For many people, accessing electricity is not as simple as flipping a switch. In Kenya, Uganda and Tanzania only a third of these countries’ residents have access to electricity – the remaining two-thirds use kerosene to light their homes, according to Chad Larson, co-founder of off-grid pay-as-you-go solar company M-KOPA.
Speaking to finweek telephonically from Nairobi, Larson explains the business model that he and fellow co-founders Nick Hughes and Jesse Moore came up with in 2010, which is providing solar-powered units to customers across these three East African countries.
M-KOPA sells solar home systems to customers on a payment plan, with customer payments coming through the M-Pesa mobile money system. Customers pay a deposit of $30, followed by 400 daily payments of $0.50, explains Larson.
"Once the payment period is complete, they own the unit outright, or they can upgrade for more products, such as water tanks and cooking stoves," he notes.
Larson explains that mobile money is absolutely key to the viability of financing solar units in Kenya, Tanzania and Uganda. The ability to make small, daily payments, from anywhere with a mobile phone signal, means M-KOPA can go far beyond the grid.
Both Hughes and Moore worked at Vodafone, with Hughes at the forefront of the M-Pesa revolution. The mobile money platform launched in Kenya in 2007 under telecom operators Vodafone and Safaricom and has seen millions of unbanked people becoming financially included.“At the time of M-KOPA coming to life, Kenya was the leader in mobile payments so it was the logical country to start in,” explains Larson.
And so the M-KOPA pilot launched in Kenya in 2011, receiving $1.5m in equity funding from Gray Ghost Ventures, an impact fund out of the US.
Since then M-KOPA has raised over $100m, including from Sir Richard Branson, and Al Gore’s investment firm.Lighting the way
All M-KOPA’s systems include lights, phone charging and radio. There is a larger 20w system that also includes a 16” LED flat-screen TV. To date M-KOPA has connected 500 000 homes in East Africa, with over 500 new homes being added every day, explains Larson.
The company has sold over 120 000 upgrade products, including solar TVs, to customers who have a good credit history with them.
Initially, trying to sell the units to potential customers presented a challenge in terms of the finance element.
Says Larson: “It remains a big decision for potential customers to jump into a loan, so it was important to work out a payment model that works for customers.”
But the model proved appealing and when M-KOPA first launched, 95% of customers paid off their units in full, without defaulting, explains Larson. As the company has scaled up, repayment rates on the payment package remain over 93% in Kenya.
And if customers do default on a payment, M-KOPA can disable the units remotely. Once payment is received, they can enable them again. “This allows for the large-scale credit function of the business to work,” says Larson.
One of the other important elements to iron out was the sales model, according to Larson. “We had this great technology, but the distribution was something we had to figure out – how to perfect our ground game and get the sales force out.”
Since launching, M-KOPA has built a distribution network of 100 centres and over 1 500 commission-based sales people, according to Larson.Towards a bright future
Asked if M-KOPA plans to expand its core operations beyond Kenya, Tanzania and Uganda, Larson explains that this is certainly in the pipeline. Within the next year, they are likely to move into a fourth country in Africa, he says.
As for longer-term plans, he refers to the off-grid population in sub-Saharan Africa and South Asia, where there is definitely room for M-KOPA to serve more customers. “That is about five years from now, before we are truly global,” according to him.
Key to this growth is the expansion of mobile payments in these areas. “Once there is an ecosystem of payments, we can head in.”