The Central Bank of Kenya (CBK) has given its official clearance to a revolutionary zero-interest credit service backed by Safaricom. The decision comes after an initial rejection by the CBK, adding a new dynamic to the mobile loans market.
The Safaricom-backed credit service offers Kenyan consumers the opportunity to purchase goods of up to Sh100,000 without incurring any interest charges. The initiative empowers customers to purchase a wide range of goods and services from as low as Sh20 up to a maximum of Sh100,000.
This development is expected to disrupt the existing mobile loans market, introducing a fresh approach to financing consumer purchases.
This innovative system, in partnership with renowned retailers, enables customers to make purchases on credit and conveniently pay the same amount at a later time.
It bears some resemblance to the Lipa Later service available in the current market, albeit with a distinguishing feature: customers can now acquire products from a curated range of merchants without the initial obligation of making upfront installment payments.
As a result, shoppers can conveniently take possession of their desired items without the immediate financial commitment typically associated with such transactions.
This visionary approach is poised to revolutionize the market, which has long been burdened by exorbitant fees and interest rates reaching a staggering 400 percent when annualized.
After almost a year of eagerly awaiting regulatory clearance, the highly anticipated product known as Faraja is finally set to be launched later this month.
The product had initially been scheduled for launch on July 6 of the previous year, but it was postponed due to the expiration of a September deadline, which mandated digital lenders to obtain a permit from the CBK in order to operate.
Following the approval of EDOMx as a digital credit provider in March, the nod from the Central Bank of Kenya (CBK) has now been granted. This significant development aligns with the regulations issued last year, which empower the central bank to oversee fintech operations, aiming to curb predatory lending practices and safeguard consumer privacy.
The CBK’s initial blockage of the product had raised concerns and speculation regarding its feasibility and potential impact. However, after a comprehensive review, the regulatory authority has given its approval, recognizing the transformative potential of this zero-interest credit service.
EDOMx Ltd, a Kenyan fintech company, holds ownership of the entity, counting Safaricom and Equity Bank as its esteemed partners.
Equity Bank will offer the funds necessary to promptly finalize customers’ transactions via Safaricom’s Lipa na M-Pesa service.
Safaricom, a leading telecommunications provider in Kenya, has demonstrated its commitment to innovation and expanding financial services through this partnership. With the clearance from the CBK, the company can now proceed with the full-scale implementation of the zero-interest credit service, which is set to be a game-changer in the financial landscape of the country.
Safaricom’s revenue will primarily be generated through its Lipa na M-Pesa business till, with transaction fees set at a maximum of 0.5 percent or up to Sh200 per transaction. However, it’s worth noting that transactions amounting to Sh200 and below will be exempt from any charges and will be provided free of cost.
The underlying business proposition of the product revolves around enabling customers to make purchases on credit while EDOMx promptly compensates the sellers at a reduced price. Subsequently, within a span of 30 days, EDOMx recovers the funds from the customers, generating profit from the variance between the discounted product prices and prevailing market rates.
In instances where customers default on their payments, EDOMx incurs expenses related to engaging debt collectors. Moreover, Safaricom possesses the authority to suspend or terminate a defaulter’s Faraja account, thereby ensuring accountability for defaulting individuals.
The CBK’s decision to greenlight the Safaricom-backed zero-interest credit service marks a significant milestone in Kenya’s financial sector.
As this innovative product becomes more widely available, it has the potential to empower consumers, stimulate economic growth, and reshape the future of mobile loans in the country.
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