Digital mobile overdraft facility Fuliza outshines loan apps in Kenya. This is barely three years after its launch.
The digital mobile overdraft facility named Fuliza by Kenya’s biggest telco Safaricom Plc has started giving the country’s popular loan apps a run for their money.
Fuliza enables Safaricom clients to obtain unsecured credit by overdrawing on M-Pesa, the telecommunications company’s mobile money wallet that enables users to pay bills, transfer, receive and withdraw money using their phones.
According to a study conducted by the country’s monetary authority, Central Bank of Kenya (CBK) in collaboration with Kenya National Bureau of Statistics (KNBS) and Financial Sector Deepening Trust (FSD) Kenya, the uptake of Fuliza is currently at 18.3 percent across the country, while that of loan apps has decreased by 6.2 percentage points to 2.1 percent in the last two years.
When compared to other financial goods and services offered by credit unions, banks, and microfinance institutions, digital lending apps had the biggest drop in utilization, according to the current bi-annual FinAccess Household Survey study.
According to the research, “this may be explained by competition from official digital credit products like Fuliza, (and) unjust debt collection techniques by digital lending apps.”
The CBK’s rule prohibiting unlicensed digital lenders from disclosing personal information about loan defaulters with credit reference bureaus (CRBs) may have stopped the apps from lending to problematic individuals, according to the research.
Furthermore, at the COVID-19 peak, the ambiguity surrounding the CBK’s regulation of the apps may have deterred them from offering loans to new borrowers.
In a previous interview with TechCrunch, the Digital Lenders Association of Kenya, which represents roughly 25 of Kenya’s more than 100 digital lenders, said that its members typically send out loans worth $40 million per month, a sum that was half during COVID.
Fuliza is a fully registered and regulated business that works in collaboration with two local banks, KCB and NCBA. The product appears to have filled a regulatory void in mobile lending, increasing competition for mobile loan apps like the Silicon Valley-backed Branch, which launched in Kenya in 2015, and the PayPal-backed Tala, which launched in Kenya in 2014 — one of the first digital lenders to enter the East African country.
According to a report from Safaricom, the telco extended $3.1 billion in Fuliza credit in the 2020/21 fiscal year, up to a 43 percent increase from the previous year. Fuliza gives an estimated $12 million credit to Kenyans every day. M-Pesa is used by 23.8 million Safaricom customers.
Mobile lending in Kenya began in 2012 when Safaricom launched M-Shwari, a mobile-based savings, and loans product that is still operational today in cooperation with NCBA Bank. Since then, Kenya has seen a surge in the number of digital and micro-lending apps, which now number in the hundreds.
Loan apps and services like Fuliza provide quick, collateral-free credit, eclipsing loans from traditional banking institutions, which require lengthy approval processes and often considerable collateral. These fintech advancements could possibly be one of the reasons Kenya’s formal financial inclusion rate has increased from 26.7 percent in 2006 to 83.7 percent in 2021.
While the lending apps have helped people who have been denied credit by traditional banks, they had functioned in an unregulated environment for years until the president approved a new law granting CBK the authority to license and oversee their activities a fortnight ago.
Because of the lack of regulation, predatory pricing has flourished, with some applications charging annualized interest rates of over 800 percent, rendering many borrowers bankrupt.