Interest-free Loans; Lipa na M-Pesa Loan Plan Blocked By CBK

The Central Bank of Kenya (CBK) has blocked the launch of a Safaricom-backed zero-interest credit service for purchase of goods, hindering a product expected to disrupt the mobile loans market.

Faraja a new Safaricom product, was set for launch on July 6 where the terms and conditions of the product were that its customers would use it to shop for goods of up to Ksh100,000 and pay later.

“Faraja was to be offered by EDOMx in partnership with Safaricom and Equity Bank. As communicated by EDOMx, Faraja’s launch was postponed and a new date will be communicated in due course,” Safaricom said in response to inquiries on the matter.

Before a product launch, the CBK demands that regulated firms provide features, terms of agreement for customers, fees charged on the product and proof of measures to guard against risk involving the product. Other conditions include viability of the product in the market, tax implications and evidence it will not contravene statutory or prudential requirements in the market.

The Central Bank further requires firms to disclose appropriate complaints redress mechanisms, ensure confidentiality of customer data and refrain from coercive selling and placing the customer under unnecessary pressure.

If approved, Faraja users will be able to buy goods and services from as low as Ksh200 to a maximum of Ksh100,000 and pay the same amount without any extra fees witnessed on other credit products.

Unlike Fuliza, Faraja users cannot send money to other users because transfers from the Faraja account can only be used for goods payments through Lipa na M-pesa. Safaricom will earn its fees through Lipa na M-pesa charges, which range between Ksh23 and Ksh210 depending on transaction amounts.

Defaulters will shoulder costs linked to hiring of debt collectors as Safaricom will suspend their Faraja accounts and be listed on the Credit Reference Bureau (CRB) list.

Faraja promises to be a game changer in the mobile loans market and is set to undercut costlier credit products, including Fuliza, KCB- M-pesa, M-Shwari as well as digital credit providers such as Branch and Tala.

Dozens of outlets have signed up to be merchants and they include Naivas supermarket, Goodlife Pharmacy and City Walk.

Article By Sally Lizwa