Safaricom will be exempted from Central Bank of Kenya (CBK) regulation of its business unit that sells smart phones on credit, shielding the telecoms operator from controls on interest charged on the products.
The National Assembly Finance and National Planning Committee accepted the company’s petition for its credit purchase service, called Lipa Mdogo Mdogo, to be kept out of the regulator’s control.
Proposed amendments to the CBK Act carried under Business Laws (Amendment) Bill, 2024 seek to place Buy Now Pay Later businesses under the scope of CBK regulation.
The proposals from the Treasury sought to regulate the non-bank lenders.
“The committee agreed with the stakeholder proposal noting the need for clarity when a manufacturer/business extends credit services to a distributor/customer,” the parliamentary committee said.
Other retail businesses applying the ‘buy now’ pay later’ model to sell devices will also be exempted from the CBK regulation.
Buy Now Pay Later is defined as an arrangement whereby the consumer purchases goods or assets, whether secured or not, and pays later in instalments, with or without interest.
Safaricom’s Lipa Mdogo Mdogo scheme, ranges from Sh10,000 to Sh27,000 and requires an initial deposit of between Sh500 and Sh50,000, with daily instalments set at between Sh20 and Sh80.
Customers qualifying for the service are required to be on devices with lower technology --2G or 3G-- and the aim is to upgrade them to 4G devices. They must also not be negatively listed with credit reference bureaus for pending loans.
A customer seeking to purchase the Neon Ray Pro device under Lipa Mdogo Mdogo would, for instance, be required to make a deposit of Sh500 and make additional payments of Sh20 a day to meet the device cost of Sh10,000.
Safaricom argues that the sale of the devices on credit is an enabler for businesses involved in the initiative to sell their merchandise to customers.
“This proposal will ensure that where a business is providing credit for the support of its core business, it will not be required to be licensed as a credit provider. For example, a manufacturer may extend credit terms to its distributor, or a business may extend credit services to its customers when accessing the services or goods it sells,” Safaricom said in submissions to the Finance Committee.
Safaricom has partnered Meta, Google and M-Kopa Solar in a deal allowing customers to own smartphones at affordable instalments of as low as Sh20 daily. Smartphone devices sales under the partnership hit 1.2 million in the 12-months period to March 2024, mirroring the big demand for internet connectivity among the targeted low-income customer groups.
The service, which was launched in July 2020, has helped lift the number of 4G devices registered on Safaricom’s network.
The number of smartphone devices on the network hit 22.9 million at the end of March from 16.7 million in 2021.
Buy Now Pay Later financing has gained popularity in recent years having allowed households to acquire essential items, including smartphones, appliances and furniture.
Findings from the just published 2024 FinAccess Survey show the uptake of hire purchase and Lipa Mdogo Mdogo financing has jumped thrice since 2021 as access to goods and services through credit gains prominence. Other notable buy now pay later businesses in Kenya include Lipa Later, Aspira and Loop.
Retail shops in cities, towns and major urban centres have embraced the model to push out inventory.
Safaricom Lipa Mdogo Mdogo devices are usually available at the telco’s shops and at authorised dealers while repayments are made through its mobile-money platform M-Pesa.
The telco has also marked another win in convincing the Finance Committee to extend the transitional period for the licensing of on-deposit taking businesses to allow service providers and the CBK ample time to apply and streamline the operational processes.
The transition period has been set at 12 months after the Business Laws amendments are assented into law.
