In a move that is expected to fundamentally change the mobile loans market, Safaricom has introduced a zero-interest credit service that would enable millions of its customers to shop for items up to Sh100,000 and pay later.
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 other credit products.
The product that will be funded by Equity Bank will, however, only be subject to the standard M-pesa transaction fees at the point of sale.
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.
“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, which is expected to compete with more costly credit products like its own Fuliza, KCB-Mpesa, Mshwari, as well as digital credit providers like Tala, Branch, and Zenka, has the potential to revolutionize the mobile loan market.
The increase in Lipa na Mpesa transactions at particular stores presents an opportunity for Safaricom and Equity to generate revenue. Numerous businesses, such as Citi Walk, a store that sells shoes, the Goodlife pharmacy, and Naivas Supermarket, have already signed up to be merchants.
Safaricom introduced Lipa na M-Pesa in June 2013, and since then, it has actively sought out merchants of all sizes around the nation, including gas 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.
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.
According 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.
A number of bank-backed microlending apps are likely to face competition from the new credit service.
Digital loans are a quick answer for daily expenses because of Safaricom’s dominance in the mobile loans market, where borrowers receive loans within minutes via their cell phones.