Billions of taxpayers' money is at stake at the Hustler Fund, it has emerged, with the auditor general unearthing major irregularities in what was arguably President William Ruto’s biggest campaign plank.
According to a new audit report, unregistered individuals and people who were not qualified for loans were advanced millions of shillings.
Some people were also given loans above set limits while others got the loans without National Identity Cards.
Auditors are also demanding answers as to why some borrowers were given multiple loans before repayment of the previous ones while some Kenyans were unable to get any loan
There are for instance 129,315 people who borrowed a cool Sh81.6 million.
However, auditors discovered the loan accounts had been closed without a single penny being repaid.
“Their loan repayments could not be traced. No proper explanation was provided by management to explain why the loan accounts were closed before the repayments of the loans,” Auditor General Nancy Gathangu stated.
In yet another instance, auditors discovered 808,047 persons were issued initial loan disbursements amounting to Sh464 million before they registered.
Auditors conclude that it is not possible to confirm if the records are free from manipulation.
“It was not possible to confirm whether the loans were accurate and free from manipulation…or if the loan disbursements complied with the regulations,” the auditor general said.
Hustler Fund, officially known as the Financial Inclusion Fund, was launched by President Ruto on November 30, 2022.
A seed capital of Sh12 billion was drawn from the exchequer to loan to “people at the bottom of the economic pyramid.”
Ideally, only customers who have opted into the Financial Inclusion Fund are eligible to apply and receive loans.
But in the period under review, 1,304 persons who had not registered for the fund received loans to the tune of Sh1.7 million.
Cases of duplicate loan identity numbers were also reported, of which some numbers were used to process more than one loan.
Some 867 loan IDs, for instance, were used to process 1,978 loans amounting to Sh477,000.
“This is an indication that the loan management system is not properly configured,” Gathungu concludes.
The system also issues loans above the set limits, with the audit revealing that Sh420 million was disbursed in the period.
Had the system worked optimally, the 238,707 persons would have received Sh219 million.
Worse still, 5,070 persons were not eligible for loans, pointing to the leakages in the system.
“This indicates that the system may not be properly configured to ensure that the loans disbursed do not exceed the loan limits.”
Loans were to be issued on a credit-scoring model which is used to determine a person’s creditworthiness.
It also emerged that while loans processed are linked to a transaction code, some 424 loans had no code.
“This made it impossible to verify whether the amounts were actually disbursed to a mobile number,” the report reads.
The review further revealed that some five customers had no ID card numbers hence it was not possible to tell if they were issued with loans.
Some borrowers were also issued with new loans – of Sh161 million, before they repaid their previous loans.
Questions followed after it turned out the lot got new loans when new entrants were struggling to access funds.
At the time of the audit, Kenyans had borrowed up to Sh32 billion from the revolving fund and repaid Sh21 billion.
Some loans amounting to Sh2 million could not be traced in the loan repayments or the outstanding loans.
“The accuracy of loans disbursed could therefore not be confirmed,” the report tabled in Parliament recently reads.
As the queries emerged, management failed to provide auditors with crucial documents to confirm the reported balances.
The amounts were not supported by ledger, trial balance or any verifiable documents from which the balances were drawn.
Gathungu said she was not provided the cash book and the general ledger, hence couldn’t determine whether money was spent correctly.
“I have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements,” the auditor general said.
About 19 million people had borrowed from the fund at the time of the audit review. No collateral is required.
Gathungu said that without the cash book and ledger, it was impossible to confirm the source and authenticity of the balances.
The auditor further reported that two banks – Kenya Commercial Bank and Family Bank, were irregularly hired to manage the fund.
Data shows that the State Department of Cooperatives disbursed Sh9.46 billion to KCB and Sh2.54 billion to Family Bank.
The banks were to transmit the money to telecommunications companies – Safaricom, Airtel, and Telkom, for onward lending.
The management, however, failed to provide procurement records to confirm how the service providers were identified.
Gathungu said the audit established that the agreements were yet to be executed after they were forwarded to the Attorney General.
One of the telcos, it emerged, irregularly slapped defaulters with penalties to the tune of Sh369 million.
The government, the review further reveals, has a low chance of recovering more than Sh10 billion that customers borrowed.
Gathungu cast doubt the government would recover the funds in the wake of borrowers failing to repay after more than 90 days.
Of the amount, Gathungu said the recoverability of Sh8.2 billion was totally in doubt. “This could result in loss of public funds,” she said.
Loans of Sh1.2 billion were yet to be repaid 30 days after they were borrowed, 60 days for loans of Sh471 million, and Sh530 million were outstanding for under 90 days.
Loan disbursement records revealed that the Fund had customer savings amounting to Sh1,600,738,661 as of 30 June 2023.
However, bank statements confirming the existence of the customer savings were not provided, the auditor warned.
“The interest accrued from the customer savings was not disclosed as revenue in the books for the period,” the auditor reported.
A schedule showing the names of creditors and Sh232 million owed to them was also not provided for audit review.
Bank statements and schedules showing the date and amount of interest earned were equally not provided.
Payment vouchers and invoices showing goods and services procured at Sh232 million were also provided for audit review.
Gathungu further took issue with the fund management’s failure to disclose interest earned from customer savings.
Also flagged are variances between the balances reported in the financial statements and the records.
From interest income stated to be Sh465 million, supporting documents showed that the balance was Sh84 million.
Customer savings also did not match in the financial statements when compared to the supporting records.
Gathungu reports that management submitted the financial statements for audit on September 29, 2023, and amended financial statements on May 3, 2024.
However, the source documents to support the financial statement balances such as cashbooks and general ledger were not provided for audit review.
In the circumstances, the accuracy of the financial statements could not be ascertained, the auditor general said.
"It was therefore not possible to confirm the source and authenticity of the balances in respect of the components reflected in the trial balance and the financial statements."