CBK blocks Lipa na M-Pesa interest-free loan scheme

Capital markets

CBK blocks Lipa na M-Pesa interest-free loan scheme


Patrick Njoroge, Governor of the Central Bank of Kenya. PICTURES | NJAU SALATON | NMG

The Central Bank of Kenya (CBK) has blocked the launch of a Safaricom-backed zero-interest credit service for the purchase of goods, derailing a product that was meant to disrupt the mobile loan market.

Three people familiar with the matter say the CBK asked promoters of the uninspiring product known as Faraja to stop its release, just hours before the planned unveiling.

The Faraja product is owned by EDOMx Ltd, a Kenya-based fintech company, with Safaricom and Equity Bank listed as its partners.

The product was set to launch on July 6 at 8 p.m. based on media invitations sent to the press and Safaricom had loaded the terms and conditions of the product that its customers would use to buy goods up to Sh 100,000 and pay later. .

But a call from the CBK came in the afternoon before its launch, with clear instructions that the product was undergoing regulatory review and pending approval, according to two people familiar with the matter who asked. anonymity for fear of reprisals from the CBK.

This forced Edomx to cancel the launch and Safaricom quickly removed Faraja’s terms and conditions from its websites.

The sources say the CBK had offered tentative approval for the product, which encouraged Safaricom and Edomx to set the launch date.

“Faraja was to be offered by EDOMx in partnership with Safaricom and Equity Bank. As communicated by EDOMx, the Farajas launch has been postponed and a new date will be communicated in due course,” Safaricom said in response to inquiries about the launch delay.

The business daily was unable to establish the reasons for the freezing of the proceeds by the central bank.

Prior to the launch of a product, the CBK requires regulated companies to provide specifications, terms of agreement for customers, fees charged on the product, and evidence of product risk safeguards.

Other conditions are the viability of the product in the market, the tax implications and proof that it will not contravene legal or prudential requirements of the market.

The CBK further requires businesses to disclose appropriate redress mechanisms, ensure consumer data confidentiality, and refrain from coercive selling and putting the customer under undue pressure.

If approved, Faraja users will purchase goods and services from Sh200 up to a maximum of Sh100,000 and pay the same amount with no additional charges seen on other credit products.

Unlike Safaricom’s Fuliza overdraft service, Faraja subscribers cannot send money to other users because transfers from the Faraja account can only be used for goods payments via Lipa na M-Pesa.

Safaricom will collect its fees through the Lipa na M-Pesa fee, which varies between Sh23 and Sh210 depending on transaction amounts.

Charges are either paid in full by merchants or buyers, or co-shared with consumers, which applies to payments made by motorists at service stations.

Defaulters will also bear the costs of hiring collection agents. Safaricom will suspend or terminate a Defaulter’s Faraja Account.

Faraja is slightly similar to the Lipa Later service currently on the market, except this time buyers will walk away with goods from a list of selected merchants without having to pay upfront in installments.

It will work like a digital credit card where a user will have a credit limit of up to Sh100,000, depending on their credit score, to make purchases and then repay at a later date.

“You will only be liable to repay the amount of the unpaid facility advanced to you (in whole or in part) by us using the designated invoice number or such other channel as we provide from time to time,” Safaricom said in a statement. the press release. has been removed from its website.

Faraja promises to be a game changer in the mobile loan market and is set to cut more expensive credit products including Fuliza, KCB-M-Pesa, M-Shwari as well as digital credit providers such as Tala, Branch and Zenka.

Safaricom and Equity are looking to make money from increased Lipa na M-Pesa transactions at select stores.

Already dozens of outlets have signed up to become merchants, including Naivas Supermarket, Goodlife Pharmacy and City Walk, a shoe retailer.

Lipa na M-Pesa was launched by Safaricom in June 2013 and has aggressively recruited merchants across the country, including large and small businesses such as gas stations, supermarkets, convenience stores and restaurants.

This has seen it overtake card payments – run by banks and their global payment technology partners such as Visa and Mastercard – which have largely focused on formal retailers.

The Business Daily understands that EDOMx, Safaricom and Equity will have a revenue share formula.

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