Beyond Solar: How Pay-As-You-Go Financing is Building Credit for the World’s Poor?
When it comes to energy access, we're fond of saying "small is big."
That's because all of those small-scale solar lanterns, solar home systems and solar mini-grids potentially add up to a very big market. But the future size of that market, and its social impact, could well be dwarfed by an even larger opportunity: information.
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 of data that could at last get rural communities included in the financial system.
It's important to understand just how profoundly important financial inclusion is for these off-grid rural communities. Many populations living beyond the grid are also living beyond the reach of the formal economy and the financial system. That means many people can't take out loans for productive uses (say, buying 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 alone. Solar entrepreneurs are redirecting those cash flows to cheaper, cleaner sources of energy, saving users money and improving their quality of life. But more importantly, by paying off these products, they are demonstrating their ability to pay, and therefore building their creditworthiness.
But there is a wide gulf between being creditworthy in principle and in practice. That's because the financial institutions that would be granting loans 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). It's a classic conundrum: without credit history, you can't get credit; 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 when they can afford it. This allows the software providers to capture the first-ever multi-year credit data set for these populations and ultimately to 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 specializing in PAYG platforms.
Angaza was incorporated back in 2010 and began its operations by selling solar lanterns. Founder Lesley Marincola quickly realized that Angaza was just one among hundreds of solar lantern startups. The nascent firm simply wasn't going to have an impact 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. It also works directly with manufacturers to develop custom PAYG hardware solutions that are optimized for the features of its existing product line.
These products then become "PAYG-ready," which allows them to communicate with the Energy Hub and activate or deactivate depending on the customer's payment status. This complete PAYG ecosystem enables Angaza to provide holistic support of PAYG financing while collecting lots and lots of data.
How the company uses 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 to 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 and a proof of address, which can unlock other financial services. Similarly, Cignifi is doing the same type of work by using credit analytics from prepaid phone records to help unbanked people.
Angaza is headed even further down the economic pyramid. The company is working to go even deeper by using finance to unlock solar for those most in need. That means focusing on making entry-level solar lanterns available by using extremely low-cost PAYG solutions.
This data can help break down the anonymity and exclusion that impoverished populations face while helping them achieve their hopes and dreams. In doing so, Angaza is building credit profiles from the bottom up with the goal of moving those customers up the energy ladder from lanterns to solar home systems and beyond.