1. M-Shwari Terms


    I signed up for an M-shwari account today and the activation process prompted me to accept the Terms and Conditions before being able to use the service. Because I work in the lending industry, I was particularly curious about the rates on savings accounts and interest on loans, so I selected “Terms and Conditions” to read through them. In doing so, I received a notification that I could access them at www.cbagroup.com/m-shwari. 

    My initial reaction is that this is a problem for feature phone users without convenient internet access. A downside with microfinance is that lenders often charge significant fees and interest rates without a legally required transparent disclosure to the borrower. For M-shwari, there are no indications of rates or fees within the application itself, even when you make a deposit into a savings account.

    *NOTE - I applied for a loan and was denied, so I’m not well informed as to whether lending terms are sent via text message or USSD upon acceptance of an application. If you have an M-Shwari loan, please let me know if the service indicated the terms of the loan before you chose to accept the loan.

    Below, I’ve outlined some of the most terms and conditions involved:

    • Commercial Bank of Africa holds M-Shwari accounts
    • Interest rates paid to the user on an M-Shwari savings accounts are not disclosed as a numerical rate, but rather left in the sole discretion of the bank. The exact wording is: “Interest may be paid on the M-Shwari Deposit Account at periodic intervals as determined by the Bank and/or upon respective maturity dates of such deposits at such rate as may be determined by the Bank.” 
    • To withdraw and deposit money, fees are charged using the M-PESA system. Those fees are not defined numerically
    • CBA has created its own proprietary due diligence process for determining whether a customer’s loan application is approved and the amount of funds available to the individual
    • Minimum loan - Kshs 100
    • Maximum loan - Kshs 20,000 (unless otherwise determined by the bank)
    • Borrower’s must repay the loan within 30 calendar days
    • There is a 7.5% “facility fee” paid by the borrower after the loan is disbursed
    • If the borrower does not repay in 30 days, the outstanding balance (including the facility fee) is automatically extended for another 30 day period for a 7.5% fee on the total balance
    • The bank can close the M-Shwari account if the borrower doesn’t repay within 60 days and take the funds in the savings account as collateral 
    • The bank can change the fees at any time 
    • The bank can deduct funds from the customer’s M-Shwari account without notification for any taxes or expenses incurred by them in managing the customer’s account
    • A mini-statement can be requested from the menu (sent to the customer via text message) that includes the last 5 transactions initiated by the customer. This means that transactions that the bank initiates are not included. Customers can request a printed statement from Customer Care.
    • The bank must notify you if it closes your account
    • Customers can close their account at any Customer Care Center in person, not electronically, and their funds will be returned less any fees and/or money owed on a loan 
    • Customer information can be given to other agencies for related commercial purposes, to the Credit Reference Bureau, to all authorities, and to auditors/lawyers for legal proceedings
    • There is no interest on the loan indicated in these Terms and Conditions

    Here’s the math on a Kshs 10,000 loan as I understand it:

    • Facility fee for up to 30 days: Kshs 750 payable after loan is received by borrower
    • Transaction fee: unclear
    • Facility fee for 30-60 days: 7.5% on total remaining balance
    • If repaid in 30 days, this is an annual interest rate (APR) of 90%

    I plan on depositing into my M-Shwari account regularly and hopefully successfully receiving a loan soon. I will update this post to reflect clarification of all notices to me by the system and all transaction fees. 

    Generally, I think the service is going to continue to positively build transaction data that can be used to predict an individual’s savings, borrowing and repayment behavior and how they relate to each other. However, I’d like to see more transparent and accessible disclosures to customers (preferably a “push” model) regarding fees relative to the loan so they can ideally make a better informed decision. 

    Please let me know if any of this information is inaccurate, or if additions/clarifications/corrections need to be made.

    You can email me at: jess.shorland@gmail.com

    10 Jan 2013 Update: There are no transaction fees charged to move money to and from your M-Shwari savings account to your MPESA account. To withdraw the money, you must go to an MPESA agent and are charged normal MPESA fees.