Public officers dismissed over disciplinary issues may continue to benefit from low-interest car loans, under a Treasury plan that has sparked debate over its fairness and long-term impact.
The move also proposes reducing the interest rate on the State Officers and Public Officers Motor Car Loan Scheme Fund from five percent to four percent, a change aimed at boosting participation in a scheme that has struggled since its launch.
Treasury Cabinet Secretary John Mbadi outlined the proposals, saying the changes followed discussions with the Salaries and Remuneration Commission and the Public Service Commission.
“Following consultations between the Treasury, the Salaries and Remuneration Commission and the Public Service Commission, it has been found necessary to effect the following amendments to the regulations: reduce the applicable interest rate from five percent to four percent,” he said.
“Delete the clause stating that the interest rate will revert to commercial terms for officers leaving the service on disciplinary grounds.”
The scheme, launched in 2015, was intended to make careers in public service more attractive amid stiff competition from the private sector.
It allows civil servants and state officers earning above Sh20,000, excluding those in Parliament and the Judiciary, to borrow vehicles at five percent interest with repayment over five years. Recipients are barred from using the vehicles for commercial purposes until the loan is fully repaid.
Despite receiving hundreds of millions of shillings each year, uptake has been poor, with just over Sh324 million disbursed since the scheme began. The low absorption rate has drawn repeated warnings from the Auditor-General, who flagged the idle funds and urged that they be redirected to urgent priorities.
Treasury research found that the five-year repayment period and the commercial use restrictions were major deterrents to participation.
The number of public servants dismissed rose sharply, reaching 858 by June 2024, up 67.5 percent from 512 the previous year.
Treasury projects that the proposed changes could expand beneficiaries from 106 in June 2024 to 1,125 by June 2028 and raise disbursements from Sh324 million to Sh2.267 billion in the same period.
“The low absorption of loans threatens the very existence of the Fund. It points to concerns over the sustainability of the Fund and raises the risk of the funds allocated to it being recalled,” Mr Mbadi added.
