Taxpayers risk losing nearly Sh30bn in State plan to uplift special groups

Auki Youth Group in Samia, Busia county, is a key distributor of school uniforms in the region and beyond, thanks to the Youth Enterprise Development Fund.

The 15-member team has not only managed to change socioeconomic tides for their dependents, but also created job opportunities for tens of people in the region, while offering many affordable school uniforms for various institutions.  

Last year, the group obtained Sh400,000 from the YEDF, having grown its credit rating over the past two years. The loan enabled them to purchase essential materials, which has greatly improved their production capacity.

“We used to struggle to meet customer demand due to insufficient materials. The credit line from the government has seen us expand our embroidery services for school badges and institutional uniforms,’’ the group testifies on its Facebook page.

The fund focuses on microfinance and enterprise development, with the aim of ensuring that young people (ages 18–35) have access to affordable loans so that they can grow their small and medium businesses.

Formed almost 20 years ago to address the challenges of under- and unemployment and poverty affecting young people, YEDF has led to the birth of other special-focused credit lines and grants by the state, including Hustler Fund, Uwezo Fund, Commodities Fund, Women Enterprise Fund and the newly unveiled Nyota Fund.

Unfortunately, while some of these funds have numerous success stories, audit reports have unearthed well-orchestrated corruption, diversion of funds, lack of clear accounting mechanisms and other ills, throwing well-intended state initiatives into the dark abyss.

An audit of the funds as of March 2025 showed that taxpayers are staring at Sh28.4 billion in losses from loan defaults in five public funds, including the Hustler Fund, Uwezo Fund, Commodities Fund, Women Enterprise Fund and the Youth Enterprise Development Fund.

Auditor General Nancy Gathungu said the defaults pose a huge risk to the survival of the agencies and have exposed weaknesses in their credit policies, denting their mission to support the youth.

Specifically, Gathungu warns that more than Sh2.5 billion that various youth groups were loaned by the government to set up startups may go down the drain.

In a latest report following a review of the Youth Enterprise Development Fund accounts, the auditor revealed that some of the debts have not been paid for over three years, with allocations to hundreds of groups across the country lacking proper paperwork and accounting mechanisms.

“A review of records revealed six loan categories with an amount of Sh2,463,644,828 had not been serviced for a period of more than three years,” Gathungu said.

The fund has disbursed over Sh14.2 billion in loans to two million youths since its establishment.

Similarly, Uwezo Fund, launched in 2013 as a flagship programme for Vision 2030 aimed at enabling women, youth and persons living with disabilities to access finances to promote businesses and enterprises at the constituency level, has been muddied.  

The auditor general, in her latest report, satirically stated that “funds that were meant to improve youths, Women and People with disability have improved the people with all abilities”.

Close to Sh4 billion cannot be accounted for.

“There were also no comprehensive loan listings and/or aging analysis in support of outstanding loans. Consequently, the accuracy, completeness, validity and recoverability of the unsupported and unaccounted for loans to the group balance of Sh3, 920,225,398 cannot be confirmed,” says the report.

Last week, the Parliamentary watchdog committee put the Hustler Fund on the spot over the whereabouts of more than Sh12 billion, after its newly appointed CEO, Henry Tanui, failed to provide crucial documents detailing how the public money was disbursed and who received it.

A tense session before the National Assembly’s Special Funds Accounts Committee saw MPs accuse the fund of hiding information, mismanaging billions, and shifting officials to conceal accountability gaps.

This, they said, is raising serious doubts about the integrity of President William Ruto’s flagship credit scheme.

Committee chair and Migori Woman representative Fatuma Mohamed led the grilling, insisting the committee cannot proceed with any further audit unless full records of borrowers, payments and loan recoveries are submitted.

“We cannot continue without the documents. One year later, you have not answered even one of the 21 queries raised. This is public money and there is a huge interest in this fund,” she said.

According to CEO Henry Tanui, the Hustler Fund has received Sh14 billion from the National Treasury since its inception and currently operates with only Sh1.4 billion rotating monthly.

This, however, did not sit well with the Members of Parliament, who demanded to know where the remaining Sh12.6 billion that was not in circulation was being held or spent.

“So if you have received Sh14 billion and only Sh1.4 billion is revolving, where is the other money? Do you have Sh12 billion in your accounts?” deputy chair and Imenti North MP Rahim Dawood asked.

Multiple parliamentary oversight committees looking into these funds show the same pattern: loans are issued at scale, repayment rates collapse, recovery mechanisms are either unstructured or non-existent and executives fail to provide clear answers on where the money has gone.

The vagueness has sparked a public debate, with economists, governance experts, politicians and ordinary Kenyans insisting on accountability even as President William Ruto signals the creation of even more government-controlled investment vehicles to drive national development.

Political commentator and governance expert, Alex Manyasi, says the funds are a great idea because they come with lower interest rates than those offered by banks.

However, he acknowledges that their default rate is high because the government doesn't do proper background checks on the people it's lending to.

“It's a good initiative because they are trying to reach people who can't access loans in the banks. But that also explains why those funds post high default rates. Going forward, the government should prepare and train them rather than just giving out money.”

Makueni Senator Dan Maanzo called for more accountability and transparency, arguing that past funds have culminated in mega corruption scandals.  

He added that the President should not form new funds, as this has to come through Parliament for approval and passing it into law.

“Unfortunately, the President hasn't been listening to experts and the funds he's speaking about have to undergo public participation. I don't think it will work because it has not been budgeted for and it's not in the government’s medium or long-term strategies.”

US-based economist, Jeremy Kamotho also weighed in. 

"Defaults, opaque management practices and the absence of credible recovery frameworks have left taxpayers to shoulder billions in potential losses. While such funds are aimed at stimulating the economy, Kenya is experiencing reversed gains,’’ Kamotho told the Star.

During his State of the Nation Address, Ruto defended the proliferation of government funds, saying commercially-run public investment schemes can “grow national wealth and deliver transformative infrastructure”.

He cited the upcoming National Infrastructure Fund as a generational strategy to mobilise capital, accelerate delivery and ensure Kenya becomes “stronger, wealthier and more competitive”.

“The National Infrastructure Fund is therefore more than a financing tool. It is a generational strategy, preserving value, mobilising capital, accelerating delivery and ensuring Kenya becomes stronger, wealthier and more competitive,” Ruto said.

He further announced plans to establish a Sovereign Wealth Fund (SWF) to ease the burden of external borrowing.