Safaricom Introduces Zero Interest Loan for Buying Goods

Safaricom is set to introduce another product known as Faraja that will allow M-Pesa users to buy goods from as low as 20 shillings to a maximum of 100, 000 shillings and pay later without being charged any interest fee.

The product will work like a digital credit card, allowing users to buy goods depending on their credit score and pay within a 30-day period. However, normal M-Pesa transactions will apply at the point of sale on the product.  To get started with the Faraja loans, customers will be required to dial *799# and select OPT.

The product comes as a competitor to Safaricom’s widely used Fuliza M-Pesa product which allows M-Pesa customers to transact despite having insufficient accounts.  The platform charges a one percent access fee and a maintenance fee on the outstanding balance which ranges from 6 shillings and 36 shillings a day depending on the value of the overdraft taken. It uses a model of automatic repayment once a deposit is made into a customer’s M-Pesa account.

For instance, Kenyan borrowings under Fuliza in the period between March 2021 and March 2022 hit a total of 502.6 billion, a 43.1 increase from 351.2 recorded the previous year.

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This means that daily borrowings were capped at 1.37 billion shillings an indication of Kenyan’s rising interest on short-term loans.  Customers on the Fuliza service grew by 16.4 percent year over year to 6.9 million borrowers from a previous 5.9 million borrowers on the platform in March 2021.

On the other hand, Fuliza’s sister loan facilities, KCB M-Pesa and M-Shwari registered a fall in loans disbursed in the same period with the value of loans taken on the platform standing at 9.4 percent and 8.9 percent respectively. This points out a shift by borrowers from the two platforms to Fuliza.

The Faraja product which is owned by Edomx Ltd, a Kenya-based financial technology firm comes in the backdrop of tough economic times where many households have been forced to cut back on their daily expenditure on the back of the high cost of living.