Fuliza, Safaricom’s mobile overdraft facility, announced a reduction in daily fees for loans under KSh1000 ($8.28) by half and implemented a three-day grace period beginning October 1, 2022, at a press conference with NCBA and KCB Bank.
This implies that Borrowers of Fuliza will, from October 1, 2022, be freed of daily maintenance charges for transactions below Sh1,000 in the first three days of borrowing.
Also, loans under KSh500 ($4.14) are now subject to KSh3 ($0.025) daily charges rather than KSh5. Daily charges on loans of up to KSh1000 ($8.28) will be KSh10 ($0.083) instead of KSh5 ($0.041).
The daily rate for the upper price range of KSh2500 ($20.70) to KSh70,000 ($579.71) has been reduced by 16.7 per cent, from KSh30 ($0.25) to KSh25 ($0.21).
What to expect from Safaricom loan reduction
This follows a review of Fuliza offers by telecommunications company Safaricom, NCBA, and KCB groups to provide and empower Kenyans with sustainable and affordable credit.
The telco has also announced a 50 per cent interest reduction for transactions below Sh1,000.
The CEOs of Safaricom, NCBA, and KCB spoke in a meeting that was also attended by President William Ruto, who asked for a drop in credit pricing.
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Several players in Kenya’s financial sector were also part of the meeting, including the Governor of the Central Bank of Kenya, Patrick Njoroge.
“So, for the first three days, customers will not have to pay a daily maintenance fee which they pay today,” Safaricom Chief Executive Officer Peter Ndegwa announced.
“Customers will also enjoy reductions in daily maintenance fee for transactions above Sh1,000 up to Sh70,000”, Ndegwa said.
In the new changes, Safaricom will maintain the Fuliza access fee at the current 1 per cent, including for transactions below Sh1,000.
“This establishes Fuliza as the most accessible and affordable credit facility at only one per cent of the transaction value,” Ndegwa said.
The Safaricom CEO, in an address at Norfork Hotel in Nairobi, noted that the changes in the review would cumulatively lead to a 50 per cent overall reduction in Fuliza tariffs.
Fuliza, an M-Pesa service that allows customers to overdraw on their M-Pesa account when they have insufficient funds to complete a transaction, was launched in 2019 in a partnership involving Safaricom, NCBA Group, and the Kenya Commercial Bank (KCB) Group.
NCBA Chief Executive Officer John Gachora on Wednesday said a review of the borrowing data showed that the original intention of Fuliza was not being achieved.
“During the Covid-19 pandemic, we saw a surge in the number of customers accessing credit. We began observing the numbers. From the data, it is clear the original intent for Fuliza to be a short-term facility for four to seven days has evolved. Many customers’ M-Pesa wallets are now remaining overdrawn for 14 to 19 days on average,” said Gachora.
This, he added, was promoting the wrong credit behaviour.
“We are announcing changes to the Fuliza proposition with the goal of amending it back to its original purpose. With the right use of Fuliza, customers will see a benefit in the cost of credit and borrowing experience.”
According to data, Kenyans borrowed Sh578 billion in 2021 amid rising inflation and economic hardships.
The overdrafts, utilised between January and December 2021, translated to Sh1.58 billion daily borrowing, pointing to the increasing use of the service rolled out in 2019.
Tariffs, Not Interest Rates
Interestingly, the companies have called them “tariffs” and not “interest rates”. When Fulzia, which has since become a huge money maker for Safaricom, was announced in 2019, the company stylised the product as an “overdraft facility“.
Since Fuliza is co-operated by Safaricom PLC, NCBA and KCB Banks, it makes sense to see them announce the new rates together.
The new rates will benefit all Fuliza customers who have opted-in and have a positive limit with no outstanding balance. However, those with an existing loan facility will need to pay the current daily maintenance fees. They will only enjoy the new rates once they clear their balances.
It’s not clear if the new tariffs are permanent or if they will be revised upwards later on.
Since its launch in 2019, Fuliza has grown to be Kenya’s main digital lending product. The service sent out, on average, $13.32 million daily in the first half of 2022.
Fuliza enables Safaricom customers to obtain unsecured credit by overdrawing their M-Pesa wallet.
Despite the new tariffs, Safaricom’s partner banks—KCB and NCBA—have retained the 1% access fee on all borrowings.
Customers who already have a Fuliza loan when the new charges go into effect will continue to pay their loan using the old tariffs. The new tariffs will take effect once they have completely paid off their debt.
The new rates will take effect immediately for those who do not have outstanding debt.