M-KOPA, a recently announced winner of the 2015 FRP Scaling Competition, has been a widely-acknowledged pioneer in the area of Solar Home System financing. Read more to learn how M-KOPA is expanding its business model to address rural farmers’ needs through innovative financing options.
M-KOPA, a leading provider of rent-to-own solar systems in East Africa, uses a pay-as-you-go model to lease Solar Home Systems (SHS) to rural customers. Customers pay a deposit of USD 35 followed by 365 daily payments of USD fifty cents, which is paid conveniently by mobile money. Each battery-powered 8W system comes with three lights, mobile phone charging and a solar powered radio. M-KOPA also offers larger 20W systems that can power large appliances such as TV’s.
Since 2011, M-KOPA has provided 375,000 households access to solar energy in Kenya, Tanzania, and Uganda. By supplanting the kerosene lights typically used in off-grid rural areas, M-KOPA is helping customers reduce exposure to pollution and incidences of kerosene-related burning accidents. By connecting to M-KOPA, each household is also able to save an average of USD 750 over a four-year period. This means that M-KOPA households will generate total combined projected savings of USD 280 Million over this time.
M-KOPA's success in financing solar home systems has positioned it to move into an innovative form of asset financing for smallholder agriculture
M-KOPA has recently expanded its model with add-ons whereby dependable customers are offered the chance to remortgage their SHS in exchange for consumer finance loans. After completing the initial one-year payment plan, customers can now get more cost effective financing for a range of productive assets. These include more lights, solar TVs, energy-efficient cooking stoves, internet-enabled smartphones, and water storage tanks.
M-KOPA - and a growing segment of pay-as-you-go solar home companies, like Off Grid Electric and Solar Now – are developing asset financing models to address key constraints that make it difficult for poor and rural households to access credit by:
M-KOPA experienced early on success by offering add-ons financing for fuel-efficient stoves, televisions and mobile phones. Repayment percentage rates are in the high 90’s for the SHS and even higher on the add-ons. This shows that customers attach value to the services provided by their SHS and have a preference for the mobile money payment model.
With support from the Fund for Rural Prosperity, M-KOPA is exploring opportunities to extend SHS add-on financing for agri-inputs bundled with support services. This new product would allow rural farmers to remortgage their SHS and obtain loans for procuring agri-inputs such as fertilizers, seeds and pesticides.
By bundling the agri-input loans with technical assistance, advisory services, and insurance M-KOPA can improve outcomes for farmers and further reduce their risk of defaulting on the loans. M-KOPA is taking a customer centric approach to developing this new product and will need to establish progressive partnerships (to use a term from our recent state of the sector study) to address key challenges.
Agricultural add-on financing, guaranteed by SHS, is a promising approach to reach a perennially challenging market segement with productivity-enhancing credit. We are excited to follow M-KOPA's experience as part of our ongoing research on the projects funded through FRP's Innovation and Scaling Competitions.
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