If you’re a person who likes to hear about momentous progress happening in the world, then you’re going to like the story that about I’m to share. However, if you’re an entrepreneur who appreciates ingenious solutions to complicated problems, then you’re going to absolutely love it.
It’s the story of one of the most innovative business models I’ve seen in some time. It’s also a story of confluence – an almost magical combination of technology, market timing, and business strategy that leads to greater social good.
The centerpiece of the story is M-KOPA, a fast-growing startup based in Nairobi, Kenya. M-KOPA has a compelling vision: to bring solar panel lighting and electricity to the African continent. M-KOPA doesn’t build solar panels. It provides consumer financing for them. And even though it went into service just a year and a half ago, it already has over 35,000 customers and is growing rapidly.
You probably know already that much of sub-Saharan Africa still uses kerosene-based lighting. Kerosene is not only antiquated, it’s also dangerous and unhealthy. If Kenya alone switched from kerosene to solar electricity, it would not only provide superior lighting and energy, according to Luminanet.org, it would also save the average Kenyan household $105 USD per year, eliminate 2.3 million tons of carbon dioxide from the atmosphere (equivalent to about 500,000 mid-sized cars), and save millions of children and families from exposure to toxic fumes (62% of all child poisonings in Kenya come from kerosene).
But wait a minute… haven’t you heard this story before? Haven’t you heard the big dreams and opportunities that Africa presents for both energy and economic transformation? And haven’t most of those dreams been shattered like a wooden boat thrown against the rocks of Cape Hope?
I know. I get it. I can almost hear you saying, “Wait a minute, what makes M-KOPA different from the dozens of other companies that have traveled this route before? Why are they growing so quickly? Are they some kind of pyramid scheme? And how can they provide financing to consumers who don’t have a credit score, a credit card, or collateral to take out a loan? Sounds like a fine African fairy tale.”
This is where confluence comes in. In 2007, Kenya adopted a mobile phone payments system called M-Pesa. M-Pesa has grown astoundingly quickly since the moment it was launched and, according to Wikipedia, by 2011 it had more than 17 million subscribers. Today, M-PESA is effectively at or near universal market penetration. Put another way, while we in the US suffer from shitty cell reception (“Can you hear me now?”) and legacy bank transfer systems, almost everyone in Kenya has a mobile phone with constant reception and the ability to do instant cash transfers!
On the back of this universal payment network M-KOPA, was conceived: a company designed from the ground up to do mobile phone payment transfers for solar financing. Without M-Pesa, M-KOPA could never exist. So one of the things that’s different this time around in Africa is timing. And as my granddad used to say, timing is everything.
“But wait a minute,” you’re probably thinking, “just because someone can pay for financing via mobile phone doesn’t mean they actually will pay. How does M-KOPA check for credit scores? Deal with non-payments and defaults? Collateralize their loans? What, do they have a fleet of bicycle-based repo men? Doesn’t sound very efficient to me…” The answer is No, No, and No. And this is what makes the M-KOPA business model so ingenious and scalable.
Here’s how it works: M-KOPA charges an up-front deposit of about $30 USD. This fee is high enough so that consumers value their investment but low enough that most Kenyan households can save up for a few months to afford it.
M-KOPA then finances the balance of the panels to their customers at a very affordable fee of $.50 (USD) per day. The program is designed to pay off the panels in one year, after which the customer owns the system outright.
That’s pretty basic. Now here’s the secret sauce: M-KOPA installs a secured SIM card on the solar panels themselves. In the event that a consumer doesn’t pay the 50-cent per day fee, then voila’, those solar panels get shut off through the mobile network! Once a customer shores up their balance, the panels are turned back on via the mobile network. No need for credit scores, credit checks, a fleet of repo men, or bank references (which don’t exist).
Isn’t that brilliant? M-KOPA’s loan repayment rates are astoundingly high. Once consumers shift from kerosene to solar electricity and lighting, they definitely don’t want to go back. Not only is it a sustainable business model, it’s the kind of approach that will allow Africa to quickly adopt clean, green, energy and all the benefits that entails.
As Chad Larson, co-founder and finance director of M-KOPA and an Oxford graduate put it to me, “Our loan repayment rates at M-KOPA are on par with those of loans to the highest credit score borrowers in the West. But what is more meaningful is that there’s huge demand for this kind of power in Africa, and it’s now possible for us to meet that need in a sustainable way.”
I love this story. I admire the combination of clean energy and social good combined with a sustainable business model. I tip my hat to the team at M-KOPA and wish everyone involved a brighter future.
If you’re interested in the new emergence of Africa, here are some interesting TED Talks I’ve seen recently that describe Africa at a tipping point towards a more prosperous future: