Safaricom launches new interest-free M-Pesa Loans.

Safaricom has unveiled a zero-interest credit facility that would allow millions of its users to buy things up to Sh100,000 and pay later.

The Faraja product’s users can spend as little as Sh20 or as much as Sh100,000 on goods and services while still paying the same amount without the added costs associated with traditional credit products. For now, just the usual M-Pesa transaction costs will be charged at the point of sale for the goods that Equity Bank will fund.

The difference between this new program, Faraja, and the currently available Lipa Later service is that clients would leave with goods from a list this time.

Faraja lets clients buy things directly from a list of selected merchants without having to pay for them in full upfront or in installments, much like the Lipa Later service that is now accessible.

Depending on their credit score, each user will have a credit limit of up to Sh100,000 to utilize for purchases and subsequent 30-day repayments. Similar to a digital credit card, it will work.

According to Safaricom’s websites, payments made at the till that is between Sh50,000 and Sh150,000 would only be charged to company owners a maximum of Sh210.

The new credit business is anticipated to compete with a variety of bank-backed microlending apps.

Due to Safaricom’s dominance in the mobile loan business, where borrowers obtain loans within minutes via their cell phones, digital loans offer a rapid solution for daily needs.

For instance, M-Shwari, which debuted in 2012 on the M-Pesa mobile payment system from Safaricom, has developed into a sizable growth engine for both NCBA and Safaricom. On the other hand, in March 2015, KCB M-Pesa made its debut.

The facility fee for M-Shwari loans is 7.5 percent, or an annualized interest rate of 90 percent, which must be paid by the borrowers. For KCB M-Pesa, the fee is 8.64 percent.

A partnership between the KCB Group, the Fuliza Group, and Commercial Bank of Africa—which has since merged with NCBA—led to the launch of the Fuliza overdraft facility on January 5, 2019.

This fee on Fuliza, which is 1.083 percent each day or 395.2 percent annually, emphasizes the astronomical expense of often utilizing short-term borrowing facilities.

Safaricom and Equity will now begin a second round of cooperation following the launch of their initial joint platform M-kesho.