The Hustler Fund, a pioneering initiative aimed at providing financial support to the informal sector, is grappling with a concerning trend as borrowers default on payments at a higher rate compared to traditional financial institutions.

The fund, which started its operations at the end of November 2022, has disbursed a total of Sh33.3 billion worth of loans to 17.2 million borrowers, with an average loan size of Sh1,936.

However, recent data reveals that 29 per cent of the outstanding loans, amounting to Sh2.9 billion, have not been serviced as per the agreed schedule.

The Hustler Fund's endeavor to facilitate financial inclusion for marginalized individuals has encountered a challenge that mirrors the struggles faced by mobile lenders advancing unsecured loans to the informal sector.

Moses Banda, the President's adviser on matters of financial inclusion, acknowledged the prevalence of non-performing loans within the Hustler Fund's portfolio, noting that this is a common issue across lending platforms.

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Banda highlighted that the situation has seen some improvement since the introduction of credit scoring for all borrowers at the end of February. The quality of the loan book has experienced a boost, leading to better risk management.

"It used to be over 30 per cent and now it is coming down. It is doing pretty well compared to many other funds that the government has run in the past," Banda said.

This change, he added, is a testament to the effectiveness of the credit scoring system.

In an effort to enhance loan recoveries and promote financial responsibility, the government has taken measures to link the Hustler Fund with existing affirmative action funds.

Borrowers who default on one fund will be barred from accessing another until they rectify their credit scoring.

This initiative aims to ensure prudent management of risk and encourage timely loan repayments.

The government has expressed its commitment to maintaining the integrity of the credit scoring process and monitors it closely.

The credit scoring under the Hustler Fund is reviewed once every four months to ensure that potential risks are identified and managed effectively.

As the Hustler Fund works to address the issue of defaulting borrowers and enhance its risk management strategies, it remains a pioneering initiative that aims to transform the lives of individuals in the informal sector, ultimately contributing to a more inclusive and resilient economy.