Ksh100K Interest-Free Loan via M-Pesa Unveiled

The much-anticipated zero-interest credit facility to purchase goods and services of up to Ksh100,000 has been finally launched on Thursday, July 27.

Safaricom unveiled the service dubbed Faraja after previously being blocked by the Central Bank of Kenya (CBK) which gave the regulatory approval on July 7 ending an almost year-long wait.

Faraja, which is expected to disrupt the mobile loans market, is open to Safaricom’s more than 32 million subscribers who can now purchase on credit from businesses using the Lipa na M-Pesa service.

Through the service, one can purchase goods and services worth between Ksh20 and Ksh100,000 and repay back with zero interest if the payment is made within 30 days of purchase.

Faraja is owned by EDOMx Ltd - which is licensed as a Digital Credit Provider (DCP) - together with Safaricom and Equity Bank.

In a past interview with the Business Daily, EDOMx founder and CEO, Julian Kyula, had revealed that during the pilot phase, over 90,000 customers had enrolled for the credit-card-like service with over 28,000 qualifying. 

How it Works

Customers will purchase goods on credit from a seller and EDOMx will instantly pay the seller a discounted price.

Within 30 days, EDOMx will recover the amount from the customer and will earn as revenue the difference between the market price of the product and the discounted price.

In case of default, the costs associated with the hiring of debt collectors will be shouldered by the buyer. 

Faraja subscribers, unlike the popular Fuliza overdraft service, will not be able to send the money to other users or withdraw it in cash from an M-Pesa agent. The funds can only be used to make payments through Lipa na M-Pesa. 

Also Read: How the Ksh100k Interest-Free Lipa Na Mpesa Loan Will Work

Safaricom will earn through transaction fees chargeable on an M-Pesa Till Number which is set at a maximum of 0.5% of a transaction up to a maximum of Ksh200 for each transaction.

If the transaction amount is Ksh200 and below, no transaction fee will be charged. As is already the case at fuel stations, transaction fees could either be shouldered by the M-Pesa till owner or co-shared with the buyer. 

“Many businesses lose out on sales when a customer would like to make a purchase but lacks money at that point. We are glad to partner with EDOMx to offer Faraja empowering any business to grow their sales by enabling their customers to buy now and pay later,” said Peter Ndegwa, the CEO of Safaricom.