Taxpayers are staring at Sh28.4 billion in losses from loan defaults in five public funds, including the Financial Inclusion (Hustler) Fund, Uwezo Fund, Commodities Fund, Women Enterprise Fund, and the Youth Enterprise Development Fund, a new audit shows.
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 youth, women, and persons with disabilities (PWDs).
The audit of national government funds for the year to June 2024 shows that the Commodities Fund is the worst hit by defaults and had to write off Sh12.36 billion in loans to sugar companies last year.
“While due process was followed through approvals from Parliament and the National Treasury through a letter dated March 27, 2024, these substantial loans write-off raises significant financial implications for the fund,” said the audit.
The audit notes that the write-off limits the agency’s capacity to extend loans in the future, which will have effects on players in the agricultural sector.
During the fiscal year, the Commodities Fund raised its loan loss provisions by Sh61.4 million to Sh7.8 billion, fuelling fears of the inability to recover more loans that have remained unpaid for several years. The fund is a creation of the Crops Act, 2013 to provide sustainable and affordable credit and advances to farmers for farm improvement, inputs, operations, and price stabilisation.
“This increase highlights significant weaknesses in the Fund’s credit risk management practices, such as inadequate borrower vetting, a lack of effective monitoring of loan performance, and inefficient loan recovery systems,” said the audit.
At Hustler Fund, which was created just two years ago, out of unpaid loans amounting to Sh13.57 billion as of June 2024, Sh8.7 billion had been defaulted on for more than a year.
“However, records provided indicated that approximately Sh8,737,216,077 or 64 percent of the Fund’s total loans receivables as of June 30, 2024 were outstanding for more than one year hence casting doubt if the Fund will recover the loans issued to borrowers,” the audit notes.
Lenders in the private sector are also leveraging the presence of the funds to provide loans through the product.
The audit, however, faults high levels of defaults with cases of duplicate loans amounting to Sh1.6 billion being flagged.
At Uwezo Fund, which disbursed over Sh500 million in loans during the year ending June 2024, Sh5.17 billion in loans have been defaulted.
“Further, there were 235,628 loans disbursed amounting to Sh210,447,077 which had not been repaid and were not included in the outstanding loans balance as at June 30, 2024.”
At Uwezo Fund, which disbursed over Sh500 million in loans during the year ending June 2024, Sh5.17 billion in loans have been defaulted and the audit notes that the agency has not developed a policy on the provision of bad and doubtful debts.
“It was observed that Management did not provide the loan repayments criteria or the accounting policy for classifying as either current or long-term due,” the audit noted.
The Women Enterprise Fund also had Sh2.5 billion in unpaid loans by the end of June 2024, out of which some Sh71.3 million were non-performing loans (NPLs) from eight financial intermediary institutions, the audit notes.
At the Youth Enterprise Development Fund, out of the unpaid loans valued at Sh2.79 billion as of June 30, 2024, Sh2.09 billion loans had been defaulted on for over two years, the audit revealed.
