The Co-operative Bank of Kenya has introduced an unsecured digital overdraft facility that allows customers to overdraw their accounts by up to Sh100,000 for transactions such as bill payments, raising competition for Equity Bank Kenya and Safaricom.
The lender has informed customers that the new short-term credit facility, called ‘Kamilisha’, will enable individuals and businesses to complete transactions when they do not have sufficient funds at a time of paying bills such as house rent, electricity, stock purchases or sending money.
“The overdraft service allows you to complete transactions when you don’t have enough money in your bank account. It bridges the shortfall between what you have and what you need to pay, helping you complete important transactions instantly,” the lender told customers.
This puts Co-op Bank in direct competition with Equity Bank’s mobile overdraft called ‘Boostika’ and Safaricom’s ‘Fuliza’ service, both of which offer the short-term digital credit with limits of up to Sh100,000 and Sh70,000 respectively.
Co-op Bank’s overdraft facility attracts a two percent one-off access fee on the amount borrowed, a daily maintenance fee of 0.2 percent on outstanding balance and a credit life insurance charge of 0.034 percent per month. In addition, the loan will attract the 20 percent excise duty on the access fees.
The charges mean that a customer who taps a Sh1,000 overdraft will be charged Sh20 access fees, Sh4 excise duty, insurance fee of Sh0.34 and a daily charge of Sh2 amounting to Sh60 assuming the entire amount remains unpaid for the maximum allowed period of a month.
The total cost would come to about Sh84.34, translating to an effective cost of credit of about 8.43 percent per month.
Currently, Equity’s Sh1,000 Boostika loan tapped for a month costs Sh85, made up of a five percent processing fee, one percent insurance and 20 percent excise duty on the processing fees.
This is in contrast to Fuliza, which charges Sh6 daily on a Sh1,000 loan amounting to Sh180 a month.
The access fee, excise duty and insurance are deducted immediately when a customer uses the Co-op Bank service. The daily interest charge is calculated on outstanding balance at the end of each day and recovered when funds are available in the customer’s account.
Repayment is due within 30 days from the first utilisation, with funds automatically recovered from subsequent inflows into the customer’s account. The bank says the facility’s limit will vary based on credit scoring and account history.
“We review your account transactions, salary deposits, or business turnover to determine what you qualify for. To increase your limit, maintain active account usage and repay your Kamilisha balance on time,” says the lender.
For Co-op Bank, Kamilisha expands its range of digital loan products. The lender already offers a variety of digital loan products, including Flexi Plus, salary advance, and Co-op-a-Maji loan.
The market is currently dominated by Fuliza —the overdraft product jointly operated by Safaricom, KCB Bank and NCBA Bank— which disburses billions of shillings monthly to over eight million active users.
