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Move over M-Shwari and KCB M-Pesa, Fuliza now the new lending king

By Patrick Alushula | November 30th 2021
By Patrick Alushula | November 30th 2021
The Fuliza overdraft service transacts more than Sh1.2 billion daily. [File, Standard]

Safaricom’s overdraft facility, Fuliza, has taken less than three years to capture the digital lending market. 

But the telco’s climb to the pinnacle of the market segment has been anything but smooth.

It started with M-Kesho—the ill-fated product launched by the mobile service provider in partnership with Equity Bank in 2010.

Hailed then as the pioneer mobile banking application, M-Kesho would later fade away as the two firms fought over commission sharing and other issues.

The product enabled customers to deposit and withdraw money from their M-Kesho account by transferring value to and from their M-Pesa account.

While the product failed, Safaricom walked away with valuable lessons on how to partner with banks—the institutions that once opposed M-Pesa.

Two years later, M-Shwari was born. Safaricom struck a deal with Equity’s rival, CBA Group—now NCBA after the merger with NIC.

This was followed by another partnership between Safaricom and KCB to form KCB M-Pesa.

The two products allowed both banks to lend to customers and take deposits via the M-Pesa platform.

M-Shwari and KCB M-Pesa resonated with Kenyans seeking microloans for their daily and monthly needs such as food and rent payment.

The services enabled customers to save as little as Sh1 and get loans from Sh50 in a move that saw many people get hooked to the products.

Then in 2019, Safaricom launched a new product dubbed Fuliza. It has since taken the market by storm and averaged Sh1.34 billion in daily lending in the six months ended September this year.

Fuliza’s entry has upset the popularity of M-Shwari and KCB M-Pesa, with M-Pesa users seeking microloans getting hooked to the overdraft service.

The product allows customers to access unsecured credit by overdrawing on M-Pesa to cover short-term cash flow shortfalls, subject to predetermined limits.

Safaricom says the average ticket size on Fuliza is Sh375.80, a figure which resonates well with many people requiring money to sort out emergencies such as buying food, paying for bus fare, refilling cooking gas and buying electricity tokens.

Fuliza’s value of disbursements hit Sh244.6 billion in the financial year ended March 2020, while those of M-Shwari and KCB M-Pesa stood at Sh129.6 billion and Sh116.6 billion respectively.

But the tide shifted in the financial year ended March 2021, with Safaricom disclosing that Fuliza borrowing had jumped by Sh106.6 billion, or 44 per cent, to Sh451.2 billion.

However, during the same period, M-Shwari loans reduced by 56 per cent to Sh51.1 billion as those of KCB M-Pesa also declined by 27 per cent to Sh94.5 billion.

The decline means M-Shwari and KCB M-Pesa lending shrank by Sh100.6 billion—nearly the same amount that Fuliza’s overdrafts grew by.

Safaricom’s recently released half-year financial performance to September showed continued growth in Fuliza loans and a decline in both M-Shwari and KCB M-Pesa lending.

Fuliza’s six-month loan book hit Sh242.6 billion, translating into Sh93.2 billion or a 62 per cent jump. This means customers were tapping Sh1.35 billion daily on average.

While the overdraft facility was on the rise, M-Shwari lending fell by Sh4.1 billion to Sh43.4 billion as KCB M-Pesa’s dropped by Sh4.4 billion to Sh22.9 billion.

KCB and NCBA insist the decline came in unique circumstances, including last year’s freeze on the listing of defaulters of Sh1,000 and below.

The freeze on listing saw the two banks take a cautious approach in lending, to the advantage of Fuliza, which is structured to allow instant deduction of money from customers’ M-Pesa wallets to settle overdrafts.

NCBA Group Chief Executive John Gachora said M-Shwari has hit its maturity and may have stopped growing.

“We always knew M-Shwari would mature at some point. Just like any new product that is being taken every day, it matures to a point where it can only grow for as long as new customers are joining,” he said.

“I think we have reached that point where the product has stopped in terms of growth.”

One of the factors that saw M-Shwari’s loan book dip was the decision taken in August 2020 to raise the minimum loan size from Sh500 to Sh2,000.

Customers locked out of M-Shwari were relegated to using Fuliza, which is more expensive but structured in a way that lowers defaults.

It is a decision Mr Gachora has no regrets about, saying it was more about customers intentionally moving from M-Shwari to Fuliza.

“M-Shwari is for planned credit, and that is how we want it to stay. We have to help people by giving them what is appropriate to them as opposed to what is good for us,” he said.

NCBA and KCB are also separately pushing for the growth of their own digital lending platforms—Loop and Vooma—respectively.

KCB Chief Executive Joshua Oigara says Vooma is now the priority for the lender over KCB M-Pesa.

“We want to grow both, but our key priority is Vooma. We expect that Vooma loans will grow by 50 per cent this year,” he said.

“The Vooma platform loans are growing at a faster pace than KCB M-Pesa, and it is our key area of focus. It is actually our top priority focus. KCB M-Pesa is our second priority now.”

The desire by the lenders to grow their products as opposed to those founded on partnerships may see Fuliza make further inroads in the market, given the growing stature of M-Pesa in the economy.

M-Pesa had 28.69 million monthly active customers by the end of September, offering a rich pool for the telco to tap into and grow the overdraft service.

Building on the growing popularity of Fuliza, the telco is now seeking regulatory approval to start extending the overdrafts to small businesses.

Safaricom says it has applied to the regulator and is waiting for the nod before rolling out Fuliza for business, an improvement on the current product that is only open for individuals registered as M-Pesa users.

M-Pesa Africa Managing Director Sitoyo Lopokoiyit disclosed the development in a recent call with investors and financial analysts.

Fuliza for business will see Safaricom tap into over 400,000 businesses currently using the Lipa na M-Pesa service.

The company sees an opportunity to offer such small businesses the overdraft facility for working capital needs, such as boosting stock, paying rent or electricity.

“This is part of what we are awaiting regulatory approval for. So it is something that we are really keenly looking at given we have over 400,000 businesses that use Lipa na M-Pesa,” said Mr Lopokoiyit.  

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