Safaricom has signed up more than four million customers to its new overdraft facility Fuliza, extending $170 million in credit since its launch in January.
The new overdraft facility was born out of necessity, explains Bob Collymore, CEO of Safaricom, during an interview with Euromoney in Nairobi.
“When we looked closely at the data we collected from our M-Pesa customers, we saw that on a daily basis, over half of them were not able to complete transactions because the customers didn’t have enough money in their accounts.
“But we know that these people are not poor – that they have the money. This is because the data shows that two days later, these transactions were usually completed. Fuliza aims to close this gap,” he says.
M-Pesa, Safaricom’s mobile money-transfer service, has a base of 21 million active customers. Ideally, the company would want all of them to use the overdraft facility, says Collymore..
It is revolutionary – like nothing we have seen in Kenya so far
– George Bodo, banking analyst
Algorithms based on historical M-Pesa transactions are used to set overdraft limits. Each customer must have a sim card that has been active for at least six months and overdraft limits can be reassessed every three months, depending on use. For now, the maximum overdraft amount is set at KES70,000 ($700).
If a customer fails to repay the facility within 30 days, they lose access to the service, and if the overdraft is not paid within 90 days, the customer’s name is sent to Kenya’s Credit Reference Bureau – the body that specializes in the collection and sale of credit-performance information – as a defaulter.
Funds deposited in a client’s M-Pesa account are automatically used to settle an overdraft. This is unlike M-Pesa’s loan product M-Shwari, which allows a user to repay the loan as they choose and is subject to various interest rates.
According to Collymore, the average repayment time is between two and three days, and default risk is extremely low.
“Some people argue about the interest rate for Fuliza, especially for lower-income Kenyans, but the reality is that because the overdraft is paid off quickly, the amount paid in interest is usually quite low,” he says.
“What the overdraft facility does allow, however, is for small business – street vendors and the like – to secure stock for their day-to-day trade when they might not have the capital to do so up front,” he says.
However, what could this do for individual debt?
“At less than four months old, it’s still too early to speak about the impact of Fuliza on the borrowing habits of Kenyans,” says Collymore. “However, it’s important to note that Fuliza is not a loan – it’s an overdraft facility that allows customers to complete transactions that they were already planning to carry out, so it’s unlikely people will be caught in a debt trap.”
The term fuliza comes from the Swahili word mfululizo, which means continuously flowing, or to fill up.
According to Susan Makena, an analyst at Sterling Investment Bank, Fuliza will also have a decent impact on M-Pesa revenues.
“We project that M-Pesa revenues will reach KES72 billion for the 12 months up to March 2019 – up 14.5% from the previous year, which saw revenue hit KES62.5 billion,” she tells Euromoney.
“We also predict 14.3% growth in revenue for M-Pesa to KES82.3 billion for the 12 months up to March 2020. M-Fuliza will account for 2.6% of the total M-Pesa revenue FY2019/20.”
Fuliza customers can expect to pay a one-off 1.08% fee, which could generate KES2.2 billion in revenue and a further KES3.1 billion through maintenance fees between March 2019 and March 2020, according to Sterling IB.
KES2.12 billion of this would be allocated to Safaricom. This is because while Safaricom owns the entire Fuliza product, they have a revenue share arrangement with Kenya Commercial Bank (20%) and Commercial Bank of Africa (40%) – subject to review every six months.
As Makena says: “Kenyans previously locked out of the short-term credit market due to lack of regular income, credit history or collateral amongst other requirements can now access credit.
“We believe that Fuliza will have a snowball effect. The new overdraft facility will actually increase customer loyalty and therefore revenues generated by other services much more than would have been the case without the service.”
Sterling IB predicts that the platform could advance as much as $2 billion by 2020.
George Bodo, a sub-Saharan banking analyst based in Nairobi, says: “This product will help accelerate M-Pesa towards the $1 billion revenue market.
“It is revolutionary – like nothing we have seen in Kenya so far.”