For many poor families in Kenya, the cost of kerosene to provide power in the home is a significant part of their budget. M-KOPA, started in Kenya in 2011, is a new way to supply safe light and power, offering off-grid customers better energy at lower cost.
On its face, M-KOPA offers a solar-powered kit that includes three lights, a radio, and a mobile phone charger that helps rural families reduce expenditures on fuel for lighting and communication. But M-KOPA is not really a “solar company”, or rather is much more than that.
Though its product is solar energy, the real innovation that it provides is a financial solution that enables low-income families to acquire a valuable asset on a pay-as-you-go basis. After paying an initial deposit, families receive the solar kit with an embedded SIM card that enables payments via existing mobile money platforms, such as M-PESA, tracks data, and provides the ability to turn the unit off if payments are late. Once the unit is fully paid for (about $175), the unit is permanently turned on and fully owned by the family which opens the potential for accessing credit backed by this asset.
M-KOPA has reached over 50,000 families in its first year and is growing at about 1,000 new customers per week with a repayment rate around 95 percent. Independent research confirmed that customers have reduced their expenditures by 243 KES per month (about $2.80) which translates into more than a day’s income for the majority of customers who are living below $2 per day. Beyond savings, 96 percent of customers say M-KOPA has improved their quality of life with benefits such as improving their children’s ability to study (92 percent) and finding it easier to breathe without the kerosene burning in the home (94 percent).
Safaricom saw the value of M-KOPA’s offering for their customers in Kenya and created a partnership with M-KOPA that includes reduced “inclusion” pricing for the mobile money payments, shared promotion costs, distribution through Safaricom shops, and a revenue sharing agreement. More than a million M-PESA transactions have been conducted by M-KOPA customers. In Uganda, M-KOPA accepts payments through Airtel Money and MTN Mobile Money and represents significant repeat business for both. It is a great example of how the existence of a ubiquitous mobile money payment platform can enable additional financial solutions for low-income families.
KOPA is interested in using the data generated from this model to better understand existing customers and identify new business opportunities. Recently, M-KOPA uncovered an accidental experiment that revealed the power of data. Due to a computer glitch, 3,000 of their customers stopped receiving the automated text message reminder when they were behind on payments. After finding and correcting the glitch, M-KOPA’s analysis showed that those who had continued receiving the messages paid 50 KES per month more than those that did not. Not only did this confirm that the miniscule cost of these messages was justified, but it also piqued their interest in running more experiments and data analytics.
M-KOPA’s financial innovation does not stop at the retail level but extends to their wholesale financing. When discussing an investment in M-KOPA, we met with several banks about the potential of participating in a loan to help M-KOPA scale up. Although interested, the banks asked about guarantees or subsidies to mitigate the risk of this new twist on asset financing. However, in our first meeting with Commercial Bank of Africa, they had the vision to see the potential for this model. Not only were they willing to put their own money on the table without a guarantee, but they led the syndication for the $10 million debt facility. It is the first known commercial loan that is secured by M-PESA receivables and we hope that it sets an example for other financiers to follow in Kenya and beyond.
We are partnering with M-KOPA to expand the scope of its financial solutions as well as expansion to new regions through starting up operations or licensing their model to others. Our hope is that this financial innovation using digital payment platforms will be replicated by many others to deliver valuable financial solutions for the poor.
To learn more about the Gates Foundation's Financial Services for the Poor strategy, visit here.