Safaricom lends Sh6.2bn in one month on ‘Fuliza’

Safaricom customers have borrowed Sh6.2 billion in one month on the Fuliza overdraft service, revealing a huge pent-up demand for instant, micro-loans in the economy.

The Fuliza overdraft facility, which was launched on January 5, is a partnership involving Safaricom, Commercial Bank of Africa (CBA) and KCB Group.

The banks provide 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.

“The number of customers who have opted in (to Fuliza) is 4.2 million and Sh6.2 billion has been disbursed,”said Safaricom chief executive Bob Collymore in a statement to the Business Daily.

The Sh6.2 billion worth of revolving credit disbursed in one month is equivalent to an average daily lending of more than Sh200 million.

The amount also rivals the loan books of some of Kenya’s small banks.

The fast-paced growth, if maintained, is set to boost the fees collected by Safaricom and the two partner banks.

The Fuliza loans attract a facility fee of 1.083 percent of the value of the credit.

An additional administrative fee of up to Sh30 is charged for each day that the loan remains unpaid.

The overdraft facility has a term of 30 days beyond which a borrower is deemed to be in default.

Recovery of the loans is enforced through deductions from customers’ balances and inflows into their CBA and M-Pesa accounts.

Fuliza brings the overnight lending concept to the masses, with borrowers’ creditworthiness determined by an analysis of their transactions and borrowing history among other factors.

Borrowers can take loans of up to Sh70,000.

Urgent requirements

The service is designed for people with urgent cash requirements and who also find the fees reasonable against the cost of missing critical payments such as settling medical bills, rent and paying business partners.

“For a customer, a delayed transaction translates to a lost opportunity or a missed deal. We believe this is why Fuliza has proved to be immensely popular with our customers,” said Mr Collymore.

“Our insight behind Fuliza was the fact that 58 percent of transactions that failed due to insufficient funds were completed within two days.

"This showed that there was an un-met need where we could come in and help our customers complete their transactions, even if they lacked funds at the time.”

The virtual loan amounts can be used to buy goods, pay bills and is also transferrable to other mobile subscribers.

A Sh10,000 loan paid the next day, for instance, will attract a minimum fee of Sh108.3.

Annualised, however, the Fuliza charges are some of the highest among credit providers in the country.

The 1.083 percent daily fee translates to 395.2 percent on a per annum basis.

The current maximum annual lending rate of 13 percent on bank loans, for comparison, amounts to a daily interest rate of 0.035 percent.

Besides the facility and administration fees, Fuliza also attracts standard M-Pesa charges, further boosting the telco’s earnings from the mobile money platform.

For CBA and KCB, Fuliza offers an opportunity for customer acquisition and additional high-margin income streams.

Fuliza joins the growing list of digital lending platforms that seek to offer small loans through the internet and mobile phones.

Kenyans’ rising demand for quick loans has spawned the growth of unregulated microlenders whose number is estimated at more than 500.

With annualised interest rates ranging from 18 percent to more than 200 percent, micro-lending is far more lucrative than mainstream banking whose margins have been restricted by the capping of lending rates.

New entrants

New entrants in the industry include Nairobi Securities Exchange-listed firm, Car & General, and MyCredit.

They join more established firms such as Letshego, Tala, Izwe and Branch.

Microlenders mostly offer short-term loans, lasting a few days to one month.

Their customers are borrowers who predominantly spend the cash on their businesses and day-to-day needs.

Borrowers who are unable to access loans from mainstream banks, are attracted to the micro lenders who demand relatively less documentation and are quick to disburse the cash.

While microlenders in Kenya are not regulated, other markets including China have introduced measures to address potential exploitation of borrowers such as over-lending, repeat borrowing, improper collection, abnormally high interest rates and privacy violations.

China has stopped microlenders from issuing loans to borrowers with no source of income, with the firms also banned from misleading consumers into over-borrowing.