CBK approves Faraja lending product.

After nearly a year of waiting for regulatory approval, the Faraja product will be released later this month. It is owned by EDOMx Ltd, a financial technology company with offices in Kenya, and Safaricom and Equity Bank are named as its partners.
The CBK’s approval of Faraja lending program,comes after EDOMx was granted clearance as a digital credit provider in March in accordance with legislation released last year that permit the central bank to regulate fintech in order to reign in predatory lending and invasions of consumer privacy.
Before a September deadline passed, which called for the digital lenders to obtain a CBK permit for operation, the product was scheduled to begin on July 6, 2022. However, the CBK called just before the product’s release, making it very apparent that the product was still being reviewed by the appropriate authorities and awaiting permission.
The terms and conditions for Faraja were swiftly removed from Safaricom’s websites after this pushed EDOMx to cancel the launch.
In a market where short-term loans come with fees and interest rates that can reach 400% when annualized, Faraja will enable customers to purchase goods and services from selected retailers like Naivas on credit for as little as Ksh20 to a maximum of Ksh100,000 and pay the same amount later.
According to Julian Kyula, founder and CEO of EDOMx, during the Faraja pilot period, over 90,000 clients signed up, 28,000 qualified, and made purchases totaling around Ksh50 million.
“I think what we have created is exciting. We will be in the market by the end of June now that the license has been issued. A new phase of evolution is starting. We’ll keep adding shops, clients, and vendors,” Mr. Kyula promised.
Equity will supply the funds to immediately pay clients’ transactions made through Safaricom’s Lipa na M-Pesa service, he said. James Mwangi, the chief executive of Equity Group, is anticipated to reveal how much financing the lender will offer for the product that EDOMx intends to promote in other African countries.
Customers will purchase the product on credit, and EDOMx will pay the suppliers immediately and at a reduced rate. The difference between the lowered product pricing and market rate costs will be earned by EDOMx after the consumer has been reimbursed within 30 days.
Expenses associated with hiring debt collectors will also fall on defaulters. If a Faraja account defaults, Safaricom will suspend or terminate it.
“Why should I charge clients interest if we receive, let’s say, a seven or ten percent discount (from merchants)? Good payback has been observed during the pilot phase,” stated  Mr. Kyula. He expressed the expectation that this trend will continue.
Numerous businesses, such as Citi Walk, a shoe store, and the Naivas Supermarket have already signed up to be merchants.
Because transfers from the Faraja account may only be used for goods payments through Lipa na M-Pesa, subscribers to Faraja are unable to send money to other users like those of Fuliza, another overdraft service offered by Safaricom.
Lipa na M-Pesa levies, which vary in price from Ksh23 to Ksh210 depending on the size of the transaction, are how Safaricom will be paid. In the case of payments made by drivers at gas stations, the fees are either totally covered by the sellers or buyers or co-shared with the customers.
Similar to the currently available Lipa Later service, Faraja allows customers to purchase items directly from a list of chosen merchants without having to pay for them in full up front or in installments.
It will function similarly to a digital credit card, allowing users to make purchases with a credit limit of up to Ksh100,000 and settle the balance at a later time based on their credit score.
According to Mr. Kyula, the CBK put on hold the launch because it was in the process of enforcing the law that regulates digital lenders. This law was passed in December 2021, and businesses had until September of the previous year to comply.