Capital Markets

CBK blocks interest-free Lipa na M-Pesa loan plan


Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

The Central Bank of Kenya (CBK) blocked the launch of a Safaricom-backed zero-interest credit service for purchase of goods, derailing a product that was expected to disrupt the mobile loans market.

Three people familiar with the matter say the CBK asked the promoters of the interest-free product known as Faraja to stop its release, just hours before the planned unveiling.

The Faraja product is owned by EDOMx Ltd, a Kenya-based financial technology firm, with Safaricom and Equity Bank listed as its partners.

The product was set for launch on July 6 at 8 pm based on media invites sent to the press and Safaricom had loaded the terms and conditions of the product that its customers would use to shop for goods of up to Sh100,000 and pay later.

But a call from the CBK came in the afternoon before its launch, with clear directions that the product was under regulatory review and pending approval, according to two people familiar with the matter who sought anonymity for fear of CBK reprisals.

This forced Edomx to call off the launch and Safaricom hurriedly pulled down from its websites the terms and conditions for Faraja.

The sources say the CBK had offered the product provisional approval, which encouraged Safaricom and Edomx to set the launch date.

“Faraja was to be offered by EDOMx in partnership with Safaricom and Equity Bank.  As communicated by EDOMx, Farajas’s launch was postponed and a new date will be communicated in due course,” Safaricom said in response to inquiries on the postponement of the launch.

The Business Daily was unable to establish the reasons behind the central bank’s freeze on the product.

Before the launch of a product, the CBK demands that regulated firms provide features, terms of agreement for customers, fees charged on the product and proof of measures to guard against risks involving the product.

Other conditions are the viability of the product in the market, tax implications and evidence it will not contravene statutory or prudential requirements in the market.

The CBK further requires firms to disclose appropriate complaints redress mechanisms, ensure confidentiality of consumer data and refrain from coercive selling and placing the customer under undue pressure.

If approved, users of Faraja will buy goods and services from as low as Sh200 to a maximum of Sh100,000 and pay the same amount without any extra fees witnessed on other credit products.

Unlike Safaricom’s overdraft service Fuliza, subscribers of Faraja cannot send money to other users because transfers from the Faraja account can only be used for goods payments through Lipa na M-Pesa.

Safaricom will earn its fees through Lipa na M-Pesa charges, which range between Sh23 and Sh210 depending on the transaction amounts.

The fees are paid either fully by the merchants or buyers or co-shared with consumers, which applies for settlements made by motorists at fuel stations.

Defaulters will also shoulder costs linked to the hiring of debt collectors. Safaricom will suspend or shut down a defaulter’s Faraja account.

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 his or her credit score, to make purchases against and then repay at a later date.

“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 said in the statement that was pulled down from its website.

Faraja promises to be a game-changer in the mobile loans market and is set to undercut the costlier credit products, including Fuliza, KCB-M-Pesa, M-Shwari as well as digital credit providers such as Tala, Branch and Zenka.

Safaricom and Equity are looking at making money from the surge in Lipa na M-Pesa transactions at select stores.

Already dozens of outlets have signed up to be merchants, including Naivas Supermarket, Goodlife Pharmacy and City Walk, a shoe-selling store.

Lipa na M-Pesa was launched by Safaricom in June 2013 and has aggressively recruited merchants across the country, including large and small businesses such as fuel 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 Business Daily understands EDOMx, Safaricom and Equity will have a revenue-sharing formula.

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