Sh30bn airtime lending raises Safaricom profile in credit market

Mobile phone subscribers borrowed up to Sh30 billion worth of airtime or nearly a third of the total airtime Safaricom sold last year, underlining how critical telecoms operators have become in the credit market.

The credit, extended to millions of customers through Safaricom’s emergency top-up facility, Okoa Jahazi, earned the telecoms company Sh3.1 billion in revenues last year.

Safaricom charges a flat interest rate of 10 per cent for airtime credit, which is repayable in five days.

At Sh30 billion, Okoa Jahazi’s loan book was larger than that of some bottom-tier commercial banks – making it a significant player in the credit market.

Income from Okoa Jahazi is captured under “other service revenue’ in Safaricom’s financial statements.

“Other service revenue includes among others access fees charged on Okoa Jahazi when a customer borrows airtime and data bundles with the debt being repayable within five days,” said Safaricom in its annual report.

John Tombleson, Safaricom’s former chief finance officer who left last month, had earlier told the Business Daily that Okoa Jahazi accounted for 28 per cent of the company’s airtime sales.

In the year ended March 2016, Safaricom reported voice revenues of Sh90.8 billion up from Sh87.3 billion the previous year.

Safaricom has been developing the lending facility it launched seven years ago to attract more users and has set credit limits ranging from Sh20 to Sh1,000 for each subscriber depending on their usage patterns.

Okoa Jahazi offers convenience to subscribers while boosting Safaricom’s airtime sales.

Top-up platform

A borrower who fails to repay within the set period is blacklisted and denied the facility for a period of two weeks. Upon expiry of the two weeks, such a subscriber is restricted to borrowing small amounts before rebuilding their profile.

Safaricom reported a 250 per cent increase in bad debts to Sh705 million last year, signalling rising defaults or likely defaults on the emergency top-up platform.

The decision to borrow at a punitive 10 per cent in five days is seen to signal lack of alternative sources of cash to buy airtime among subscribers.

Mobile telecom airtime has become a major part of household budgets competing with other necessities such as food and rent, according to recent household spending surveys.

Okoa Jahazi provides a window for cash-squeezed subscribers to borrow from the cash-rich company rather than turn to friends and shopkeepers for credit.

It is also a convenient way to top up quickly in case of a disconnected call or when in a location where there is no airtime vendor.

Safaricom also operates a loyalty programme dubbed bonga points, which allows customers to redeem cumulated points for airtime.

The telecoms operator is currently holding some Sh5.9 billion worth of unredeemed bonga points.

It has been argued that the high level of unredeemed bonga points amidst airtime borrowing signals the diverse economic status of Safaricom’s subscribers.

The expectation is that the wealthy are holding a high number of bonga points they do not have immediate use for while those at the bottom of the pyramid are borrowing to remain active on the network.

Besides, Safaricom’s financial report shows that the telecoms firm held Sh981 million in deposits for postpaid customers, further underlining the gaps in the economic profiles of the subscribers.

Safaricom has diversified its sources of income but has not broken down the revenue in its books.

Telecoms giant

The telecoms giant has partnered with several banks to offer short-term loans through its mobile money platform M-Pesa, including M-Shwari with Commercial Bank of Africa and KCB-M-Pesa with Kenya’s largest bank by asset base, KCB.

The two arrangements are hinged on revenue sharing agreements for interest charged on borrowers, which is, however, not explicitly disclosed.

Safaricom, which holds huge volumes of cash and has no outstanding debt, recorded an interest income of Sh1.3 billion in the year to March up from Sh1.2 billion the previous year.

M-Pesa has also become a key mode of payment for goods and services through its product Lipa na M-Pesa service.

Safaricom customers currently pay different fees for using Lipa na M-Pesa. Those using the service to buy fuel, for example, pay a 0.5 per cent commission on the value of every payment made.

By March 2016 more than Sh20 billion worth of payments were made on the Lipa na M-Pesa platform, more than 44,000 merchants having accepted the service -- an increase of 74 per cent from the previous year.

Research by the not-for-profit organisation Financial Sector Deepening (FSD) Kenya found that shopkeepers remain the top source of credit in Kenya.

Safaricom is seeking to continue competing with other goods going to a shopper’s basket by offering its services on credit.

The telecoms operator is also offering credit to electricity users under the Okoa Stima service that enables it to send electricity tokens to subscribers not able to immediately buy it when disconnected and pay in seven days.