- The new digital credit product aims to promote financial inclusion and provide an alternative to Safaricom’s Fuliza and Faraja.
- It mirrors Faraja which allows instant M-Pesa purchases with 30-day repayment period.
- The Equity Bank overdraft facility supports transaction completion on both Paybill, Till, and person-to-person.
According to the Star, Equity Bank is getting ready to unveil a real-time overdraft facility that allows customers to borrow up to Ksh100,000 with flexible 30-day repayment. This new digital credit product aims to boost financial inclusion and provide an alternative to Safaricom’s popular overdraft services Fuliza and Faraja.
The overdraft allows customers to top up between Ksh100 and Ksh100,000 directly through Equity’s mobile app Equitel, SMS, or by dialing *247#. Borrowers can repay early or utilize the full 30-day repayment period.
While full terms and conditions have not yet been disclosed, an insider source told the Star that the overdraft facility will offer a flexible repayment period of up to 30 days.
“The solution allows customers to top up any amount between Sh100 to Sh100,000. Borrowers can opt to repay the borrowed amount before the 30-day term concludes,” the source told the Star.
According to an Equity Bank insider, the solution supports P2P transfers and transactions on Paybill and Tills. Equity Bank’s new overdraft product mirrors the offerings of Faraja, a partnership between Kenyan fintech EDOMx Ltd and Safaricom.
Faraja allows M-Pesa customers to purchase products instantly and pay the full amount later over 30 days. For example, if you’re buying a Ksh 90,000 washing machine from Naivas, you take it home right away while Safaricom credits Naivas the full Ksh 90,000.
As the buyer, you then pay off the washing machine cost in a 30 day interest-free period.
Fuliza Under Threat
Equity’s new overdraft product may threaten Safaricom’s Fuliza, launched by NCBA, KCB and Safaricom as Kenya’s first mobile overdraft.
Safaricom’s financial results for the first half of 2023, announced last week, indicate Fuliza saw a 40% decline in earnings as borrowers opted for the more affordable, government-backed Hustler Fund instead.
Fuliza’s contribution to Safaricom’s profits dropped from Ksh3.4 billion to Ksh2 billion year-over-year. This is attributed to the average Fuliza loan size falling by Ksh60, from Ksh320.90 to Ksh260 per person over the same period.
Safaricom attributed Fuliza’s decline to the popularity of the government’s new Hustler Fund, which has disbursed Ksh30 billion to date at 8% APR. The Hustler Fund’s competitive rates are impacting demand for more expensive digital credit products like Fuliza.
Equity’s overdraft aims to capture unbanked consumers seeking short-term financing options. The flexible terms and instant disbursal give it an edge over traditional bank overdrafts. However, its success will depend on interest rates and promotion among Kenya’s mobile money customers.