Safaricom has launched an interest-free loan product called Faraja, which will allow its customers to buy goods worth up to KES 100,000 on credit.
The new service allows customers to buy goods and services on credit from as low as KES 20 to as high as KES 100,000, and pay the same amount without any interest later.
This Fintech service comes in the face of a rising wave of competition in the mobile banking sector. Safaricom seeks to take advantage of the rising demand for soft loans as consumer appetite for mobile credit increases.
Safaricom earns from this service through the point-of-sale transaction costs such as the normal M-Pesa transaction charges. These charges will be bankrolled by Equity Bank. The commercial bank has partnered with Safaricom to facilitate the roll-out and operationalize the new service.
The only catch with Faraja is that customers have to purchase goods from selected merchants. After choosing products or services, the customer can then take ownership of those items without paying anything upfront.
Through a statement posted on its website, Safaricom said that customers will only be required to pay facility fees which will be paid in advance by the company.
“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 says.
While Faraja is expected to become a game changer in the mobile loans market, it may cause direct competition to other high-interest loan products already offered by Safaricom such as KCB-Mpesa, M-Shwari and Fuliza.
Lipa na M-Pesa is becoming a major method of payment for goods and services in Kenya these days, and Equity is making effort to benefit from this sector after KCB and CBA partnered with Safaricom earlier.
Several retailers and service providers have already signed up for Faraja, including Naivas Supermarket, Goodlife Pharmacy, and City Walk.
Although Safaricom and Equity will facilitate the transactions, Faraja technology will be owned by a new Fintech firm known as Edomx Ltd. All parties concerned have agreed on a revenue-sharing formula that will see Edomx Ltd earn a big share of the proceeds.
Safaricom’s Lipa na Mpesa service currently has 85.8% market share in the sector of non-cash payment for ordinary goods and services.
Once this service has been embraced by Safaricom customers, it will cause a huge hit on micro-lenders and mobile money-lending apps such as Tala, Branch, Zenka, Timiza, MCo-Op, and Okash.