Posted by: KENASVIT | May 3, 2011

KENASVIT Draws Attention to Corruption in 3.8b MSE Fund

KENASVIT has recently been featured in the Kenyan media (here and here) for our role in bringing to light disconcerting activities related to the Sh 3.8 billion MSE Fund. The MSE Fund was announced during the release of 2010/2011 Budget in June 2010. The Fund was created to promote financial inclusion of Kenya’s 8.3 million informal sector workers through the disbursal of loans to Micro and Small Enterprises, including street vendors, kiosk owners, hawkers, mama mbogas, jua kali artisans, informal transport workers. The 2010/2011 Budget allocated Sh 3 billion in government funds to be channeled through banks (which would match each sh with 5sh of their own) for loans, thus expanding the Fund to 15 billion. An additional Sh 800 million was budgeted for capacity building of MSEs. Eleven months since the Treasury announced the Fund, not a single informal worker has received a loan from the MSE Fund.

In March 2011, the Ministry of Finance announced the release of Sh 750 million to three commercial banks: Equity, Coop and K-Rep – each of which was allocated Sh 250 million. As part of the agreement between government and the banks, each bank will contribute 5 shillings for each government shilling, raising the current kitty amount to Sh 3.75 billion. As of start of May, none of these three banks has received their Sh 250 million allocation, and accordingly, traders have not been able to access loans. By all appearances, the Sh 750 million still remains in Treasury. Furthermore, it is unclear where the remaining Sh 3.05 billion is, and when/if it will be disbursed by the government. In meetings with bank officials, KENASVIT has learned that the banks are now starting to impose their own rules and regulations contradicting what Minister of Finance, Uhuru Kenyatta, promised in last year’s budget speech, as well as signed government contracts.

KENASVIT fears that if delays in the disbursal of the MSE Fund continue until the end of this Fiscal Year (June 30, 2011), the remainder of the MSE Fund will be “returned” to Treasury and will be vulnerable to misappropriation. If this occurs, it will ultimately mean a huge loss for Kenya’s 8.3 million informal traders, for whom the Fund was meant to alleviate poverty and under- and unemployment. Based on these and other concerns related to the management and disbursal of the MSE Fund, KENASVIT wrote to the Kenya Anti-Corruption Commission (KACC) and their director, Prof. P.L.O. Lumumba, expressing our fears. Prof. Lumumba and KACC have stated that they will meet with KENASVIT to learn more.  The Daily Nation picked up our story on April 27th, in an article entitled Detective Pledge Action On Funds Delay.

Groups Feud Over Street Vendors Cash, (another article published in Daily Nation, on April 28th) refers to an umbrella organisation, the Kenya Association for the Financial Inclusion of the Informal Sector (NAFIIS). In the article NAFIIS misinterprets (or misrepresents) KENASVIT’s claims, saying that “complaints raised by Kenasvit were meant to cause confusion in the disbursement of the money;” on the contrary, KENASVIT is very eager to see the Funds disbursed in a transparent and speedy manner. NAFIIS also misquotes KENASVIT by alleging that we believe that the banks are causing the delay; KENASVIT is fully aware that although Treasury announced the release of the funds to banks in March, they have yet to receive their allocations.

Furthermore, there are some concerns regarding the legitimacy of NAFIIS itself, given that its registration was completed in one day, and that it is headed by Mr. PMG Kamau, who is also the National Coordinator of the MSE Fund at Treasury. These facts provide support to the claims made in parliament by two MPs (Ndiritu Muriithi, Assistant Minister Industrialisation and David Ngugi, Kinangop MP) on April 20th. Muriithi and Kinangop allege the existence of a cartel working in Treasury related to the MSE Fund.

Many of the challenges facing the administration of the MSE Fund could be addressed through the enactment of the long-awaited MSE Bill 2011. The Bill makes provisions for the establishment of an MSE Council, which among other responsibilities, would oversee the accountable and transparent management of the MSE Fund. In the absence of the MSE Bill, there is no institutional framework to ensure smooth, transparent disbursal of the Fund, making it possible for the Sh 3.8 billion to eventually be misappropriated. The Council would also provide an avenue for affected stakeholders to raise concerns.  KENASVIT has actively been working to pressure the government into fast-tracking the Bill, and continues to do so.

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