National Health Insurance Fund headquarters in Nairobi on November 22, 2023.
The government is boxing itself into a potential debt mess as it increasingly rolls out products that involve lending out money to the public amid a checkered past in the inroads it has made in the financial sector.
From digital to group loans and now the proposed lending towards payment of health insurance, the government is increasingly getting itself into a space where it has struggled to leave a mark.
The draft Social Health Insurance (General) Regulations, 2024, which is supposed to usher in a new social health insurance system says the government intends to start issuing loans to people who cannot afford to pay for the insurance on time.
The draft says the Social Health Authority (SHA), the entity that is going to replace the National Health Insurance Fund (NHIF), will work with the Ministry of Co-operatives and micro, small and medium enterprises (MSMEs) development in the provision of the loans to pay for insurance—an arrangement called premium financing.
“The authority, in collaboration with the ministry responsible for co-operatives and MSMEs development and other financing institutions, shall provide premium financing to non-salaried persons to enable them to pay their annual contributions within the intervals under which their income becomes available,” reads the proposed regulations.
Interest rate
They are, however, mute on the interest rate to charge for the premium financing products and any consequences for those who will fail to repay.
This presents another test for the government, which has set a compulsory annual payment equivalent to 2.75 per cent of annual income from people with non-salaried income. The arrangement poses a compliance headache for families and the government hopes to come in with loans to help them pay for the cover.
The State is also currently continuing with the issuance of the Hustler fund loans which started in November 2022. However, loan defaults have been above that of the banking sector and digital lenders, pointing to a potential mess in the long-term.
Treasury data released in December showed defaults stood at nearly Sh10 billion in the first 11 months since the launch of these micro, small, and medium enterprises (MSMEs)-focused loans.
“By the end of October 2023, the fund had disbursed Sh36.6 billion and realised Sh2.3 billion in savings, benefitting 21.3 million customers with 7.5 million repeat customers whose overall repayment rate is at 73 per cent,” the National Treasury stated.
This means nearly 27 per cent of the loans are non-performing—an indication that borrowers on the State-backed financial inclusion fund are defaulting on payments at a higher rate than those at commercial banks.
The President William Ruto-led administration started by prevailing upon digital credit providers including banks and Safaricom to cut rates, before the State eventually rolled the hustler loans.
Ministry of Health's regulatory impact on the draft regulations shows government estimates to get Sh56 billion per year from the informal sector as premiums towards funding social health care, being nearly 10 times from the current average of Sh5.5 billion.
This means that should at least a quarter of the contributions require premium financing, the government will have to line up at least Sh14 billion as loans, getting into an administrative nightmare to recover the money—just as is being seen with people who have defaulted on Hustler loans.
The government does not hold a good history in the business of lending. Even in the banking sector, which generally enjoys stability, State-owned lenders including Consolidated Bank and Development Bank have struggled to make a mark.
State loans to sectors such as agriculture and specialised groups including women and youth have also been problematic for the government to get the money back and keep such funds going without having to pump in new money.
Treasury data shows the government has struggled to get back money it loaned to entities such as the Agricultural Finance Corporation, Kenya Airports Authority, Kenya Airways, Kenya Meat Commission, and universities.
Out of Sh1.032 trillion advanced to State entities by the end of June last year, the government had either written off or received back Sh58.51 billion, leaving Sh974.2 billion outstanding.
This could be an indicator that the government has struggled to get back money it has loaned to the 57 entities and now faces an even steeper mountain to climb by starting to loan to millions of individuals spread all over Kenya.
Additional burden
The government has struggled to get back money loaned to many of these entities, putting an additional burden on taxpayers’ especially when long periods of default force the State to write off the loans.
The State’s other gamble has been the attempt to start buying goods and selling to select retail shops in the name of bringing down the cost of living.
The government in March last year said it had received Sh24 billion backing from KCB Group for the importation of cheap foods to be distributed through 120,000 shops across the country in efforts to lower the cost of living.
The deal presents another complex arrangement that means the government will be putting competition at the doorsteps of retailers who will not be among the shops expected to participate.
The logistics involved in moving the goods and supplying on credit could be another default in the making.
