Safaricom has introduced a new update to its credit service M-Shwari meant to offer a bigger lower limit to the millions of M-PESA users.

The telco, in partnership with NCBA, has now raised the minimum loan limit to KES 2000. This change, according to NCBA, is a move expected to reduce defaults largely by borrowers taking smaller amounts.

Initially, borrowers have been accessing a minimum of KES 500 through M-PESA on the M-Shwari platform.

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The changes apparently began to take effect on Monday and NCBA has communicated the new minimum limit to customers who qualify for it.

However, users that do not qualify for the new limit have been relegated to use the daily overdraft service Fuliza which is more expensive but structured to lower defaults. M-Shwari attracts a smaller monthly facility fee (7.5%) while Fuliza is more expensive at a daily fee of 1.083%.

For instance, a borrower that used to pay up KES 56.25 as interest for KES 1,000 M-Shwari loan will now be forced to pay up to KES Sh243.68 for a month-long Fuliza debt of the same amount. As you can see, that is quite high considering the risks associated with online loan products.

Speaking to Business Daily, NCBA Group managing director John Gachora stated that these changes are meant to bring a clear distinction between Fuliza, M-Shwari and Stawi products in which the bank participates.

He noted that the bank’s analysis shows that most loan requests below KES 2,000 were mainly for unplanned expenditures. This is why the new M-Shwari limit is aimed at shifting 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,” Mr Gachora highlighted in the interview.