NCBA and Safaricom who together operate the M-shwari loan facility have raised the minimum loan size on the mobile lending platform M-Shwari four times to Sh2,000 in a move expected to reduce defaults largely by borrowers taking smaller amounts.
This means you will no longer be able to get loans of less than KES. 2000 on M-Shwari.
While the move is being seen as a way of reducing many loan defaulters who fail to pay small amounts, it is also quite extreme because it means that those who’ve built their businesses around these small loans will now have to pay much more for smaller amounts of money.
Those who do not qualify to borrow at least Sh2,000 on the monthly loan product have been relegated to use the daily overdraft service Fuliza which is more expensive but structured to lower defaults.
Borrowers pay a facility fee of 7.5 percent when taking the M-Shwari loans, amounting to an annualized interest rate of 90 percent.
Fuliza, on the other hand, is different.
- You can only access it when sending money or using Lipa Na M-Pesa and your balance is short.
- There’s both a one-time interest rate of 1.083% when accessing it, and a daily fee charged until you repay your overdraft in full.
So for example, if you used Ksh1000 on Fuliza and you repay it after 30 days, in the end, you will pay back a total of Ksh 1310.83. Which really just sounds exploitive.
NCBA Group managing director John Gachora said that the changes will bring a clear product differentiation for borrowers seeking digital loans through Fuliza, M-Shwari or Stawi products in which the lender participates.
He said the bank’s analysis has shown that most customers seeking credit below Sh2,000 were for unplanned expenditures, and therefore the raised M-Shwari limit is meant to migrate such customers to Fuliza.
“M-Shwari serves the critical need for planned credit and the demand for lower ad hoc (impromptu) credit is now better served with Fuliza,” he added
The changes took effect on Monday and NCBA has started communicating the new credit limit to customers who qualify for it.
Customer qualification for M-Shwari and Fuliza will depend on the individual performance on mobile money, saving, and on the observed repayment behaviour on all digital loans that they use.
More than 3.2 million Kenyans had been negatively listed as loan defaulters by April in an economy where job cuts and near stagnant wages have left thousands of people in a debt trap.