Providing access to electricity is a pressing need for over a billion people on this planet. Off-grid solutions, such as small-scale micro-grids or individual solar home systems, can be attractive in areas where the centralized grid may not have reached. However, the high overhead and transaction costs associated with providing off-grid solutions can be problematic for these businesses. A common challenge cited by businesses in this sector is the consistent collection of payments, which is vital to ensure financial sustainability. In recent years, “mobile money” has being looked to as a way to ensure regular revenue for energy service providers in off-grid areas. Mobile money allows users to buy electricity through their cell phones — which can enable “pay-as-you-go” business models, reduce transaction costs and give customers an entry into formal financial markets.
Many companies operating in the off-grid electricity space, from micro-grid company to individual solar home system providers, rely on door-to-door collection for payments – whether it’s for electricity consumption or loan repayments; however, sending collectors on a regular basis can lead to increased transaction costs and poor collection rates. Even though companies to-date have employed smart metering in each household to monitor and limit consumption of electricity, many still rely on manual labor to collect money for collecting revenue. Door-to-door payment collection also adds additional costs for transportation and salaries, and requires an enforcement regime that can be disruptive to customers’ daily lives and routines.
The enabling factor of mobile money is the exponential increase in cell phone connectivity in the developing world. GSM coverage in Africa is estimated to be 76%, in contrast to an electrification rate of 32%. It is estimated that there were 400 million mobile phone subscribers in Africa as of the end of 2013 – with roughly one third of those located in off-grid areas.
Image Source: GSMA
Using mobile money for energy products has begun to gain traction. There are at least 25 energy services companies in Africa, Asia, and Latin America leveraging mobile money platforms. Kenya was the first country to adopt mobile money widely. M-KOPA, headquartered in Nairobi, is the oldest and biggest pay-as-you-go mobile money-based solar energy company, serving 150,000 customers. One estimate predicts that at least three million solar systems embedded with pay-as-you-go mobile money technology will be sold globally in the next five years.
Mobile money has potential end-user benefits beyond convenience. For many users, mobile money is the first form of credit history. Unlike door-to-door collection, mobile money creates a set of data for each user, including payment amounts and frequency. This is the kind of information that banks need to conduct credit history checks and evaluate loan applications. Data records generated from mobile money may improve the chance of loan approval for small solar-based energy systems such as lanterns, which are typically smaller in size than loans for agricultural or motorized equipment. Moreover, as customers build their credit histories, companies can use this data to accurately predict payments in follow-on financing, received for larger, more expensive appliances (e.g. lights, televisions, etc.). Going forward, as millions of users begin to repay loans with lower default rates, securitized portfolios based on debt repayment streams will continue to emerge.
The rise of mobile money for off-grid energy services in recent years can be attributed to many factors, including the high penetration of cell phones and low levels of electrification. Yet, only a tiny fraction of the hundreds of millions of mobile money transactions taking place every month are related to energy access services and products. The integration of mobile money in energy access products is a trend that will continue to improve the lives of hundreds of millions of potential customers still living without electricity in remote areas.