The BackEnd examines the product development process in African technology. We bring you into the minds of those who conceived, designed and built the product; Highlighting the uniqueness of the product, assumptions about user behavior and challenges during the product cycle.
A great way to gauge a person’s financial health is to find out what they can buy in one installment.
If I can conveniently pay for my car and apartment at the same time, I get a certain picture of my bank account. It suggests that I am not losing sleep when arranging my preference scale.
For most people this is a theoretical picture that never comes to life.
The reality is that most African households and individuals do not have enough money to meet needs or buy assets that would improve their productivity. People often know what they need but don’t have the ability to fill it.
One such need is energy. Low-income families are either cut off from the main power grid or cannot afford the costs of running the grid. But they still need electricity. If not for cooling or entertainment, then at least to light up your home and charge your phones.
A decade ago, some Kenyans spent up to 20% their income just from kerosene and charging their cell phones.
The pay-as-you-go solution from M-KOPA
In 2011 M-KOPA started developing a solution for this energy problem. The Kenya-based company saw the ease with which people exchanged small amounts on Safaricom’s MPesa, either to transfer money or to pay for goods using their base phones.
They saw how this micropayment culture could be extended to a credit system that would help people access solar energy services as much as possible (“kopa” means “borrow” in Swahili).
Since low-income households tend to prioritize food but need energy, a micropayment system could allow them to have both without breaking their budget. Provided they have a minimum income that enables them to pay for the services in small installments.
M-KOPA started its pilot test in October 2012 with a product package that included a solar panel, three lamps and a set for charging telephones.
Customers made an initial deposit of KES2500 (then $ 25) followed by daily installments of KES 40 (around 40 cents then) through MPesa. The payment was spread over a year.
After eight years, M-KOPA has expanded this micro-credit system beyond energy products and defined itself as an asset finance company and not as a solar energy company.
In January they partnered with Safaricom to start a usage-based plan launch Help Kenyans buy Samsung smartphones. They have rolled out the service in Uganda and Nigeria in the months since, selling 100,000 smartphones, according to Rolake Rosiji, the company’s Nigeria country manager.
But how can they lend in Africa where the trust infrastructure (addressing, identification) is too weak to track people in rural areas? Here comes the technology.
Remote control via the cloud
At the time of writing, Products from M-KOPA Page contains four main items: solar lighting equipment, TVs, refrigerators, and smartphones from Samsung and Nokia.
All four are available in Kenya, their oldest market. The smartphones became available in Nigeria in the first week of September.
The company sources its products worldwide and adapts them to their technical specifications, Rosiji told TechCabal.
These can be different electronic products, but M-KOPA has a common system to make them available to potential users as part of a usage-based purchase model. It is based on an Internet of Things feature that the company uses to remotely monitor and manage the user’s device.
Every M-KOPA device – telephone, television or solar kit – is supplied with a SIM card. To receive this, a customer must make a down payment (KES 3,999 for a smartphone, $ 37) and then make weekly payments for a period of nine to twelve months.
Each device is connected to the M-KOPA CRM system via IoT. If for any reason the customer is unable to make a payment, they can be automatically banned from using the device.
In the case of smartphones, the lock is activated by an interaction between the proprietary software from M-KOPA and a lock function in the smartphones. A 2G connection is required to operate the smartphone.
Customers can temporarily unlock their phone for five minutes each day to access specific URLs.
Since the payments are to be made automatically, M-KOPA does not accept cash or bank transfers.
That means mobile money transfers in Kenya and Uganda. However, since there is no strong mobile money network in Nigeria, they have teamed up with Paystack and Interswitch to enable electronic transfers.
All in all, you have a sophisticated credit system with built-in fail safes to keep users accountable.
Lean on smartphones as a platform
By organizing payments around the mobile phone, M-KOPA gives the user easy access. By automating payments and connecting each device to a control room, the company can keep track of its assets and drive the repayment of the loan on offer.
Rosiji is optimistic that the smartphone financing plan in particular could become a product that draws Nigerian users to the other electronic products. Since it was founded in Nigeria about two years ago, its Nigeria team has grown from one employee to around 40 (excluding sales employees).
Today there are around 40 million smartphone users in Nigeria, and adoption is expected to rise to 140 million by 2025. Nigeria is also one of the poorest countries in the world; According to the Nigerian Bureau of Statistics, 40% live below the poverty line.
It is easy to see why M-KOPA sees smartphone financing as an opportunity in rural areas. The Company estimates that 80% of solar product customers live on less than $ 2 a day.
Despite their low financial status, those at the bottom of the economic pyramid strive to lead better lives and have tools to increase their productivity. They want to start businesses, connect their children to learning institutions, and lead healthier lives.
Having access to a smartphone can be a step towards achieving these life changing goals. The proof of Smartphone growth in Africa and other emerging markets suggest so.
Poverty Reduction vs. Financial Inclusion
But M-KOPA will have to struggle with a problem of perception; that their value proposition is either not enough to move the needle for the poor, or that they are trying to build a billion-dollar venture-funded business to meet the needs of poor Africans than this Bloomberg piece suggests.
Rosiji’s explanation is that M-KOPA’s mission is not to alleviate poverty, but to provide access to finance for people who would otherwise not have access to the formal financial system. Tying funding to assets rather than offering cash ensures that the loan is getting the most out of it.
Ultimately, it is the users who decide whether the funding plan is good business for them. M-KOPA projects that they will reach 1 million users for their various products this October.
It remains to be seen what adoption would be outside of East Africa, where mobile money has been an integral part of M-KOPA’s success, and whether the Nigerian poor see this as the best way to own a smartphone and climb the urban mobility ladder.