Mobile overdraft facility Fuliza outshines Silicon Valley-backed lending apps in Kenya – TechCrunch

A digital portable overdraft facility has been dipped policy By Kenya’s largest telecom company Safaricom Plc lets popular lending apps in the country make money barely three years after launch.

Fuliza allows Safaricom customers to access unsecured credit by overdrawing M-Pesa – the communications company’s mobile wallet that allows its users to pay bills and send, receive and withdraw money through their phones.

Fuliza’s absorption currently stands at 18.3% nationwide while that of loan applications has fallen by 6.2 percentage points to 2.1% in the last two years, a. Study By the Monetary Authority of the State Central Bank of Kenya (CBK) in collaboration with the National Bureau of Statistics of Kenya (KNBS) and FSD) Kenya presents.

The latest biennial report from FinAccess Household Survey said that digital lending apps have experienced the largest decline in usage compared to other financial unions’ products and financial services, banks and microfinance institutions.

“This may be explained by competition from official digital credit products such as Fuliza, (and) unfair debt collection practices by digital lending applications,” the report said.

The report also said the CBK directive, which bans unlicensed digital lenders from sharing the personal details of defaults on loans with credit reference bureaus (CRBs), may deter apps from lending to customers perceived as risky.

In addition, it is possible that the uncertainty surrounding the regulation of applications by the CBK during the COVID-19 peak prevented them from granting credit to new borrowers. A bill on the regulation of digital lenders was presented to the Kenyan Legislative Assembly and signed just this month in law.

Kenya’s Digital Lenders Association, which represents about 25 digital lenders out of more than 100 workers in Kenya, told TechCrunch in a recent interview that its members typically give out loans worth $ 40 million a month, a sum that has halved. During COVID.

Fuliza, officially registered and licensed, operates in partnership with two local banks – KCB and NCBA. The product seems to have filled the space for mobile lending blocked by regulation, and has now increased competition for mobile lending apps like Silicon Valley-backed branch, launched in Kenya in 2015, and PayPal-supported Tala, which set up operations in the country in 2014 – one of the first digital lenders Who entered the East African country.

According to Safaricom Report, Fuliza’s Teleco granted $ 3.1 billion in credit during fiscal year 2020/21, an increase of 43% from the previous year. That translates to an estimated $ 12 million in credit that Fuliza gives to Kenya every day. Sparicom has 23.8 million M-Pesa customers.

The beginnings of mobile lending in Kenya can be attributed to 2012, when Safaricom launched M-Shwari, a mobile-based savings and lending product that still operates in partnership with NCBA Bank. Since then, Kenya has experienced a plethora of digital apps and microloans, amounting to hundreds.

Loan apps and facilities such as Fuliza offer instant unsecured credit, overshadowing loans by conventional banking facilities, which go through lengthy approval processes, often requiring extensive collateral. These fintech innovations may also be one of the reasons why Kenya’s official financial inclusion stands at 83.7% in 2021 compared to 26.7% in 2006.

However, while the lending apps provided credit facilities for people left out by the formal banking sector, they operated in an unregulated environment for years until two weeks ago, when the president signed a new law giving CBK the authority to license and oversee their operations. .

The lack of regulation has left gaps in predatory pricing, with some apps charging an annual interest rate in excess of 800%, leaving many borrowers impoverished.

Debt crisis

The FinAccess report states that half (50.9%) of the respondents to the survey were unable to repay loans originating from the loan applications.

“The top three lenders where most respondents have reported non-compliance are: a mobile banking loan (including Fuliza), a digital app loan and a loan from a family / friend / neighbor,” the report said.

Among the leading concerns for borrowers was the high cost of access and maintenance of the loans due to the excessive interest rates of the mobile lenders. Unexpected charges, imposed mainly after default and lack of transparency in pricing and other charges in advance, have also been cited as worrying issues.

To solve the problem of hidden charges, the state competition authority has announced that it will require from June next year all digital lenders to disclose their full commissions and penalties every four months.

Besides, with the new law passed, lenders are forced to apply for licenses from the CBK, compared to the previous one, when they had to register just to set up an activity.

They are also instructed to maintain customer confidentiality and not share data with third parties – usually debt collectors. The latter requirement, in particular, protects borrowers from fraudulent digital lenders who use shaming tactics for debts while collecting money owed to them by borrowers. Non-compliance will result in revocation of licenses.

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