INSTITUTION____GERIVIA ADVOCATES LLP____DATE___18TH NOVEMBER 2022____
| S/No | Regulation No. | Provisions of the Regulations* | Rationale for Amendment Recommendation | Proposed Amendment** |
| 1. |
2 |
“medium enterprise” has the meaning assigned to it under section 2 of the Act | Section 2 of the Micro and Small Enterprises Act, 2012 does not define the term “medium enterprise”
Use the definition of “medium enterprise” that had been proposed in the revoked Public Finance Management (Biashara Kenya Fund) Regulations, 2021 with a few changes as guided by the definitions and thresholds of small and micro enterprises in the Micro and Small Enterprises Act. |
“Medium enterprise” means a firm, trade, service, industry or a business activity —
(a) whose annual turnover ranges between six million and one hundred million shillings; (b) which employs between fifty and two hundred and fifty people; and (c) whose total assets and financial investments is between fifty million and two hundred and fifty million shillings or whose total assets and financial investment shall be as determined by the Cabinet Secretary from time to time. |
| 2. | 2
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Interpretation | Formatting for good order. | Capitalize the first letter all the defined words and phrases for uniformity e.g.
“association” to “Association” “Board” – “borrower” to “Borrower” “bottom of the pyramid” to “Bottom of the pyramid” “Cabinet Secretary” “chama” to “Chama” etc |
| 3. | 3 | Establishment of the Fund | Clarify if the Fund shall be a body corporate with perpetual succession with power to sue and be sued in its corporate name and to acquire, hold and dispose of movable and immovable property for its own purposes. | Proposed text depends on response to the nature of the Fund. If it is body corporate:
The Fund shall be a body corporate with perpetual succession and a common seal and shall have power to sue and be sued in its corporate name and to acquire, hold and dispose of movable and immovable property for its own purposes. |
| 4. | 6 | Capital of the Fund | There needs to be clarity on whether the 50 billion is to be appropriated per annum or it is a one-off appropriation. The Kenya Kwanza manifesto indicates it is a 50 billion annual allocation. If additional capital is to be given in subsequent years, see proposed first text.
If it is a one off, see proposed second text. |
The initial maximum capital of the Fund shall be fifty billion shillings appropriated by Parliament in the financial year 2022/2023. Additional capital of 50 billion per financial year shall be made to the Fund in the subsequent financial years’ budgets.
If 50 billion is a one-off contribution: The maximum capital of the Fund to be appropriated by the National Assembly [for the duration of the Fund] shall be 50 billion shillings. |
| 5. | 7 | Propose to Add:
Regulation 7 (3) – Principles and Values of the Fund
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Principles and values of the Fund – these should draw from the Constitution. | The guiding principles of the Fund include inclusiveness, equality and equity, impartiality, non-discrimination, good governance, integrity, transparency, accountability, financial prudence, responsive and prompt service delivery. |
| 6. | 10 | Advisory Board
(Membership) |
Inclusivity in the Board – the Board should include representatives from the “bottom of the pyramid” and the micro, small and medium enterprise segment of the society. Groups such as traders, boda boda riders and MSMEs have umbrella organizations that represent their interests. For this Fund to adequately represent their interests, they should sit in the Board. | (f) two other persons, not being public officers, who shall be appointed by the Cabinet Secretary for the time being responsible for matters relating to micro, small and medium enterprises. The two other persons shall be people who represent the interests of the target group of the Fund, either as representative of the “bottom of the pyramid group” or micro, small and medium size enterprises. |
| 7. | 10
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Advisory Board | Looking at the history of Funds in this country, we should anticipate the removal of members of the Board incase of breaches of the law and provide clear mechanisms for their termination. The budget of this Fund is quite high, compared to the other Funds, so we should provide for termination incase of any impropriety by the Board.
