The National Treasury has now revealed that savings made from every 5 per cent deduction on Hustler Fund loan will be wired to the Kenya National Entrepreneurs Savings Trust (KNEST), which was created to oversee the running of the savings scheme that targets over 16 million marginalized informal sector workers.
It comes after the creation of the first KNEST Board of Trustees.
Cooperatives Cabinet Secretary (CS) Simon Chelugui, speaking during the unveiling of the board at the National Treasury in Nairobi, noted that the scheme will play a critical role in complimenting the Hustler Fund that aims at improving the lives of economically marginalized Kenyans.
CS Chelugui said the voluntary scheme will be strengthened through incentives to ensure sustainable and inclusive sector-specific saving scheme in order to achieve maximum scale up saving.
At the same time, Chelugui explained that 30 per cent of the savings will go to short-term savings that could be accessed within a year.
“We take 5 per cent of every borrowing and take it to savings. 70 per cent of that savings goes to the long-term savings plan. 30 per cent of that savings goes to a short-term savings plan; meaning you can access your money within one year,” said Chelugui.
The Board of Trustee consists of six independent members, namely Tom Ayieko, Joseph Wanjohi, Martha Opisa, Rachel Leyian and Ruth Bungei, and it will serve a period of three years.
Among the things the board has been mandated to do is manage, supervise and administer the scheme for the benefit of members, pay or provide for the payment of the benefits prescribed by the scheme rules to the entitled persons, hold the scheme funds upon irrevocable trust and apply the same in accordance with the scheme rules, and comply with the scheme rules in managing and administering it.
KNEST as a scheme is intentionally designed to manage meagre and irregular micro contributions by leveraging on technology to provide an affordable low cost pension product at high efficiency, where members will also benefit from tax exemptions on contributions and on investment income, including capital gains that accrue from investing in government securities.
In a speech delivered on his behalf by National Treasury Principal Secretary (PS) Dr Chris Kiptoo, the CS Prof Njuguna Ndung’u said the establishment of a trust corporation under the Companies Act known as KNEST Public Limited Company, was contributed to by the fact that the current regulatory framework was not designed to meet the unique needs of the informal sector workers, whose earnings are meagre and irregular.
“The scheme is projected to be financially viable within 3 to 5 years. It is currently under incubation at the National Treasury. During the incubation period, the World Bank is providing seed funding, with the government providing counterpart funding,” said Prof. Ndung’u.
He added: “As you are all aware, Kenya National Entrepreneurs Savings Trust (KNEST) was set up and is licensed by the Retirement Benefits Authority (RBA) as an individual pensions plan scheme.”
President William Ruto identified KNEST to implement the long-term (retirement) and short-term savings aspects of the Hustler Fund. The scheme has a mandatory savings channel, which anchors the savings component of the Hustler Fund, and a voluntary savings channel for those who do not wish to borrow.
According to Prof Ndung’u, the existing pension savings arrangements are not designed to manage micro-contributions, hence ending up providing meaningless returns on micro-savings, and that the [KNEST] contributions will be linked directly to government securities, and specifically to M-AKIBA retail bond.
“The decision by the Kenya Kwanza government to match pension contributions at the ratio of 2:1 is a huge incentive that will catalyze growth in the sector. For the very first time in the history of this country, ‘mama mboga’ will get the same treatment as anyone in the formal employment,” said the CS.
KNEST Fund is projected to grow exponentially due to the flow of the savings component of the Hustler Fund, in addition to the voluntary savings programme of an estimated 4.5 million informal sector workers, who may not be requiring the credit-led savings channel.
On his part, PS Kiptoo called on the board to ensure the scheme succeeds by leveraging on modern technologies such as digital finance linkages.
CS Chelugui had earlier this year announced a 100 per cent increase in borrowing limits for the Hustler Fund for personal loans, which was launched November last year.
The increase in limits will apply only to those who have borrowed and repaid their loans regularly, and the changes will be implemented on a case-by-case basis.
According to Chelugui, the Hustler Fund is reviewed every four months, and individuals are rated according to their repayment history.
The National Treasury has already disbursed the Ksh1.8 billion required to the trust accounts, with wallets held in two banks; KCB Bank and Family Bank. The Hustler Fund has four products targeting various segments of the population; Personal, Micro-Business, SME, and StartUp loans.
By Roy Hezron