Kenya’s Financial Inclusion Fund, also known as the Hustler Fund, was launched on November 30, 2022, to disburse government-backed loans via mobile money wallets to the underserved citizenry of Kenya. Generally, the recipients are the sort of folks who would make the bank manager visibly uncomfortable if they lined up to ask for loans — because of low disposable income, and lack of collateral. Enabling this part of the pyramid to access credit was a noble initiative by the government and, with adequate safeguards, this would have supported numerous micro-enterprises. However, it was implemented in too great a hurry because it was a key pledge of the incoming government.
In the typical way of Kenya nowadays, those who were of the opinion that structures needed to be put in place to deliver the service (including yours truly) were at best ignored or at worst reminded that they were speaking from a position of privilege, never mind that the privilege in this case is a measly payslip which the same government taxes heavily in order to fund these types of things.
The Office of the Auditor General has now issued the first report after reviewing this fund, and reading pages 71 to 76 of this document, I felt sorry for Kenyan taxpayers. As expected, mobile money technology failed to cover the lack of process, preparedness and basic discipline.
If this report was ever issued in a private company, I would hazard a guess that the CFO, and possibly the CEO would be dusting their CVs. I would not employ them to keep track of bananas at my farm. Management could not even provide some basic documents requested by the auditors.
…the source documents to support the financial statement balances such as Cashbooks and General Ledger were not provided for audit review. 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
There is no tracking of interest earned from customer savings. This requires a bit of explanation for readers who are unfamiliar with this fund. Whenever a customer takes a loan, a portion of the loan amount is saved for the customer (by the government). It is supposed to be somewhere safe and will be given back (nobody knows when and how, but in the goodness of our government we trust). There are those who asked why somebody needs to borrow to save, but again we were invited to go and learn the fundamentals of building a national saving culture. I admit I have not done this bit of homework.
Be that as it may,
…the interest accrued from the customer savings [KSH1,600,738,661, USD12mn] was not disclosed as revenue in the statement of financial performance and statement of cash flows for the period
Did I hear somebody snigger at the back? Something like, “now you see it, now you don’t”?
For the interest earned from customer loans, financial statements say one thing and the supporting records say another thing. For example, per financial statements, interest earned from loans is KSH465,589,559 (USD3.6mn). Supporting records were for KSH84,015,467 (USD650,000), hence a variance of KSH381,574,092 (USD2.9mn). What type of record keeping is this? My grandmother had a better filing system for purchases made to restock her snuff box!
We are only getting started. The same financial ‘statements’ have unsupported balances. Payment vouchers and invoices showing goods and services procured were not provided for review and the amount in question is a nice round sum of KSH232,795,259 (USD1.8mn).
Do you remember the ‘savings’? We were supposed to be on track to build a national savings culture, statement by statement. Are we, now? When the auditors asked for bank statements confirming the existence of the customer savings (USD12mn) they were provided with the sound of crickets, recorded in stereo.
Bank Statements confirming the existence of the Customer Savings [were] not provided.
Changes in net assets were also equally dubious. The audit team noted:
…unexplained balance of KSH 12,232,794,298 [USD94mn], transfers to revolving fund of Kshs.116,397,390 [USD900,000], and Secretariat amount of KSH 116,397,390 [USD900,000].
However, the amounts were not supported by ledger, trial balance or any verifiable documents from which the balances were drawn
Do I hear my grandmother sneezing? It must be the strong whiff of mischief in the air. Another curious thing also emerges:
cash balance amounting to KSH 259,026,553 [USD2mn] held by the service providers in the mobile money wallets could not be confirmed as there was no documentation provided for audit review to confirm its existence.
I say this is odd because the service providers are the mobile network operators: Safaricom, Airtel and Telkom. I can guarantee 100% that if the service providers were requested to provide the balances in mobile money disbursement accounts linked to this fund, it would be a matter of minutes to fulfil the request. Why would management of the fund not make such a request? Oh, wait, in fact, they are supposed to be reconciling this on a regular basis, and preferably have automated controls! Does this mean that such basic housekeeping does not happen?
There is a big challenge with repayments. The report notes:
78% of the loans amounting to KSH. 8,219,087,056 (USD63mn) had been outstanding for more than three (3) months
I doubt that money is coming back, certainly not when basic tasks are not being done within the fund. It should not surprise if, in the next audit cycle, the Auditor General, writes about a huge chunk of non-performing loans.
The report goes on to talk about other issues of varying significance but deeply symptomatic of a mess of royal proportions.
- Irregular/unapproved charges to customers. This article (behind a paywall) also lays the blame at Safaricom’s feet.
- Customers without proof of identity were issued with loans.
- Loans which are not linked to a unique transaction code.
- Borrowers getting additional loans before they clear previous ones, in contravention of the rules of the fund.
- Closed loan accounts that were not repaid.
- Loans that were issued, have not been repaid and cannot be traced in the list of outstanding accounts.
- Duplicate loan identity numbers (each loan identity number is, of course, supposed to be unique).
- Disbursement of loans above the set limits. Why call them limits then?
- Loans which were issued to individuals who never opted in to the fund. How benevolent!
- No records to show how the procurement of service providers was arrived at.
The final finding is the mother of all findings:
…Board and Management [have not] formulated and documented an ICT Policy and a Risk Management Policy. Therefore, there were no measures in place to mitigate against emerging risks in the Fund’s Day to day operations. Consequently, the ability of the Fund Management to identify threats or risks and various strategies of minimizing their impact may be compromised.
One then wonders what the Board or management is doing if something as basic as this has not been tackled close to two years after the fund was established.
Noble intentions, lofty promises, flashy branding, superior technology, and habitually gaslighting the critics can only go so far. With such lacklustre risk management, it is only a matter of time before the risks rear their heads, with big numbers.
