M-Shwari is Changing – Here’s How

M-Shwari is planning to shift to a risk-based lending model, a major break from the current model where all customers play a flat rate. The move would see Kenyans considered less risky to lend to attract lower interest on M-Shwari loans, while those deemed riskier will pay more.

Under the new model, assessment of risk profiles on M-Shwari will be based primarily on the customer’s borrowing history.  Gachora noted that they had gathered adequate user data to inform future lending.

At the moment, all M-Shwari customers pay a flat rate of 9% on loans – broken down as 7.5 percent loan fees and 1.5 percent excise duty.

Offered by Safaricom in partnership with NCBA, M-shwari disbursed Ksh42 billion in the six months to June 2022, compared to Ksh44.8 billion disbursed over the same period in 2021. It is dwarfed by another of Safaricom’s credit products, overdraft service Fuliza – which is also offered in partnership with NCBA – and disbursed Ksh288 billion in the first half of the year up from Ksh220.38 billion in the same period last year.

At the time the H1 results were announced, NCBA MD John Gachora noted that the decline on M-Shwari could be down to customers opting to access credit on Fuliza instead.

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“The growth on Fuliza tell us is not just new customers but also customers that use M-shwari opting to use easier credit available in Fuliza,” he stated.

“A year and a half ago we noted that we had reached the maturity of M-shwari and indeed what we have seen in terms of disbursement is that this year we are six percent below where we were last year. This is just the maturity of the product and these are the numbers we could see after organic of M-shwari. Part of that reduction may be because more people are opting to use Fuliza as opposed to M-shwari,” Gachora added.

The risk-based lending model is likely aimed at making the service more attractive to borrowers.

The model is similar to what commercial banks currently rely on to determine rates for different customers. They typically charge a risk premium on top of the cost of credit and a margin.

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