Faraja Loan By Safaricom 2024 – Is it Worth It? (Explained!)

With Safaricom enjoying more than 32 million active users (as of March 2023), it doesn’t surprise that the communication giant is on the move again to lure more customers with a new product. I’m talking about Faraja Loan, which enables Lipa Na MPESA customers to buy goods on credit at select stores worth Ksh 20 – Ksh 100,000. 

Faraja customers are then offered up to 30 days to pay the loan at zero interest. Did I say zero interest? Don’t be excited just yet, as I’ll explain why this may be a trap to get into debt. 

Overall, Faraja Loan is perceived as a better alternative to Fuliza MPESA, giving you up to 30 days to repay the loan. The difference is that Faraja allows you to do it interest-free. 

Its limit is that you can only do it at select stores, unlike Fuliza, which allows you to pay via MPESA at any MPESA-accepting store. 

While Faraja doesn’t offer you a cash loan you can withdraw or transfer, Fuliza MPESA does just that. 

This guide will explain all the things you must know about Faraja Loans, and that includes the following: 

• What’s Faraja Loan? 
• How does it work?
• Who qualifies for Faraja Loan? 
• How do you access Faraja?
• How do you pay back a Faraja Loan? 
• What does Faraja promise? 
• Why is Faraja a trap? 
• How can you avoid this loan trap? 

Let’s dive in!

What Is Faraja Loan?

Faraja Loan is a zero-interest point-of-sale credit facility that allows MPESA users to pay for goods and services of Ksh 20 – Ksh 100,000 on credit at select stores. Customers have up to 30 days to repay the loan in full. 

Faraja is a product by EDOMX Ltd (owned by Nairobi Pastor and entrepreneur Julian Kyula) in partnership with Equity Bank and Telecommunication giant Safaricom. 

How Does Faraja Loan Work? 

Faraja allows MPESA users to pay for goods and services at select stores, including all Naivas supermarkets, Citi Walk retailers and Good Life pharmacies. Safaricom’s role in the partnership is to offer the Lipa Na MPESA payment platform that Faraja customers can use to pay with Lipa Na MPESA on credit. 

Meanwhile, Equity Bank offers the finances to pay the outlets as EDOMX Ltd obtains discounts (7 – 10%) from partnership stores. 

Case Example 

Let’s say a customer qualifies for a Faraja Loan and wants to buy a TV set worth Ksh 40,000 at a Naivas supermarket. Faraja will loan the customer the amount to allow them to pay it in cash. 

However, instead of Naivas getting the total amount, they’ll get about 90% (assuming the discount percentage is 10%). The 10% will go to the lender (Faraja). 

In that case, Naivas will only get Ksh 36,000, as Faraja keeps Ksh 4,000. The customer is, however, expected to pay Faraja the full amount within 30 days. 

Who Qualifies for Faraja Loan?

Faraja Loans are available to qualifying MPESA customers. The lender looks into your credit rating before issuing you a loan and determining your credit limit. Ideally, Faraja subscribers should have an active MPESA line and a national ID. 

How Do You Access Faraja? 

Before you can access Faraja, you must first sign up and here’s how to do it: 

• Dial *799# on a registered Safaricom line 
• Choose opt-in and then input your MPESA pin 
• Wait to receive your Faraja credit limit 

Now, once you’ve registered, you can go ahead to pay for goods and services using Faraja and spend your limit using these steps: 

• Dial *799# on your Faraja registered line 
• Choose Buy Goods and Services or Pay Bill 
• Enter the amount you wish to pay and follow it up with your MPESA pin 
• Wait for a confirmation SMS 

How Do You Repay Faraja Loan? 

Remember, you’ve up to 30 days to repay your Faraja Loan in full, and you can do that using these steps:

• Dial *799# on your Faraja registered line 
• Enter the cash amount you wish to repay 
• Input your MPESA pin 
• Confirm the repayment transaction and wait for a confirmation SMS

What Does Faraja Promise?

Faraja promises three things as follows: 

1. Credit limits of up to Ksh 100,000 – As an eligible Faraja Loan applicant, you can buy goods and services on credit worth Ksh 20 – Ksh 100,000, depending on the credit limit. So, you could be eligible to purchase goods worth 100k on credit if you are qualified. 
2. Zero interest – According to Faraja, if the goods are worth 100k, then that’s what you’ll pay and nothing more. The caveat is that you should repay it within one month. If you don’t, you’ll start incurring high interest. 
3. Access to credit at notable select outlets – Faraja allows you to buy from Naivas, City Walk and even Good Life Pharmacy, which are famous outlets. The demerit is that you are only limited to their partnering stores, and if you are in the village, accessibility to these outlets may be challenging. 

