Safaricom considers lowering M-Shwari, Fuliza charges


Mr Michael Joseph. PHOTO | SALATON NJAU | NMG

Safaricom #ticker:SCOM is considering lowering the customer charges on its M-Pesa overdraft facility, Fuliza, and M-Shwari loans amid pressure for the State to curb unregulated digital mobile lenders who charge exorbitant monthly interest rates.

The telecoms operator reckons it wants to lower the costs of accessing the borrowing products as part of a larger plan that will see more features added on the M-Pesa platform including insurance and wealth management.

Safaricom’s push to lower Fuliza and M-Shwari charges coincides with the proliferation of unregulated micro lenders in response to the growth in demand for quick loans, which have left borrowers with high interest rates.

“I would like the cost of this lending to come down and Safaricom is working to that end. It’s a regulated activity, certainly we will push to find ways to make it cheaper,” acting Safaricom CEO Michael Joseph said without giving details about the timing and levels of fees cut.

“What we want to do is provide more services on M-Pesa that make will make life easier for our customers. You know these things like buying insurance, investing in wealth management, making it easy for businesses to operate using M-Pesa so they can have their own back office on M-Pesa,” Mr Joseph told the Business Daily in an interview after the firm posted a jump in its first-half profit on Friday.

The Fuliza overdraft facility, which was launched on January 7, provides M-Pesa users with top-up loans whenever they need to make a transaction, but find they lack enough money in their mobile cash wallets.

For instance, those borrowing Sh1, 000 on Fuliza pay a one-off of one percent or Sh10 and a daily charge of Sh10. This translates to a monthly charge of 31 percent or an annualised fee of 372 percent—way above the maximum regulated annual bank interest of 13 percent.

Market leader M-Shwari, Kenya’s first savings and loans product introduced in 2012 by Safaricom and Commercial Bank of Africa, which is now NCBA Bank after merging with NIC, charges a "facilitation fee" of 7.5 percent on credit regardless of its duration. This pushes its annualised loan rate to 395 percent.

Other digital lenders charge interest rates of up to 520 percent when annualised, leading to mounting defaults and an ever ballooning number of defaulters that have been adversely listed with credit reference bureaus (CRBs).

"As M-Pesa we should not just focus on lending. I’m not happy with the digital lending that is out there, not so much from banks which are regulated to some extent but there are a lot of people lending money on a digital basis, which am not happy with," said Mr Joseph. Fuliza is underwritten by KCB Group and NCBA.

The current legal regime of the digital lenders, which is outside the direct remit of the Central Bank of Kenya (CBK), allows providers, both banks and others, to sidestep the legal caps on interest rates.

Since 2016, the government set the rate that banks can charge customers at four percentage points above the CBK’s benchmark — currently nine percent — in an attempt to make loans affordable. The law provides that banks’ lending rates be capped at 13 percent.

The cap reduced private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed as too risky to lend to.

In turn, the credit crunch triggered an appetite for digital loans, paving the way for digital lenders to invade Kenya’s credit market

The invasion is among the reasons that President Uhuru Kenyatta cited when he asked lawmakers remove the cap on commercial lending rates in his memo to Parliament.

Lawmakers have the option of removing the cap from the bill or overruling the President if two thirds of the 349 members vote to override his position. They will debate on Mr Kenyatta’s memo from tomorrow.