When I was a student in England, I remember I had to pay for my electricity using a delightful bit of low-tech English innovation: a pound-coin meter. Rather than get a bill in the mail, my electric supply was hooked up to a coin machine that took very literal one-pound coins. That would buy you a few days of juice. When the coin ran out, the lights went off.
M-KOPA is a Gates Foundation-backed (read=way cool) Kenyan start-up that’s pioneering a very, very high tech twist on this intolerably low-tech old English idea.
In effect, they sell you a solar-powered home electric system, complete with lights, a cel-phone charger and a radio, all on credit. (A more powerful variant that can run a TV is in the works.) You pay Kes 2,999 down-payment (about $35), you pay 50 shillings (about 58 US cents) a day for just under a year (360 days), all via your M-PESA enabled phone. Stop paying, and the system shuts down. Start paying again, and back it comes.
But there’s a twist…a twist whose beauty maybe only English coin-meter sufferers will truly grasp: after a year, the system is yours. To keep. After one year you get free power for life (or, well for as long as the solar panel holds out.)
The system costs less than what households are typically spending on kerosene for lighting. In the first 15 months, they’ve sold 50,000 of them.
M-KOPA is genius on so many levels. But let me just go over a few:
- Crack the micro-financing, crack the micro-problem. The engineering behind a system like this isn’t really that mysterious. All the pieces were in place by 2011, when the company got going. The tough part was figuring out a way to break down the payments to make them affordable for poor households. Not just affordable, cheaper than the alternative (kerosene for lamps). The key is a credible, transparent, commitment mechanism, something that makes the consequences of not paying immediately palpable. By closely linking tiny daily payments with the system’s usefulness, M-KOPA manages it.
- Crack the macro-financing, crack the macro-problem. M-KOPA isn’t just innovative at the micro-level. At enterprise scale, they’re financing their expansion with a commercial loan collateralized with the cash-flow generated by existing customers. Really. Commercial Bank of Africa just loaned them $10 million, and if they don’t pay up, the bank can take-over the installed users’ payment stream. This means M-KOPA doesn’t need to keep bothering Mr. Gates for more cash. It also stands as a model that, if successful, could be replicated in all kinds of markets.
- Populate the M-PESA Ecosystem. M-KOPA is deep-integrated with M-PESA. The central control unit that turns on the lights knows if you’ve paid or not. The system is a dramatic demonstration of why simple payments are just the beginning for the M-PESA ecosystem. It’s when M-PESA is used as the infrastructure backbone for the delivery of other, more sophisticated credit products that the platform really comes into its own.