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Termination of appointment of Chairman and Members of the Advisory Board
The appointment of a member of the Advisory Board, other than an ex officio member, may be terminated, in the case of the Chairman by the President, and in the case of any other member by the Cabinet Secretary, on any of the following grounds— (a) inability to perform the functions of his office by reason of mental or physical infirmity; (b) gross misconduct or misbehaviour that breaches the code of conduct prescribed for public servants; (c) if convicted of a criminal offence and sentenced to a term of imprisonment of not less than six months; (d) bankruptcy; (e) if, without reasonable cause to the satisfaction of the Cabinet Secretary, the member is absent from six meetings of the Board in any financial year; or (f) for such other sufficient cause. |
| 8. | 10 | Add 10 (4) | Add provisions on disclosure of conflict of interest.
The proposed text is borrowed from the KRA Act. Alternatively, you could incorporate the provisions of the MWONGOZO, the Code of Governance for State Corporations as a guide on the operations of the Board. |
Disclosure of interest by Chairman and Members of the Advisory Board
(1) A member of the Board who has a direct or indirect personal interest in a matter being considered or to be considered by the Board shall as soon as possible after the relevant facts concerning the matter have come to his knowledge disclose the nature of his interest to the Board. (2) A disclosure of interest made by a member of the Board under subsection (1) shall be recorded in the minutes of the meeting of the Board and the member shall not unless the Board otherwise determines in respect of that matter— (a) be present during any deliberations on the matter by the Board; or (b) take part in the decision of the Board on the matter. For the purpose of the Board making a determination under subsection (2) in relation to a member who has made a disclosure under subsection (1), such member shall not— (a) be present during the deliberations of the Board nor take part in the making of such determination by the Board; or (b) influence any other member to take part in the making of such determination by the Board. |
| 9. | 10 (2) | Add 10 (2) (a) and (b) Meetings of the Advisory Board | Board meetings of state entities are limited to a certain number a year. The Fund Advisory Board will require to meet regularly especially in the first few years of its establishment. The Regulations, even though through a Schedule, should state the number of meetings to protect the Board members.
Consider having a Schedule to provide for details of the Board meetings including matters such as quorum, notices etc.
On renewal of the mandate of the Board, who measures that satisfactory performance? Is it the State Corporations Advisory Committee (SCAC)? These details could be captured in the Schedules. |
(10) (2) (a) The first meeting of the Board shall be convened by the Chairman and, subsequently, the Board shall meet as often as necessary for the transaction of business at such places and at such times as may be decided upon by the Board but it shall meet at least once every month.
10 (2) (b) The provisions of the [First/Second/Third -pick relevant number] Schedule shall apply to the meetings of the Board and other matters provided for in that Schedule. |
| 10. | 12 (g) | Set the criteria and conditions for accessing the various financial services including the rate of interest and recovery of loans in furtherance of the objects of the Fund.
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Provide clarity if there are other costs to the credit, besides the interest rate e.g. loan processing fees, charges for loan disbursements etc. | Set the criteria and conditions for accessing the various financial services including the rate of interest, fees and charges that add to the cost of credit and recovery of loans in furtherance of the objects of the Fund |
| 11. | 13 | 13 (4)
Appointment of Chief Executive Officer
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Include an additional requirement that the person appointed to be the CEO of the Fund should be a person with an established track record of managing similar entities with success, in addition to the academic requirements. This is a fund that can be managed by a person from any discipline as long as they have experience operating a fund with similarities to this one. Track record is therefore the most important thing. The use of the term “relevant” in relation to experience or certifications can be vague and confusing.
The standard term for state entities should be 3 years renewable. |
13 (4)
(d) has a good track record of managing a similar fund or entity with a similar mandate successfully. 13 (5) A person appointed as Chief Executive Officer shall hold office- (a) For a term of three years subject to renewal for a further term of three years; and |
| 12. | 13 | Chief Executive Officer of the Fund
Add Regulation 13 (6)
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The Regulations provide for appointment but do not provide for termination.