Why Do We Think the So-Called Promises Are a Debt Trap?

Yes, Faraja promises credit limits of up to Ksh 100k at zero interest at select outlets, but we believe it’s a debt trap. Here’s why: 

Let’s start with the huge consumer credit limit;

The idea of giving you a huge credit limit if you are eligible for one is to entice you to borrow more money to but things that don’t go up in value.

This is credit taken for consumption which is unproductive and will ruin your financial position.

At the end of the month, you may have a 100k debt for something you didn’t need in the first place. 

Onto the second promise – zero interest;

You won’t have to pay additional charges if you manage to pay the loan within 30 days. The keyword is managing. The truth is that Faraja knows that up to 80% of borrowers will either default to pay or may fail to pay in full the amount within 30 days. That’s when they slap you with a high interest. So, the loan may end up not being zero interest. 

And lastly, accessibility to notable select outlets;

Once you walk into Naivas, City Walk and other Faraja stores, you will likely spend more than you planned for or needed just because you have a credit limit. The credit limit is high and will tempt you to shop unreasonably.

So, for the three reasons that counter the 3 Faraja promises, Faraja Loans are a debt trap you should avoid. 

Negative Implications of Faraja Loan 

Faraja Loan will get you into a financial mess, among other things. First, you’ll need to pay the loan within the first month, which may mean misallocating money for other essential expenses. So, it becomes difficult to budget for your money or save it once you owe Faraja.

But what if you don’t pay? Then Faraja may result in any of these three things. 

• Slapping you with an unspecified high interest – As mentioned earlier, Faraja will hit you with a high interest which they don’t specify, when you fail to beat the 30-day deadline. 
• Involving a debt collector – EDOMX, whose job is to get a discount back, may result in hiring a debt collector to get their money back. These people can be very inconsiderate and may do what they must to get from you what you owe Faraja. 
• Account suspension or permanent closure – If Faraja is unsuccessful with the debt collection, Safaricom may suspend or completely close your Faraja account, which means you won’t be able to use it. 

How Can You Avoid the Faraja Debt Trap? 

Now that it’s clear Faraja is a debt trap, you don’t have to fall victim. Here are two things you can do to avoid falling into such debt traps: 

1. Learn to Budget 

It’s best to live within your means, and one way to do that is by learning how to budget your money. Here are the basic steps for doing it:

• First, list all your existing debts.
• Start saving up for an emergency fund which should be 3-6 months of your household living expenses. 
• Outline any other financial goal (other than the emergency fund), and this is where you put your savings plan.
• Determine your net income –what’s left after the taxes, NSSF, NHIF and other mandatory deductions. 
• List your household monthly expenses. 
• Use the zero-based budgeting method (ZBB) to set up your budget. Remember, the difference between the expenses and income should be zero, which means allocating each coin a hob. 

Note: You can still use other budgeting methods such as the 50/30/20 Rule, 70/20/10 Rule, Reverse Budgeting or Envelope Budgeting if you are comfortable with them. 

I, however, recommend ZBB because of the advantage of assigning a job to every coin you make. You wouldn’t have to worry about where your money went or misallocate your funds (as long as you are financially disciplined). 

2. Save Up for What You Can’t afford Now 

Since buying things you can’t afford is tempting because you can access a credit limit, how about you save for it? Saving does a few things. For one, it pushes you to work hard and stay financially disciplined to hit your financial goal. 

While doing so, you appreciate the value of every coin you make since you’ve to sacrifice some expenses, which means you are less likely to spend the money on something unnecessary. 

When it comes to a considerable expense such as furniture, vacation party event, or any other which may cost up to 100k (the maximum credit Faraja promises), the best savings approach is a sinking fund. 

Here’s a guide on a sinking fund you can use to get started. Once you do, you won’t have to borrow from Faraja or any other lender for a large expense. 

Is Faraja Loan Worth It? Closing Thought 

Considering the potential of Faraja Loan being a debt trap, it’s undoubtedly not worth it. You wouldn’t want to get into debt and struggle to get out. 

Nonetheless, don’t worry if the trap has ensnared you, as I have the best resource you can get from my online shop. You’ll learn how I overcame the financial monster called debt and picked myself up.

Additionally, you’ll discover steps and business ideas to build lasting wealth, which will mean bye-bye to debt forever and finally living the financially-free life you’ve always wanted.