Sh15.2bn Hustler Fund loans may go down the drain, cautions audit

Auditor General Nancy Gathungu/FILE

A fresh audit has raised concerns over the potential loss of Sh15.2 billion from the government’s Financial Inclusion Fund, popularly known as the Hustler Fund.

The amount includes Sh13.6 billion as principal and interest of Sh1.6 billion.

The audit reveals that of the outstanding amount, Sh13.2 billion or 87 per cent has remained unpaid for more than one year, casting doubt on recoverability.

About Sh2 billion was accrued during the year under review, that is, as of 30 June 2025. Auditor General Nancy Gathungu states that her review of the fund uncovered weaknesses in loan recovery, financial reporting, and internal controls.

In her latest report, the auditor questions whether the billions of shillings disbursed to borrowers can ever be recovered. Gathungu highlighted a surge in long-outstanding loans and systemic gaps in oversight of the multibillion-shilling kitty.

“Management does not have a credit policy or collection strategy for non-performing loans,” the Auditor General said.

Last November, unpaid Hustler Fund loans stood at Sh12 billion. The MSME Department managing the fund requests Sh300 million to track over two million defaulters.

“In the circumstances, the recoverability of the non-performing loans of Sh15,232,948,671 could not be confirmed,” the report states.

The audit depicts a lending programme operating without robust safeguards, a matter MPs have previously flagged.

It further revealed that millions of borrowers were issued loans without defined limits. It also emerged that some individuals received additional credit despite having existing unpaid balances.

In one instance, over 26,100 loans worth Sh24.5 million were extended to customers already in default, indicating weak credit controls. “This indicates weaknesses in credit control and loan-limit enforcement,” Gathungu said.

More than 104,000 loans valued at Sh116.4 million were disbursed to individuals whose national identification details were not captured in the system.

The review also established that loan limits had not been set for 4.3 million registered customers. Some 38,900 of these customers were issued loans totalling Sh60 million.

“In the circumstances, issuing loans without established limits points to inadequate credit assessment controls and increases the risk of lending to unqualified or unverified customers,” the auditor general noted.

The report also highlights irregular loan account closures, with 386,735 accounts marked as fully settled despite outstanding balances of Sh377.5 million. No explanations or supporting documentation were provided for the write-offs, undermining confidence in the fund’s recovery mechanisms.

These lapses are exacerbated by the absence of a clear credit policy or debt collection strategy, leaving the fund vulnerable to rising defaults and lacking a structured plan to recover public funds.

Hustler Fund CEO Henry Tanui recently announced that the government has introduced new mechanisms to trace defaulting borrowers. He stated that authorities will identify borrowers through the national IDs used when applying for loans.

Tanui explained that these IDs can provide the government with the geographical location of borrowers. Beyond the loan book, auditors uncovered widespread inconsistencies in the Fund’s financial records, further obscuring the true extent of potential losses.

A mismatch of Sh1.49 billion was identified between cash flow figures reported in different sections of the financial statements. Customer savings balances showed unexplained variances running into billions.

In one case, a discrepancy of Sh1.97 billion was noted between recorded savings and supporting figures. Cash holdings could not be independently verified. Of the Sh3.39 billion reported as cash and cash equivalents, at least Sh2.32 billion in client savings accounts lacked basic documentation such as bank confirmations or reconciliation statements.

“In the circumstances, the accuracy and completeness… could not be confirmed,” the Auditor General said. Revenues and payments into the fund were similarly flagged as unsupported, with audit queries revealing duplicate transactions, suspense entries, and unexplained adjustments involving telecom-based service providers.

Although management claimed to have rectified these anomalies, auditors were not provided with evidence to substantiate the clean-up. “The supporting documentation, including journal vouchers for clearance, was not provided for audit,” the report states.

The fund’s heavy reliance on third-party service providers, who control loan disbursement, repayment processing, and customer data, emerged as a major risk.

The auditor argued that without its own independent loan management system, the fund cannot verify the accuracy or completeness of the data it relies on.

“This exposes the fund to substantial operational, financial, and data-integrity risks,” Gathungu warned.

Governance failures further compound the risk of loss. The audit revealed that a new loan product called “Bridge Loan” was rolled out and disbursed to over 1.3 million borrowers at a cost of Sh5.3 billion.

Gathungu flagged this move, noting disbursements were made without formal approval from the board, parent ministry, or the National Treasury, breaching public finance regulations.

Such actions, the Auditor General observed, expose public funds to misuse and weaken accountability structures designed to protect taxpayer resources. Operational capacity constraints are also prominently featured in the report tabled in Parliament.

It was revealed that Hustler Fund operates with just 18 staff against an approved establishment of 119. Gathungu said the staffing shortfall limits its ability to enforce controls, monitor lending, and pursue defaulters effectively.

Meanwhile, budget execution has also shown inefficiencies that may have further undermined performance. The fund failed to meet its revenue targets by 18 per cent and left 44 per cent of its available resources unspent, indicating poor planning and implementation.

“The under-performance and under-utilisation affected planned activities and may have negatively impacted service delivery to the public,” the auditor stated. The latest findings are not isolated.

The Auditor General notes that at least 16 issues raised in previous audits, including unsupported balances, weak internal controls, and lack of key governance structures, remain unresolved.

Overall, the audit suggests a fund at risk of losing billions through weak oversight, poor record-keeping, and ineffective loan recovery mechanisms.

INSTANT ANALYSIS

With Sh15.2 billion already identified as doubtful, the report raises urgent questions about whether the Hustler Fund, one of President William Ruto’s flagship financial inclusion initiatives, can sustain its operations or whether a significant portion of taxpayer money is on the verge of being lost.