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(13) (6) Termination of the Chief Executive Officer
The Cabinet Secretary may, after consultation with the Board, terminate the appointment of the Chief Executive Officer for- (a) inability to perform the functions of his office by reason of mental or physical infirmity; (b) gross misconduct or misbehaviour that breaches the code of conduct prescribed for public servants; (c) if convicted of a criminal offence and sentenced to a term of imprisonment of not less than six months; (d) bankruptcy; (e) incompetence; or (f) any other sufficient cause. |
| 13. | 14 (2) | Secretariat staff | Why should Cabinet Secretary appoint the staff of the secretariat? That should be the work of the Board | (2) The staff of the secretariat shall be competitively appointed by the Advisory Board following a competitive and inclusive recruitment process. |
| 14. | 16 | Eligibility Conditions – Natural persons or unregistered businesses | Eligibility to loans should not be restricted to natural persons who are in business, those in business to demonstrate they are operating a business or those who ca demonstrate the type of business venture they intend to start. The fund should be willing to advance loans that ae not business related e.g. loans that enable re-organize their finances.
For instance, it should be acceptable for a borrower with many digital or shylock loans which they are repaying at exploitative interest rates to use a loan from this Fund to pay off those predatory loans and be left servicing this loan which has friendlier interest rates and better payment terms. |
(16) Eligibility Conditions
(c) in the case of borrowers operating unregistered business, the person shall provide evidence of the business they operate; or (d) in the case of a natural person, the person shall demonstrate that he or she is running an enterprise or intends to start an enterprise or the purpose of the money if it is not business related.
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| 15. | 16 | Add:
Eligibility Conditions |
To add an element of Age, Gender and Diversity Mainstreaming in the loan disbursement process. | Loan Prioritisation/Preference Policy
16 (e) – The Board shall develop a policy for prioritisation/preference in processing of loans under the Fund for certain categories of borrowers, such as persons living with disability, the elderly, pregnant women and other vulnerable groups as may be identified by the Board. |
| 16. | 16 | Add:
Criteria |
There is need to have fixed criteria for loan application. This includes aspects such as:
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Loan Criteria
16 (f) The Administrator of the Fund shall develop criteria for evaluating loan applications, which criteria shall be as contained in Schedule X of the Regulations. |
| 17. | Criteria for issuing loan waivers, interest waivers and moratoriums | The Hustler Fund should appreciate that the group the Fund is seeking to finance is vulnerable and does not have most of the protections that upper classes of the society have such as stable incomes with benefits such as insurance e.g. most hustlers are daily labourers paid on a daily basis. Factors such as ill health, accident that leaves them with temporary or permanent disabilities could render it impossible for them to repay the loans. This is a common risk with boda boda riders who are some of the intended beneficiaries of this Fund. If such circumstances are proved, a waiver or moratorium should apply. | Loan Waivers and Moratoriums
16 (g) – The Advisory Board and the Administrator of the Fund shall develop criteria for application of loan waivers, interest waivers or moratorium on loan repayment upon the occurrence of certain unforeseen events which may hamper regular loan repayment by a borrower.
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| 18. | 17 and 18 | 17. A financial intermediary may apply for a loan from the Fund for on-lending to a business person or micro, small and medium enterprises.
18. (1) A financial intermediary that is entering into a lending agreement with the Fund under regulation 17 may provide matching funds of at least the amount as may be determined by the Board. (2) A financial intermediary shall pay an interest as may be determined by the Board, but where the financial intermediary provides marching funds under paragraph (1), the interest rate shall be lower compared to where no marching funds are provided.
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The use of financial intermediaries to disburse the funds should be clearly defined. The reason why the country needs a Hustler Fund is because financial intermediaries have failed to meet the needs of hustlers. How sure are we they will meet their needs this time?
