Equity Bank Kenya has rolled out an unsecured facility that allows customers to overdraw their accounts up to Sh100,000 to complete transactions such as shopping, taking competition to the doorsteps of Safaricom's Fuliza.
The lender has communicated to customers the new product dubbed 'Boostika', which will allow clients with insufficient funds when making a payment, sending money or buying airtime, to complete such transactions and pay the amount within a month at an effective cost of credit of 8.5 percent.
The terms and conditions of the product show customers with accounts that have been active for at least six months will be eligible to access overdrafts of between Sh100 and Sh100,000 based on their loan limit. The customers are allowed to draw multiple overdrafts for as long as the unpaid balance is within their limits.
"The Boostika option is embedded on the transaction journey when one runs low on funds when making a payment, sending money or buying airtime, therefore offering one the convenience of completing a transaction seamlessly without exiting the payment journey," says Equity.
A breakdown of charges shows Equity will charge five percent of the amount as a processing fee (also called loan application and credit evaluation fee), the interest of 1.5 percent per month, one percent as loan insurance and an excise duty of 20 percent of the processing fee.
This means a customer tapping the maximum allowed of Sh100,000 will pay 8.5 percent interest, or Sh8,500 made up of Sh5,000 processing fees, Sh1,500 interest, Sh1,000 loan insurance charge and another Sh1,000 towards excise duty.
A Sh70,000 Boostika overdraft will cost an Equity customer Sh5,950 if repaid after 30 days. A similar amount, which is the maximum for Safaricom's Fuliza, will cost an M-Pesa user Sh1,600 made up of a one percent access fee equaling Sh700, a daily maintenance fee of Sh25 totalling Sh750 and a 20 percent excise duty on maintenance fee amounting to Sh150.
The Fuliza overdraft charges give an effective interest of 2.3 percent per month, meaning customers using Equity's will spend 3.7 times more on servicing the facility.
The overdraft is available for customers sending or making payments using Equitel, Equity Mobile App or the *247# option, promising to appeal to the many Equity customers on these platforms.
"An individual's limit is reviewed monthly to determine whether it should be increased or decreased based on the account behaviour, account transactions as well as the loan repayment history," says Equity.
Equity Group data shows Equitel moved 27.5 million transactions valued at a cumulative Sh1.192 trillion in nine months ended September last year while the Equity Mobile application had 161.6 million transactions worth Sh1.355 trillion.
The lender said the amount due for Boostika would be repaid through an auto-sweep from the borrower's operative account, or a customer can decide to prepay or clear in full using the same three platforms they used for borrowing.
