Key Lessons for Saccos, Microfinance & Digital Credit Providers in Kenya
LOAN BOOK DISBURSEMENT GROWTH YEAR ENDING MARCH 2024
| KCB MPESA | M-SHWARI | FULIZA |
| Ksh 83.7 Billion | Ksh 42 billion | Ksh 578 billion |
| 35.66% increase from 2023 | 6% decrease from 2023 | 17.96% increase from 2023 |
Did you know that FULIZA dropped in customer base from 8.1 million to 7.1 million in the financial year ending March 2024?
Safaricom’s Fuliza overdraft program had a million users unsubscribing in 2023, as per the business’s most recent financial reports.
The number of users of the service fell by 13.2%, from 8.1 million to 7.1 million.
It caused revenues to fall by 28.4% to KShs 3.9bn and average ticket sizes decreased by 14.6% to KShs 254.4 per person.
Factors that led to Fuliza’s drop in customer base include:
- Competition: Customers may have shifted to rival digital credit providers such as Hustler Fund and KCB Mpesa that provide better terms or services such as the lower interest rate of the Hustler Fund.
- Customer Dissatisfaction: Many customers were unhappy with the reduction of the loan limits in the second half of Safaricom’s financial year. Hence, opted out to seek rival digital lending providers offering higher loan limits.
How did Fuliza achieve a 17.96% increase in the loan book disbursement amounts in the financial year ending March 2024 compared to the previous year despite losing a million customers and lowering the loan limits?
- Increased Usage by Current Users: Even in the event of a decline in users, current users may be using Fuliza more regularly, which would result in higher disbursements.
- Market Conditions: Even with a decline in users or loan limits, changes in the financial or economic landscape may have had an impact on borrowing behaviour, increasing demand for short-term loans.
- Marketing and Promotions: To encourage current users to borrow more money or more frequently, Fuliza ran targeted marketing campaigns and promotional offers.
- Better Risk Management: Fuliza may have enhanced its credit scoring methods or risk assessment algorithms, enabling it to keep risk levels within reasonable bounds.
Why a decrease in Mshwari disbursements but an increase in Fuliza and KCB Mpesa disbursements?
- User Preference and Product Differentiation
Fuliza – With the help of Fuliza, an overdraft service, M-Pesa customers may finish transactions even if their account isn’t fully funded. When it comes to short-term credit, its fast accessibility and connection with regular transactions make it particularly appealing to customers.
KCB M-pesa – Compared to M-Shwari, this service provides more customizable loan amounts and payback schedules. Because of its integration with Safaricom’s M-Pesa, consumers who are used to utilizing M-Pesa for a variety of financial activities will find it handy.
M-shwari – M-Shwari’s main offerings are loans and savings. Nevertheless, in contrast to the nearly immediate nature of Fuliza and KCB M-Pesa loans, its procedure can be perceived as a little more cumbersome. This may deter consumers in need of quick money from using M-Shwari.
- Economic Conditions and User Behavior:
Kenya’s difficult economic climate has made it more necessary for people to have rapid and simple access to credit. Because services like Fuliza and KCB M-Pesa are designed to address these urgent financial demands, their use has grown. Compared to M-Shwari, which features a savings component and marginally lengthier loan approval procedures.
- Promotion and Strategic Focus:
Safaricom and Partners: Through diverse marketing efforts and user incentives, Safaricom, in conjunction with its banking partners, has extensively advertised Fuliza and KCB M-Pesa, resulting in elevated adoption rates. User preference has changed as a result of the emphasis on pushing these goods over M-Shwari.
- • Fee Structures:
Fuliza is a more affordable choice for short-term lending than M-Shwari since it has lowered its costs to draw in more consumers.
- Technology Integration:
The smooth integration of KCB M-Pesa and Fuliza with the M-Pesa platform guarantees that users may obtain cash immediately through their mobile phones, eliminating the need for extra procedures or authorizations.
Is there any significant competition to Fuliza, KCB Mpesa and Mshwari from the banking Mobile Loans (Timiza, Equity, M-Co-op Cash, NCBA)?
These banking mobile lending services compete with Fuliza, KCB Mpesa, and M-Shwari in the following ways:
Interest Rates and Fees: To draw cost-conscious clients, banks may provide interest rates and fees that are more favourable than those of mobile lending services like Fuliza, KCB Mpesa, and M-Shwari.
Loan Limits and Periods: To accommodate clients with more demanding financing requirements or particular preferences, banking mobile loan services may provide greater loan limits and more accommodating payback periods than mobile lending services.
Integration with Banking Services: Since these services are provided by banks, they could also come with extra advantages including access to savings and investment products, credit rating based on past bank transactions, and connection with traditional banking services.
Brand Reputation and Consumer Trust: Compared to more recent mobile lending services, banks often have stronger brand reputations and consumer trust.
Opportunities for Cross-Selling: Banks may take advantage of their current clientele and branch networks to cross-sell other financial services and products, generating extra income and enhancing client relationships.
Key takeaways for Saccos, Microfinance and Digital Credit Providers
Adoption of Digital Financial Services:
SACCOs, microfinance lenders, and digital credit providers need to understand the value of using a loan management system to give clients simple, accessible, and reasonably priced financial solutions, especially in underdeveloped regions.
Engagement and Retention of Customers:
Through outstanding service delivery and value-added advantages, SACCOs, microfinance lenders, and digital lending providers may understand the importance of using loan management software to develop strong client connections, create trust, and improve customer retention.
Risk Management Procedures:
To preserve solid financial health and sustainability, SACCOs, microfinance lenders, and digital credit providers may learn how important it is to put in place strong risk management frameworks, use loan management software to carry out exhaustive credit evaluations, and keep an eye on the quality of their portfolios.
Data Analytics and Decision-Making:
Through an end-to-end loan management system with data-driven insights and well-informed decision-making processes, SACCOs, microfinance lenders, and digital credit providers may discover how important it is to leverage data analytics skills to streamline operations, improve risk assessment, and spur company growth.
Partnerships and Collaborations: Strategic alliances with loan management software providers and through complementing services and distribution channels, collaborations may help SACCOs, microfinance lenders, and digital credit providers diversify their product offerings, reach new consumer categories, and increase market share.
