In my last blog, I wrote about the success mobile network operators (MNOs) are having with electrifying rural communities in developing regions, such as Latin America and Africa, by partnering with companies that sell solar home systems. Much credit must go to the pico systems themselves, which are a cheap and reliable way to provide for the customer’s basic energy needs (cell phone charging and lighting). However, there are two greater forces at play that reach far beyond the business of rural electrification: MNOs have found an effective business model in pay-as-you-go (PAYG) and they have employed an effective money transfer technology, known as mobile money.
These two forces answer the question: What has enabled the exponential growth of cell phone usage in the developing world?
PAYG is a prepaid mobile phone plan. You pay for a phone with a certain amount of airtime on it and you refill the time in your account as needed. There’s no contract or monthly rate. If you run out of time, your service is cut off, plain and simple. This model works well for the off-grid rural poor who live on an inconsistent daily budget and who typically don’t have bank accounts. It should be noted that some utilities in developed parts of the world are also experimenting with PAYG meters and they are finding that it is the only model that has successfully led to a change in consumer behavior (in the form of energy conservation). As my colleague Peter Asmus details in his recent blog, this isn’t the only example of how the developed world can learn about energy solutions from the developing world.
Returning to the unbanked poor of the developing world, MNOs spotted an opportunity to capitalize on the lack of banking infrastructure in remote communities, and they have leveraged vendor networks and mobile technology to offer basic banking services to their customers. To purchase airtime in the developing world, customers visit their local mobile airtime vendor and pay cash upfront for a scratch card of a certain value. They enter the code from the scratch card into their phone to redeem the value of the card as mobile money, which goes directly into the mobile money wallet in their phone. The mobile money wallet is protected by a PIN and acts essentially like a debit account, which can be used to purchase more airtime, along with other goods and services, to send and receive money, and to pay bills. The MNO charges the customer for transactions made, so it is a lucrative new revenue stream for them. More significantly for nanogrids, mobile money has opened the door to provide financing to unbanked customers.
Historically, one of the greatest barriers to off-grid households purchasing solar arrays has been the high upfront cost. Investors, whether they’re vendors, microlenders, or nongovernmental organizations (NGOs), have had a hard time offering PAYG lending schemes to consumers due to the difficulty of collecting a long stream of small payments from a remote village, as well as the inability to monitor the systems. Mobile money can provide a platform that enables lenders to conveniently offer PAYG schemes to off-grid consumers for the purchase of nanogrids, among other things. More importantly, mobile money could turn remote parts of the world into profitable frontiers for the nanogrid market. Many residential solar vendors (such as Simpa Networks in India) already see them that way, and these vendors are finding investors to finance PAYG systems as well as partners to handle the mobile money transactions.
While there is some variability in what these PAYG schemes look like, the keys to success seems to be the ability to track payments and usage easily and the ability to cut off service if a customer falls behind. To view a list of nanogrid PAYG case studies, check out Navigant Research’s report, Nanogrids, and to learn about other business models that are being used to electrify remote parts of the world, view the replay of our Remote Microgrid Business Models webinar.