In the latest move that is expected to upend the mobile loans industry, Safaricom has introduced a zero-interest credit facility that would enable millions of its customers to shop for items up to Sh100,000 and pay later.
The users of the interest-free Faraja product can spend as little as Sh20 and as much as Sh100,000 on goods and services while paying the same amount without the extra fees associated with conventional credit products.
Now at the point of sale for the product that Equity Bank will finance, just the standard M-pesa transaction fees will be applicable.
This new program,Faraja is somewhat comparable to the Lipa Later service now available on the market, with the difference being that customers would this time leave with the items from a list.
With similar to the Lipa Later service that is currently available, Faraja allows customers to purchase items directly from a list of chosen merchants without having to pay for them in full up front or in installments.
A given 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 time within the 30-day window. It will function similarly to a digital credit card.
As per to Safaricom’s websites, business owners will only be charged a maximum of Sh210 for payments made at the till that are between Sh50,000 and Sh150,000.
Quite a number of bank-backed microlending apps are likely to face competition from the new credit service.
This Digital loans are a quick answer for daily expenses because to Safaricom’s dominance in the mobile loans market, where borrowers receive loans within minutes via their cell phones.
For instance M-Shwari, which was introduced in 2012 on the Safaricom mobile money platform M-Pesa, has grown to be a significant growth engine for both Safaricom and NCBA. On the other side, KCB M-Pesa debuted in March 2015.
The borrowers of M-Shwari loans are required to pay a facility fee of 7.5 percent, which equates to an annualized interest rate of 90 percent. The cost for KCB M-Pesa is 8.64 percent.
Back in January 5, 2019, the Fuliza overdraft facility went live thanks to a collaboration between KCB Group, Commercial Bank of Africa, which has since merged into NCBA, and the Fuliza Group.
This price on Fuliza is 1.083 percent each day or 395.2 percent annualized, highlighting the enormous cost of often using short-term loan facilities.
After their initial joint platform, M-Kesho, Safaricom and Equity will now embark into a cooperation for the second time.