NCBA #ticker:NCBA and Safaricom #ticker:SCOM have raised the minimum loan size on the mobile lending platform M-Shwari four times to Sh2,000 in a move expected to reduce defaults largely by borrowers taking smaller amounts.
Borrowers have been accessing a minimum of Sh500, through M-Pesa, on the M-Shwari platform.
The changes took effect on Monday and NCBA has started communicating the new credit limit to customers who qualify for it.
Those who do not qualify to borrow at least Sh2,000 on the monthly loan product have been relegated to use the daily overdraft service Fuliza which is more expensive, but structured to lower defaults.
Borrowers pay a facility fee of 7.5 per cent when taking the M-Shwari loans, amounting to an annualised interest rate of 90 per cent.
On Fuliza, the fee is 1.083 per cent or 395.2 per cent annualised, underlining the high cost of using the short-term credit services regularly.
This means a borrower who used to part with Sh56.25 for a Sh1,000 M-Shwari loan will now be set back Sh243.68 for a Fuliza debt that lasts a month.
NCBA Group managing director John Gachora yesterday told the Business Daily that the changes will bring a clear product differentiation for borrowers seeking digital loans through Fuliza, M-Shwari or Stawi products in which the lender participates.
He said the bank’s analysis has shown that most customers seeking credit below Sh2,000 were for unplanned expenditures, and therefore the raised M-Shwari limit is meant to migrate such customers to Fuliza.
“M-Shwari serves the critical need for planned credit and the demand for lower ad hoc (impromptu) credit is now better served with Fuliza,” Mr Gachora said in an interview.
“Customer qualification for M-Shwari, Stawi and Fuliza will depend on the individual performance on mobile money, saving and on the observed repayment behaviour on all digital loans that they use.”
The Stawi product, which is also backed by Cooperative Bank of Kenya #ticker:COOP, DTB #ticker:DTK, and KCB #ticker:KCB, targets digital borrowers seeking unsecured loans ranging between Sh30,000 and Sh250,000 to fund small and medium-sized entities.
More than 3.2 million Kenyans had been negatively listed as loan defaulters by April in an economy where job cuts and near stagnant wages have left thousands of people in a debt trap.
Data from the credit reference bureaus (CRBs) show that the accounts negatively listed had jumped from 2.7 million last year, a significant number of them linked to mobile digital borrowers of less than Sh1,000.
While an M-Shwari loan comes as credit in a customer’s account, allowing the borrower to withdraw the money or transfer it out, Fuliza is an overdraft service that allows customers to complete M-Pesa transactions when they have insufficient funds.
Fuliza loans are recovered from M-Pesa balances automatically while M-Shwari customers make their payments directly or the amounts are recovered from their accounts.
M-Shwari borrowers may have to be prompted to pay the debt and this means that they can still hold money in their M-Pesa wallet and transact even when they have an outstanding loan.
Customers who do not settle their Fuliza overdraft within 30 days are barred from using their unused authorised credit limit until they pay the outstanding amount.
The structure of Fuliza relative to M-Shwari makes it ideal in curbing defaults.
Access to borrowing and repayment trends on Fuliza, M-Shwari and Stawi platforms have put NCBA in a position to make lending decisions based on customer’s credit risk profile.
“We are at the centre of these three products and so we analyse data every day and track behaviours. This is what we are trying to address,” said Mr Gachora.
“Since launching M-Shwari, we have rolled out Fuliza with Safaricom. Fuliza is the one to address this ad hoc immediate credit. So we see the new proposition of M-Shwari being planned short-term credit.”
M-Shwari had by mid-December last year disbursed a cumulative Sh430 billion in loans to 31 million customers, seven years since its launch.
Fuliza on the other hand had lent an estimated Sh81 billion in the six months to June last year. The service was introduced in January 2019.
Safaricom says that M-Shwari and Fuliza contributed 5.8 per cent growth in M-Pesa revenue in the year to March.
M-Pesa grew 12.5 per cent to Sh84.4 billion.