In July 2023, Safaricom introduced Faraja, a new buy now pay later (BNPL) solution for M-Pesa consumers and businesses. Faraja offers interest-free deferred payments up to Ksh 100,000 – presenting a revolutionary new credit option in the Kenyan market.
How Does Faraja Work?
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 70,00 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.
Faraja comes with no interest fees, however standard M-Pesa transaction charges apply to purchases. An important distinction from services like M-Shwari and Fuliza is that Faraja does not facilitate direct peer-to-peer money transfers. Instead, it is restricted to purchases made through Safaricom’s Lipa Na M-Pesa merchant network.
While the zero interest proposition is compelling, the inability to send funds to contacts or withdraw cash limits Faraja’s utility versus other digital credit options. It is tailored specifically for deferred payments on goods and services purchased from enrolled Lipa Na M-Pesa outlets. Users looking for a more flexible loan facility would need to look to providers like KCB-Mpesa and M-Shwari instead.
How to Register for Faraja Loan Services
To access the service, customers can use the M-Pesa app or dial *799# to register. One must must also be an active Safaricom subscriber ( at least 6 months). Only two accounts are permitted per National ID number and your assigned credit limit depends on your credit rating.
Loans must be repaid in full after 30 days. Here are the steps to sign up:
- Dial *799# on your Safaricom mobile phone.
- Choose “Opt-in” and enter your M-Pesa PIN when prompted.
- After submitting your PIN, you will receive a text with your approved Faraja limit.
To sign up using the M-Pesa app, follow the following steps:
- Open your M-Pesa app (make sure it’s the latest version)
- Head over to the Financial Services tab.
- Select Faraja and follow the sign up prompts.
- You should receive an a approval text message alongside your Faraja limit.
Faraja currently has 20 merchants enrolled, including Naivas Supermarket, Good Life Pharmacy, and Citi Walk. However, Safaricom plans to expand enrollment to more businesses over time, including restaurants, bars, gas stations, and additional supermarket chains.
This will greatly increase the utility of Faraja by giving consumers more places to use their interest-free credit for purchases. Wider business adoption will also benefit retailers through increased sales from customers willing to buy more with the deferred payment option.
How Businesses Can Join Faraja
Businesses can enroll to accept Faraja by registering through the Faraja Credit website or contacting EDOMx directly. Once approved, they will receive full payment immediately when customers make Faraja purchases.
This protects retailers from any default risk – the liability falls entirely to the lending provider if buyers fail to repay. Current major merchants accepting Faraja include Naivas Supermarket, Goodlife Pharmacies, City Walk shoes, and eCommerce outlets visible in the M-Pesa app.
How to Use Safaricom Faraja Loan
- Dial *799#.
- Select the option of Buy Goods or Paybill.
- Enter the amount you wish to spend then proceed to key in your Mpesa PIN.
- You will receive a notification from Safaricom indicating whether the transaction was successful or not.
How Faraja Differs from Other Credit Options
As stated earlier, Faraja, unlike M-Shwari and Fuliza, does not charge interest fees. M-Shwari offers loans with interest payments, while overdraft service Fuliza deducts owed amounts plus interest when customers top up their M-Pesa wallet. Faraja’s deferred payment model is genuinely interest-free within the 30 day period.
I should not that customer who are unable to complete the payment within the stipulated 30 days will incur interest rates. Also, the short repayment term does not suit all buyers – presenting an opportunity for improvement.
Faraja Aligns with Emerging BNPL Industry Trends
The launch of Faraja taps into the rapidly growing global BNPL payments industry. According to ResearchAndMarkets.com, the BNPL market is projected to reach $3.98 trillion by 2030 as Gen Z and millennial consumers increasingly embrace flexible payment options over traditional credit.
Safaricom obtained approval from the Central Bank of Kenya in March 2022 to provide digital credit services under new regulations emphasizing responsible lending. Faraja presents an ethical alternative to predatory credit and high-interest loans. However, the 30 day repayment period is relatively short compared to BNPL industry norms of 2-12 months. Longer terms offered by competitors could make their services more attractive for larger purchases.
The Rise of BNPL in Kenya
BNPL services have existed in Kenya for years but often with very high interest rates. Safaricom’s zero percent interest model brings much-needed disruption. But the short repayment terms may limit Faraja’s addressable market. M-Kopa, Lipa Later and Aspira offer BNPL in Kenya currently.
However, their markups frequently exceed 200%, while providing 6-12 month repayment periods more manageable for bigger buys. Banks and neo-banks like Loop could emerge as formidable Faraja competitors. Their data insights on customers may enable longer, more customized BNPL repayment plans.
Outlook for Faraja and BNPL in Kenya
Safaricom Faraja makes BNPL accessible to M-Pesa’s large subscriber base. Its interest-free proposition supports consumers and levels the playing field for merchants to boost sales. However, the 30 day repayment term risks limiting uptake. As the BNPL space heats up, Safaricom may need to consider longer durations to drive higher adoption. But overall, Faraja’s launch is a big step forward for alternative digital credit in Kenya.
