When it comes to energy access, we’re fond of saying small is big.
That’s because all those small scale solar lanterns, solar home systems, and solar mini-grids add up to a very big market. But the size of that market, and its social impact, could well be dwarfed by an even larger opportunity the solar revolution is engendering. With the explosion of mobile money platforms, and the pay-as-you-go (PAYG) solar financing options they enable, companies working Beyond the Grid are collecting reams and reams of data that could provide rural communities with perhaps the most transformative intervention yet — financial inclusion.
It’s important to first take a step back and understand just how profoundly important financial inclusion is for these off-grid rural communities. For many populations living beyond the grid, they are also living beyond the reach of the formal economy and the financial system. That means they can’t take out loans for productive uses (say a sewing machine to make clothes and generate extra income) that could improve their lives, which in turn restricts their ability to move up the economic ladder and reinforces the poverty trap.
But it doesn’t have to be this way. Rural communities already pay tremendous amounts for heavily polluting sources of energy — nearly $40 billion for kerosene lighting. Solar entreprenuers are redirecting those cash flows to cheaper, cleaner sources of energy saving them money and improving their quality of life. But more importantly, by paying off these products, they are demonstrating the people’s ability to pay, and therefore their creditworthiness.
But there is a wide gulf between being creditworthy in principle and creditworthy in practice. That’s because the financial institutions that would be granting loans to these people need historical data on which to judge risk (this is the same dilemma that faces solar providers in the U.S. as they try to securitize loans). That is where we reach a classic Catch-22: without credit history you can’t get credit, and if you can’t get credit, you can’t build credit history.
Enter mobile money, PAYG finance, and distributed solar. Companies are now leveraging machine to machine (M2M) technology — where mobile phones ‘talk’ to solar panels — to allow customers to pay for solar power when they need it and, more importantly, when they can afford it. This allows the software providers to capture the first-ever multi year credit data for these populations and ultimately make billions of people visible to the formal economy for the very first time.
To understand what this looks like in practice, take Angaza Design, a company working beyond the grid specializing in PAYG platforms, at the bleeding edge of this opportunity.
Angaza was incorporated back in 2010 and began its operations, as nearly all solar companies do, by selling solar lanterns. Founder Lesley Marincola quickly realized that, while their products were great, Angaza was just one amongst literally hundreds of solar lantern start ups. They simply weren’t going to move the needle on this problem by just adding another product to an already crowded field. So, like all good entrepreneurs, Lesley pivoted and found a niche; Angaza is now all about data.
Currently, Angaza manages a cloud-based PAYG software platform called the Energy Hub, which integrates directly with mobile money platforms (like M-Pesa) and provides a suite of online services to help distributors manage and streamline PAYG financing of solar energy systems. They also work directly with manufacturers to develop custom PAYG hardware solutions that are optimized for the features of their existing product line. These products then become “PAYG-ready”, which allows them to communicate with the Energy Hub and activate/deactivate depending on the customer’s payment status. This complete PAYG ecosystem enables Angaza to provide holistic support of PAYG financing — and collect lots and lots of data.
How they use this data is, of course, the most powerful component.
For example, let’s say that one of Angaza’s clients needs a microfinance company to lend them money for a sewing machine so they can make clothes from home and earn some extra income. The client can turn to Angaza and ask the company to release their solar repayment information, which can then help the client secure a loan they otherwise wouldn’t be able to procure.
Having this data available allows a previously unbanked customer with no known payment streams to get a record, not to mention a proof of address, which can both unlock other financial services. Similarly, Cignifi is doing the same type of work by using big data credit analytics to score unbanked people by using each client’s prepaid phone records.
Even more interesting is the direction Angaza is headed — down the economic pyramid. While most companies are rightly focused on moving populations up the energy ladder, Angaza is working to go even deeper into the economic strata by using finance to unlock solar for those most in need. That means focusing on making even entry level solar lanterns available by using extremely low cost PAYG solutions.
In so doing, Angaza is literally building credit profiles from the bottom up with an eye towards moving those customers up the energy ladder from lanterns to solar home systems and beyond.
While this is only the beginning, Angaza’s business model holds profound implications for transforming the lives of billions of people with individual hopes, dreams, and desires. This data can help break down the anonymity and exclusion poor populations face while painting a vibrant picture of the aspirations these people hold.
But like any tool, it is dependent on how we use it. By leveraging its power, companies like Angaza are using it to eliminate energy poverty and financial exclusion once and for all. A mission we should all support.