were also national funds.
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Most of the funds have proved ineffective, caught between prioritising the positive action obligation placed on them and proper public financial management. In most cases, prudent use has always suffered.
For instance, by June 2021, more than Sh4.6 billion reportedly lent by the Uwezo Fund remained unpaid despite the expiration of the repayment period, with the auditor-general revealing gaping loopholes in the management of the fund, such as the issuance of irregular loans.
"The Sh4.64 billion relates to outstanding loans made to various groups since the inception of the fund. However, a review of the records maintained at the sampled constituency offices of the Uwezo Fund revealed that no measures have been put in place for effective follow-up of loan beneficiaries, resulting in high loan defaults," the auditor-general said in her 2020/21 report on the fund.
The auditor-general has also raised concerns about the management of the National Government Affirmative Action Fund, an initiative launched in 2015 to support the socio-economic lives of vulnerable Kenyans.
"The beneficiary institutions did not acknowledge receipt of the bursaries amounting to Sh3,304,286. As a result, it was not possible to ascertain whether the funds were used for the benefit of the intended institutions and individuals," the auditor-general reported on the fund's Tharaka-Nithi County office in 2018/2019. The bursaries were intended to support 600 deserving students by providing school fees.
On the Women Enterprise Fund, the auditor-general reported in 2019/2020 that it was owed Sh3.37 billion, of which Sh80 million was doubtful at the time. Mr Ken Gichinga, chief economist at Mentoria Economics, argues that, while the funds present an opportunity for the government to inject money into the real economy, prudence in their management should be prioritised.
"Prudence is the cornerstone of public finance. Without it, a nation faces an existential threat," says Mr Gichinga. It’s problem that has bedevilled the management of funds, both at the national and county levels, where prudent management of resources is often a secondary concern.
Other funds established in the past continue to face financial management challenges, and the auditor-general has criticised the delay in closing some that have outlived their legal mandate. Other funds that continue to face challenges include the Land Settlement Fund, the Rural Enterprise Fund and the National Humanitarian Fund.
In the past, there have been calls to merge funds that perform duplicative functions to save taxpayers' money, with government running many funds that perform similar functions, diluting their impact on society.
"This is driven by the fact that each administration wants to be recognised for something it has set up, even if it knows it is setting up something that already exists. The cost-effectiveness is undermined because it's basically the government spreading itself too thin, which compromises the impact," says Mr Mutua.