How will you monitor and evaluate the disbursements of these loans y financial intermediaries to ensure that they are not placing unnecessary hurdles that make the funds inaccessible to the beneficiaries. Note the views of the Committee on Delegated Legislation on the use of financial intermediaries with regard to the revoked Biashara Fund Regulations 2021, and the view that their use violates Section 13 (l) of the Statutory Instruments Act as it makes rights, liberties or obligations unduly dependent insufficiently defined administrative powers.
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Rules on Loans Advanced to Financial Intermediaries
18 (2) A financial intermediary shall pay an interest as may be determined by the Board, but where the financial intermediary provides marching matching funds under paragraph (1), the interest rate shall be lower compared to where no marching matching funds are provided. 18 (3) A financial intermediary lending to a business person or micro, small and medium enterprises using money borrowed from the Fund shall apply interest at the same interest rate that the Fund is lending to the borrowers. 18 (4) A financial intermediary lending to a business person or micro, small and medium enterprises using money borrowed from the Fund shall not apply eligibility conditions higher than those applied by the Fund to borrowers. 18 (5) The Fund shall ensure that only X percent of the monies under the Fund are disbursed through financial intermediaries. 18 (6) The Fund shall advance loans to financial intermediaries for onward lending at the rate of X percent per annum. |
| 19. | 22 | Re-number Regulation 22 as 22 (1)
Add 22 (2) and (3) Data protection issues are not directly covered, though data breaches are listed as an offence and a penalty provided. |
The operations of the Fund will be data heavy and there is need to ensure the Data Protection Act, 2019 is adhered to.
Also, the lending industry in Kenya is notorious for data breaches. Noting the magnitude of the money the Fund will be disbursing, which means collection of large volumes of sensitive data from millions of data subjects, data protection is key.
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22 (2) The processing of data for the borrowers shall be done in accordance with the provisions of the Data Protection Act, 2019.
22 (3) The Board shall, within the first six months of its operations, develop a Data Protection Policy detailing among other things the rights of data subjects under the Fund, when and how a Data Protection Impact Assessment will be conducted and handling of data breaches and safeguards, amongst other provisions. |
| 20. | 26 | Offences and penalties | Noting our history with misuse of Fund money, consider adding the proposed offences and penalties. | (e) demanding a bribe, kickback, or other benefit or favour in cash or in kind to approve a loan or speed up the process of disbursement of the loan or apply a waiver or moratorium.
(f) Failure to follow the “first-come first-serve basis” in processing and approving loans, except where the Regulations or written policies allow for official fast track mechanisms for certain categories of applicants such as persons living with disability. (g) Approving or fast tracking the loan approval process based grounds such as nepotism, cronyism, tribalism, or such other non-objective requirements. (h) Knowingly advancing funds to a non-eligible person or enterprise. |
| 21. | 27 | Schedules/Policies | Some of the items that require further details may be included as schedules or left to be detailed under Policies of the Fund.
The Board should develop a Policy on implementation of Regulation 7 (2) (c) on capacity building and education of the informal sector membership. |
FIRST SCHEDULE – MEETINGS OF THE BOARD
SECOND SCHEDULE – CRITERIA FOR LOANS |
| 22. | Other Comments | General Comments on the Operationalisation of the Financial Inclusion Fund, issues not included in the Regulations
The Despatch from Cabinet dated 15th November 2022 stated in the first phase expected to be rolled out by 30th November 2022, the loan limits will be determined by the borrower’s credit score and capped at Ksh. 50, 000 at the rate of 8% per annum. |
These are comments relating to the interest rate and loan limits which are not covered under the Regulations but will affect the effectiveness of the Fund.
The limit of Ksh. 50, 000 is too little even for those in the bottom of the pyramid. This may be sufficient for a small grocery business but may not be enough to even buy a motorbike or enable creatives to purchase their tools of trade and set up a small office. For businesses that have any form of value addition, however basic, this amount will not be helpful.
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Refer to article with additional feedback beyond the Regulations, even on matters of policy. |
