Why Kenya's catalytic funds are not effective in poverty alleviation

Behind the much-publicised Sh30 billion National Youth Opportunities Towards Advancement (Nyota) project and its allure of “free” money lies a harsh reality: the government is using the programme mainly as a relief measure.

Despite the number of catalytic funds set up by the government by different administrations and billions disbursed through them, for some reason – sometimes obvious – these allocations do not seem to solve the overall challenge of poverty alleviation, which is the main purpose for their existence. 

Now and then, numbers will be splashed, but most times these figures – and the subsequent testimonials paraded by government officers – are usually trashed when the Auditor General publishes her findings.

This gap is one of the reasons why the Sh30 billion Nyota project is critical. From the concept notes of the project, while Sh10.4 billion will be disbursed to the youth as support or capital for their start-ups, some Sh2.6 billion will go towards the development of strategies on how well the government can monitor the impact of such funds.

The government operates several funds as economic catalysts, which include Uwezo Fund, Women Enterprise Fund, the Youth Enterprise Development Fund (YEDF) and the Financial Inclusion Fund (FIF), also known as the Hustler Fund.

The purpose of these funds is to facilitate capital injection to the youth and women for their businesses at interest rates lower than what the market offers. The borrowers are supposed to repay this cash so as to make the kitty a revolving fund. 

This then reduces poverty levels through the creation of employment opportunities for the youth and expanding the tax bracket.

However, numerous reports from the Auditor General indicate a tendency of poor repayment. Nevertheless, these funds do get boosts from the exchequer.

One of the World Bank reports that documents the credit line to Kenya for the Sh29.7 billion Nyota project notes the challenges the government has in monitoring the effectiveness of these catalytic funds.

To this end, Sh2.6 billion is being extended to Kenya through the World Bank’s International Development Association (IDA) for monitoring and evaluation and delivery systems.

“This sub-component will support the creation of monitoring and evaluation systems so that evidence is generated on the effectiveness of existing and new interventions,” the document says.

It notes that currently, many government funds provide loans – these are called catalytic funds, namely Uwezo Fund, Women Enterprise Fund, Youth Enterprise and Development Fund and recently the FIF.

“These systems lack monitoring and evaluation capabilities. To help the government of Kenya address broader issues of tracking and managing these funds, this sub-component will support the creation of monitoring and evaluation systems for the catalytic funds," the document says. 

These systems, adds the World Bank in the document, will help better target vulnerable youth and inform the eventual restructuring and consolidation of these funds.

In this subcomponent, some 600,000 youth will be provided with digital training on Access to Government procurement Opportunities (AGPO), Uwezo Fund, WEF, YEDF and Hustler Fund.

Like the existing funds, the World Bank project also seeks, in part, to provide youth with capital to start or inject in their existing businesses.

Under this subcomponent, the intention is to disburse Sh10.4 billion to 90,000 youth in all 47 counties. The plan is also to distribute cash to 5,000 refugees and 5,000 host community youth beneficiaries in Garissa, Turkana and Wajir.

“The available financing may not be sufficient to cover all of the needy youth beneficiaries under this subcomponent. Additional resources from other bilateral donors and from county governments will be explored to achieve adequate coverage nationally,” the document says.

The participants, as already witnessed, are being issued with grants of up to Sh52,000, which is being disbursed in two tranches, to be used as seed funding. Half of the recipients should be women, according to the document.

“Beneficiaries will be linked to credit facilities and other financing opportunities, including the FIF and other catalytic funds,” the document says.

“Female beneficiaries will also be linked to women’s cooperatives, gender-linked financing facilities, and women’s finance credit facilities such as the Kenya Commercial Bank (KCB) and the Kenya Women Finance Trust (KWFT).

Implementation of the project has been split into four components. In one of them, component four, which is on systems, capacity building and project management, the Ministry of Youth Affairs, Arts and Sports will work in coordination with the Micro and Small Enterprise Authority (MSEA) and the State Department for Micro, Small and Medium Enterprise Development.

“Under the project, the State Department for Micro, Small and Medium Enterprise Development will be responsible for the development of a monitoring and evaluation system for catalytic funds,” the document says.