Thanks to Rutonomics, shylocks are milking desperate Kenyans dry

Heavy domestic borrowing by President William Ruto’s government has locked out individuals and business from accessing affordable credit, forcing them to rely on expensive loans from shylocks and unregulated lenders.

Political and economic analysts have drawn parallels between President Ruto’s so called “Rutonomics” and former president Mwai Kibaki’s “Kibakinomics” because the Kenya Kwanza administration promised to return the countryeconomically to where the latter left it.

According to leadership and management analyst Prof Gitile Naituli, the difference is that during Kibakis reign, the economy was growing faster and more predictably because of cheap credit that was readily available.

Today, it is impossible to access normal credit because the government is mopping up money from banks through domestic borrowing for recurrent expenditure and therefore crowding out individual and businesses.

In the process, the economy is basically shrinking and sinking, because ordinary Kenyans have opted to rely on expensive credit from shylocks who charge unreasonable interest rates that most borrowers cannot repay.

Many of them are defaulting loan repayment, because the government has also raided individuals and businesses through heavy taxation, thus denying them disposable income to spend and boost businesses holding the loans.

“There is no consumption and so money to pay back the shylocks is also not available. It is a vicious cycle because on one side you are removed from formal credit systems and on the other the over-taxed citizens cannot consume your products for you to repay the shylock. It is between the rock and the deep blue sea,” says Naituli.

During Kibaki’s time, banks were awash with money because the government stopped borrowing from the local market. Money also made returns, because it was invested wisely in productive assets and infrastructure.

Critics today lament a lot about money being used to allegedly bribe voters visiting State House in large delegations. Last week, over 10,000 teachers visited State House, where each was reportedly given Sh10,000 travel allowance.

They were also transported from different sub-counties across the country to Nairobi, where they spend the night before visiting State House to meet president Ruto the following day.

Naituli faults such handouts as unproductive and akin to printing money, because pumping between Sh30 to Sh100 million weekly that people have not worked for into the economy can easily fuel inflation.

“I don’t know which economics these people are applying. These Rutonomics is very strange. It has no parallel anywhere. Shylocks will continue mushrooming as long as the economy deteriorates because there is no plan to correct it” says Naituli.

According to former Mandera Senator, Billow Kerrow, also a former chairman of the Public Accounts Committee in parliament, it is clear the government is living beyond its means.

He argues that Kenya is in a situation where it has a budget deficit every year, because it has never rationalized public expenditure. That is why it continues to borrow heavily from the domestic and foreign markets.

“The government needs to introduce austerity measures, stop misplaced priorities and wasteful expenditure. Look at how large this government lives. Any time you spend more than the revenue collected, then you have to borrow more,” says Kerrow.

That is the complete opposite of Kibaki, who minimized borrowing and the National Treasury was financing more than 90 percent of Kenya’s national budget.

Kerrow says many African countries with smaller budgets than Kenya’s, depend mainly on tax collection to finance entire budgets. That becomes unsustainable when money  is carelessly spent lavishly on items like foreign travel, hotel meetings and paying campaign delegations.

He cites Sudan, where ministers used fuel-efficient Toyota Corrolla sedans as official cars unlike in Kenya where ministers use three Toyota Land Cruiser fuel guzzlers to move from their houses to the office.

“We spend Sh30 billion on travel in public service, and also leave office boardrooms to spend a week in a Mombasa or Naivasha hotel to write a report. It will be difficult to sustain public expenditure until we change our work ethic and culture completely, says Kerrow.

Government debt currently stands at Sh11.5 trillion after increasing by 34 % in the last two years, because it was around S8.5 trillion when Ruto took office in 2022. In June 2012, Kibaki left a public debt of 1.8 trillion.

And Kerrow thinks it will most likely go up, because Kenya Revenue Authority collected Sh2.5 trillion in the financial year that ended in July, against an expenditure of about 3.3 trillion. It is therefore no rocket science that the fiscal space will remain squeezed.

That also means small businesses will continue relying on shylocks as the alternative means of credit, as the government continues borrowing from the local market to meet the budget deficit of close to one trillion shillings gap annually.

“We are a developing country that relies on taxes and unless we stop excessive borrowing, Kenya will continue digging the hole. Unfortunately, the burden of debt repayments will be paid by future administrations, because governments kick the can down the road for the next one to pick from where it left,” says Kerrow.

It is also unfortunate that parliament cannot help because it is a political institution, that serves the interests of the government of the day. They will continue approving loans and sinking the country deeper into debt.

President Ruto argues that food prices have gone down largely because of fertilizer subsidy but is critics also point out that the programme was started by president Kibaki in 2009, when the current president was serving as Minister for Higher Education in the grand coalition government.

Despite being removed from the Agriculture docket that year by Prime Minister Raila Odinga, Ruto accompanied President Kibaki to launch the ambitious but much-acclaimed fertilizer subsidy programme at Bwayi primary School in Moi’s Bridge.

It was picked up by President Uhuru Kenyatta’s Jubilee administration and sustained by Ruto’s Kenya Kwanza after he took office in 2022.

President Ruto also takes credit for bringing down the dollar to shilling exchange rate and the cost of fuel, which has also helped farmers cultivate more acreage and cut down transportation costs.

His decision to securitize the Fuel Development Levy (FDL) to use the money as a borrowing guarantee has however received a lot of criticism from the opposition, who argue that he is mortgaging the lives of future generations. 

“Because the sustainability of these debts is going to be difficult, they will use cash inflows of these funds to get new loans. It is an easy way of borrowing, especially when institutions like IMF become stringent,” says Kerrow.

Such funds have also been used as easy avenues of generating large amounts of money, a case in point being the Railway Development Levy, which Kerrow says was supposed to collect Sh500 billion to repay Standard Gauge Railways (SGR) loans but continues to rake in multiple times more. 

He says the SGR levy was securitized against future revenues to  be generated for loan repayment through a bill that was generated in 2016 but the collections now amount to about two percent of total revenue collected.

Two years ago, former Central Bank of Kenya (CBK) Governor Njuguna Ndung’u called for digital lending applications to be regulated to ensure they function like other financial products controlled by the banking sector.

He decried the wave of unlicensed digital financial service platforms and warned they were robbing desperate Kenyans instead of providing with proper lending solutions.

“They have grown like mushrooms in the country and are not really working for Kenyans. Some of these apps have been displaying shylock-like behaviour while hiding behind nice-looking applications,” said Ndungu.

It was reported that multitudes of online lenders were thriving in the local market, offering loans at exorbitant interest rates and ruthlessly going after individuals who default by engaging their family members with data mined through the applications.

Many victims have reported being harassed and their valuables like cars and household items like seats, TVs, radios, cooking pots, beds and bedding amon other belongings confiscated. 

The Standard also reported that the law capping interest rates made it almost impossible for borrowers to access credit from formal financial institutions, thus pushing them to digital rely on digital platforms.

Financial Services Deepening- Kenya conducted a survey in 2023 on digital lending which showed that there were at least 49 online credit providers were operating in the country at the time.

 Data released by CBK showed that creditors lending to the private sector and individuals were taking advantage of cash-strapped business people by offering them highly priced unregulated loans.