MTN Uganda, the country’s largest telecommunications company, has just launched a new product called MoMoAdvance, which is an overdraft loan. It’s part of the MTN Group, which has businesses in Africa’s southern, west, and central regions, as well.
MTN’s MoMoAdvance was introduced after a pilot programme that began in late 2020. It lets MTN customers overdraw on their MoMo (mobile money) wallets. In addition to the 2.5% monthly access fee, users will be charged a 0.5% daily interest on the outstanding balance for a total of 45 days.
A close overdraft product, Fuliza, was launched by Kenya’s biggest telco, Safaricom, in January 2019. Fuliza allows subscribers to complete transactions even if they don’t have enough money in their M-Pesa mobile wallets.
In order to use overdraft services, customers have a borrowing limit that is based on their transaction history. When customers top up their wallets, the overdrawn amount and accrued interest are taken out of their wallets. Three years ago, Fuliza became a lot more popular with people who use M-Pesa. Safaricom now gives out about $12 million worth of overdraft loans every day to people who use the service.
KCB and NCBA, two Kenyan banks with a strong presence in other parts of the world, work with Fuliza. Also, MTN Uganda worked with NCBA for its MoMoAdvance credit. It’s now possible that the bank will work with MTN in other East African countries, like Rwanda and Tanzania, where the bank already has operations.
As loan apps reach African countries, telecoms are benefiting from mobile-money overdraft programmes. Mobile lending apps like MoKash by MTN Uganda and M-Shwari by Safaricom have become more competitive. These apps allow customers to borrow short-term loans and pay them back within 30 days.
Most of the people in Africa who couldn’t get loans from traditional banks because they didn’t have a banking history now have access to credit through these new and easy-to-use digital lending services. There are some exceptions, though. Most of the new digital lenders charge high-interest rates, which is often because they work in a risky environment. Users will benefit from lower prices as the legislative framework changes to formalise the industry, while service providers will be protected from financial loss.
