NB Financial Health
Lease-to-Own Energy: Part 3 of our Digital Finance Plus series explores how mobile money is enabling affordable off-grid solar energy solutions
Editor’s note: This is the third post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. Discover more in part one, part two, part four and part five of this week-long series.
With 1.3 billion living without electricity worldwide, the global need for off-grid energy solutions is massive. People living off-grid, spend an estimated $38 billion on kerosene for lighting and $10 billion on phone charging each year.
Fenix International, where I serve as Business Development Director, was founded in 2009 with the mission to bring affordable energy solutions to people in emerging markets and improve their quality of life. Thanks in part to the tools provided by digital finance, we’ve been able to offer products that these customers need, at prices they can afford – and as the mobile money ecosystem has evolved, so has our product line.
Responding to a Growing Market
In our first four years, we focused on building off-grid energy products and distributing them through partnerships with MTN, Africa’s largest telecom, and Vodafone. Our first product, the ReadySet Solar Charger, empowered entrepreneurs in emerging markets to start profitable phone charging businesses. The GSM Association estimates there are 600 million mobile subscribers in emerging markets who own a mobile phone, but do not have electricity in their homes. Our field studies with telecoms in East Africa found that at $0.20 cents per phone charge, entrepreneurs were making $40-$50 per month – enough to pay off their ReadySet investment in three to six months.
From 2011 to 2013, we sold thousands of ReadySets through distribution partnerships with MTN in Uganda and Vodacom (a Vodafone subsidiary) in Tanzania, powering an estimated 5 million cell phone charges each year. However, approximately 80 million of the 100 million people living in East Africa do not have electricity in their homes. ‘Thousands of ReadySets’ was far from the impact we sought to reach.
As we surveyed our existing customers we found that about one-third were using the ReadySet exclusively for business, while the other two-thirds were using them for home lighting and home phone charging. All the while, many of our potential customers were asking us for payment plans to make the ReadySet more affordable.
So to bring our products to every household and make clean energy universally affordable and accessible, we decided to sell them through solar leases linked to an empowering consumer finance platform. But it soon became clear that making this platform scalable would require an innovative approach.
A New Application of an Old Idea
The idea of pay-as-you-go and lease-to-own energy dates back to the early history of electricity itself, with General Electric introducing the first prepaid electric meter in 1899. In modern times, SolarCity, SunPower and Sungevity have created solar leases that make installing renewable energy radically more affordable for American homeowners.
To test the consumer finance opportunity in the developing markets we serve, Fenix began extending credit to customers through corporate employee lending programs and savings and credit cooperatives (SACCOs). Fenix delivered approximately $250,000 in ReadySets to customers through these channels. Not surprisingly, we found that customer repayment rates were incredibly strong, much like that of microfinance. However, the scalability of this model was challenging because only a small percentage of the population is formally employed, and managing and collecting cash repayments was costly from an operations and staffing perspective. But we soon recognized that if we moved beyond cash and leveraged the growing reach of mobile money platforms, we could open the door to a much larger market.
In less than six months, Fenix’s engineering, sales and operations teams built our first version of the ReadyPay Solar Power System – a lease-to-own energy product that enables people to purchase power with their cell phones. We began piloting ReadyPay in Uganda with a determination to demonstrate customer willingness to pay. We compared daily energy expenditures for candles, kerosene, petrol generators, phone charging fees, prepaid airtime, and grid electricity costs. We ultimately decided to offer ReadyPay at $0.39 cents per day, pricing it on par or below the average off-grid Ugandan household’s energy costs for lighting and phone charging.
We launched ReadyPay in December 2013, through a distribution partnership with MTN, meaning that customers can find our solar products for sale alongside mobile phones and 3G Internet modems in MTN’s telecom retail shops. We now offer ReadyPay Solar home and business kits that include lights, phone charging cables, radios, and even an LCD TV. We’ve made the payment process simple – customers just need to:
1. Go through a short application process at an MTN shop;
2. Make a small upfront deposit using MTN Mobile Money, and receive a secure code via SMS to unlock 7 days of power. (The ReadyPay system automatically locks itself when the credit runs out and requires another payment to unlock power.);
3. Pay for power in increments that fit their budget (as small as one day at a time to lease-to-own a ReadyPay kit in 18 months or less).
The Next Steps
There are 30 million people without electricity in Uganda and, as I mentioned at the start, 1.3 billion worldwide. The vast majority of these potential customers already pay $0.39 or more per day for household energy costs. With innovative financing, our customers stand to save money by switching to solar, and potentially even generate additional income through their access to electricity. The challenge that lies ahead is to combine intelligent technology with innovative distribution and financing partnerships to bring transformative energy to massive scale.
In late 2013, Fenix was awarded a Mobile Enabled Community Services (MECS) Market Validation grant from the GSMA Foundation, which in turn received its funding through aid from the U.K. government. This funding has empowered us to rapidly launch and scale ReadyPay across Uganda this year. In less than six months since introducing ReadyPay in Uganda, we are seeing exponential growth in sales, and we forecast that lease-to-own solar will be a core part of our business.
But the benefits of embracing digital finance don’t end there, for Fenix or our customers. Our next big idea is to build a next-generation credit score for the 2.2 billion unbanked adults in emerging markets. As we collect real-time ReadyPay repayment data, we are building a massive dataset that will enable us to create a credit score and history for our previously unbanked customers. We believe that this data, in partnership with local banks, could unlock access to capital for education, agriculture, small-business development and countless other opportunities that will enable people at the base of the economic pyramid to transform their quality of life and maximize their fullest potential.
Peter Glenn serves as Business Development Director at Fenix International.