M-Pesa launches interest-free loans for buying goods

Safaricom has unveiled a zero-interest credit service that will allow millions of its customers to shop for goods up to Sh100,000 and pay later. FILE PHOTO | NMG

Safaricom has unveiled a zero-interest credit service that will allow millions of its customers to shop for goods up to Sh100,000 and pay later in a move that is set to disrupt the mobile loans market.

Users of the interest-free product to be known as Faraja will buy goods and services from as low as Sh20 to a maximum of Sh100,000 and pay the same amount without any extra fees witnessed on other credit products.

However, only the normal M-pesa transaction charges will apply at the point of sale on the product to be bankrolled by Equity Bank.

Faraja, is slightly similar to the Lipa Later service currently in the market, only that this time, shoppers will walk away with the goods from a list of selected merchants without being required to pay upfront in instalments.

It will work like a digital credit card where a user will have a credit limit of up to Sh100,000, depending on their credit score, to make purchases against and then repay at a later date within the 30-day window.

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“You will only be required to repay the outstanding facility amount as advanced to you by us (in whole or in part) using the designated Paybill number or such other channels as provided by us from time to time,” Safaricom says in a statement on its Website.

Faraja promises to be a game-changer in the mobile loans market and is set to undercut the costlier credit products including its own Fuliza, KCB-Mpesa, Mshwari as well as digital credit providers such as Tala, Branch and Zenka.

Safaricom and Equity are looking at making money from the surge in Lipa na Mpesa transactions at select stores. Already dozens of outlets have signed up to be merchants including Naivas Supermarket, Goodlife pharmacy and Citi walk, a shoe-selling store.

Lipa na M-Pesa was launched by Safaricom in June 2013 and has aggressively recruited merchants across the country, including large and small businesses such as fuel stations, supermarkets, corner shops and eateries.

This has seen it overtake the card payments – run by banks and their global payments technology partners such as Visa and Mastercard — that have largely focused on serving formal retailers.

The Faraja product is owned by Edomx Ltd, a Kenya-based financial technology firm. The Business Daily understands the parties will have a revenue-sharing formula.

Safaricom’s till and pay-bill service has risen to take an 85.8 percent market share of non-cash payment for ordinary goods and services, underlining the entrenchment of the mobile money platform in everyday transactions.

In the year to March, payments of Sh1.4 trillion were made through the Lipa-na-M-Pesa platform and a total of Sh9.78 trillion was paid through the M-Pesa the popularity of the platform as a means of commerce as opposed to paying via cash.

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Business owners are charged a maximum of Sh210 for transactions that fall between Sh50,000 to Sh150,000 for payments made on the till, says Safaricom on its websites.

The new credit service is likely to take on a raft of bank-backed micro-lending apps.

Safaricom already dominates the mobile loans segment where borrowers get loans within minutes via their mobile phones, making digital loans a quick fix for daily bills.

Launched in 2012 on the Safaricom mobile money application M-Pesa, M-Shwari has become a key growth driver for both Safaricom and NCBA. KCB M-Pesa, on the other hand, was launched in March 2015.

M-Shwari borrowers pay a facility fee of 7.5 percent for the M-Shwari loans, amounting to an annualised interest rate of 90 percent. KCB M-Pesa attracts a fee of 8.64 percent.

The Fuliza overdraft facility was launched on January 5, 2019, in a partnership with Commercial Bank of Africa (now merged into NCBA) and KCB Group.

On Fuliza, the fee is 1.083 percent daily or 395.2 percent annualised, underlining the high cost of using the short-term credit services regularly.

This will be the second time Safaricom and Equity will be entering into a partnership after their first joint platform, M-Kesho.

Equity which had 36,133 Point of sale (POS) outlets as at December last year, first launched a joint plan with Safaricom for a new joint mobile banking service in 2019.

Equity Group chief executive James Mwangi, said at the time, that Safaricom and Equity will “work together to identify and deepen financial opportunities for Kenyans”.

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Mr Mwangi said the two firms would use the lessons learnt from the initial failure of the M-Kesho product.

“We were supply-driven back then but now we will be demand-driven,” he said in 2019. “We have learnt our lessons. We were young then now we are bigger and better.”

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