African markets

Safaricom launches interest-free loans for the purchase of goods

Safaricom (NSE: SCOM) has unveiled a zero rate credit service that will allow millions of its customers to buy goods for up to 100,000 shillings and pay later, which is expected to disrupt the mobile loan market.

Users of the interest-free product known as Faraja will purchase goods and services from 20 shillings up to a maximum of 100,000 shillings and pay the same amount with no additional charges seen on other credit products.

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

Faraja, is slightly similar to the Lipa Later service currently on the market, except this time buyers will walk away with goods from a list of selected merchants without having to pay upfront in installments.

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 and then repay at a later date within the 30 day window.

“You will only be liable to repay the amount of the unpaid facility that we have advanced to you (in whole or in part) using the designated invoice number or such other channel as we provide from time to time,” Safaricom states in a statement. communicated on its website.

Faraja promises to be a game-changer in the mobile loan market and is set to cut more expensive 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 to make money from increased Lipa na Mpesa transactions at select stores. Already dozens of outlets have signed up to become traders, including Naivas supermarket, Goodlife pharmacy and Citi walk, a shoe retailer.

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 gas stations, supermarkets, convenience stores and restaurants.

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

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

Safaricom’s checkout and bill payment service grew to take an 85.8% market share of non-cash payment for ordinary goods and services, underscoring the entrenchment of the money platform mobile in daily transactions.

During the year to March, payments of 1.4 trillion shillings were made through the Lipa-na-M-Pesa platform and a total of 9.78 trillion shillings was paid through the M-Pesa, the platform’s popularity as a medium of commerce as opposed to cash payment.

Business owners must pay a maximum of 210 shillings for transactions between 50,000 shillings and 150,000 shillings for payments made on the till, Safaricom says on its websites.

The new credit service is likely to support a range of bank-backed micro-lending applications.

Safaricom is already dominating the mobile lending segment where borrowers get loans in minutes via their mobile phone, making digital lending a quick fix for daily bills.

Launched in 2012 on the Safaricom M-Pesa mobile money app, M-Shwari has become a key growth engine for 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% for M-Shwari loans, representing an annualized interest rate of 90%. KCB M-Pesa attracts a fee of 8.64%.

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

On Fuliza, the fee is 1.083% per day or 395.2% annualized, highlighting the high cost of regularly using short-term credit services.

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

Equity, which had 36,133 points of sale (POS) in 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 explore financial opportunities for Kenyans”.

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

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