<\/p>\n
Michael Joseph, \u201cfather\u201d of M-Pesa [1], stated at a conference in 2012 that \u201caccess to financial services were a basic human right.\u201d Mr. Joseph asserted that barriers to financial markets can be overcome through several supply side interventions which will result in the lowering of costs to entering the formal financial system. In M-Pesa and M-Kopa, the traditional banking model in Kenya has been disrupted by several telecom executives.<\/p>\n
2.6 billion people have no access to formal financial services in low and middle-income nations [2][3]. One of the great problems with banking the unbanked is the nature of their customer profile:<\/p>\n
The introduction of M-Pesa in Kenya saw a whole swathe of households enter a formal financial system for the first time. Introduced in 2007, by 2015 M-Pesa had 20 million subscribers, representing roughly 70% of the Kenyan adult population. It is estimated that $30m is transacted through the system daily [5][6].<\/p>\n
Mobile financial services (MFS) solves the problem of opportunity cost associated with making long, time consuming, trips to bank branches, to be met by inefficiencies of service [7][8]. MFS has the potential to solve certain information asymmetries. <\/em>[9] makes the case that with a platform that allows the cost per customer to fall dramatically, and effectively \u2018piggy back\u2019 off other services, similar to the business model of retail financial services should be dissimilar to the low value high volume business of prepaid phone cards. It is in this context that what M-Kopa have achieved is so interesting.<\/p>\n M-Kopa<\/u><\/strong><\/p>\n M-Kopa primarily operates in Kenya (80% of 300,000-customer base) off the M-Pesa platform. The company provides solar kits to low income households on credit. The customer pays a $35 upfront fee, and agrees to make a daily payment of $0.35, taking on a loan of around $165. The solar panel is enabled through a piece of technology that has a sim card as its control switch. Should the customer fail to pay the daily repayment amount, M-Kopa disable the device. The cost of power to the average off-grid customer is $0.75. The cost of capital to the customer is 20%, cheap in the context of a Kenyan treasury priced at 23%. [10]<\/p>\n Once the customer has paid-off the loan they own the solar panel outright. What makes M-Kopa a financing company, however, is that they offer their customers the chance to re-mortgage their solar kit, and acquire a stove, smart phone or a solar powered TV. At this point the company has a year\u2019s worth of financial data on its customer as well as clear collateral. Default rates are low in the context of micro-credit, with repayment rates in the mid-90%. [11] The company is growing rapidly, extending $100,000 of loans to 600 new customers, daily. [12]<\/p>\n Challenges Outside of Kenya<\/u><\/strong><\/p>\n There is, however, inherent challenges to their capacity to scale this model outside of Kenya. Other African countries have not had the adoption rate of mobile money. Without a liquid financial transaction platform, it is difficult to see how this system could reach their target demographic (the unbanked less than $2 a day off-grid consumer). Once the company moves up the wealth pyramid, their solar proposition no longer continues to be price competitive, and the households require greater power than that provided by the M-Kopa panels. This doesn’t seem a permanent road block to M-Kopa expansion, rather that growth will be pegged to the growth of mobile money in these countries.<\/p>\n As the complexity of product offering and the scale of the customer base increase, M-Kopa will likely see increasing default rates. Whilst the collateral can be disabled, it cannot necessarily be recovered (meaning total loss on that particular loan). With scale, therefore, M-Kopa could see a spike in their cost of capital, this having knock-on effects to the interest charged on their loans, causing further\u00a0increases in default rates \u2013 a vicious cycle.<\/p>\n Transferable<\/u><\/b>\u00a0Lessons<\/u><\/strong><\/p>\n This model is going to have to adapt to markets where mobile money is not the norm. But there are key points that are transferable across markets:<\/p>\n <\/p>\n (Word Count 798)<\/p>\n ———————————————-<\/p>\n [1] McKinsey (2012). Mobile Money: Getting to Scale in Emerging Markets, June.<\/p>\n \u00a0<\/em><\/strong>[2] Beshouri, C and J. Gravrak, \u201cCapturing the promise of mobile banking in emerging markets.\u201d 2010, McKinsey\u00a0 Quarterly, February.<\/p>\n [3] GSMA (2009). Mobile Money for the Unbanked, Quarterly Update, March (London, UK: GSM Association).<\/p>\n [4] Collins, D., J. Morduch, S. Rutherford, and O. Ruthven, Portfolios of the Poor: How the World’s Poor Live on $2 a Day. 2009, Princeton: Princeton University Press.<\/p>\n [5] Runde, Daniel, M-Pesa and the Rise of the Global Mobile Market, 2015, Forbes \u00a0Accessed Nov 2016: http:\/\/www.forbes.com\/sites\/danielrunde\/2015\/08\/12\/m-pesa-and-the-rise-of-the-global-mobile-money-market\/#5a53136f23f5<\/p>\n [6] Jack, William & Suri, Tavneet, The Economics of M-Pesa, 2010, MIT Sloan, Accessed Nov 2016: http:\/\/www.mit.edu\/~tavneet\/M-PESA.pdf<\/a><\/p>\n [7] Dermish, A., C. Kneiding, P. Leishman, and I. Mas, \u201cBranchless and Mobile Banking Solutions for the Poor: A Survey\u201d, 2011, Working Paper.<\/p>\n [8] Mas, Ignacio, \u201cThe Economics of Branchless Banking\u201d, 2009, Innovations, 4(2), 57-76, MIT Press.<\/p>\n [9] Mas, I. ,\u201dWhy are Banks so Scarce in Developing Countries? An Infrastructure and Regulatory Perspective.\u201d 2011, Forthcoming.<\/p>\n [10] Shapshak, Toby, How Kenya\u2019s M-Kopa Brings Prepaid Solar Power to Rural Africa, 2016 Forbes, Accessed Nov 2016: http:\/\/www.forbes.com\/sites\/tobyshapshak\/2016\/01\/28\/how-kenyas-m-kopa-brings-prepaid-solar-power-to-rural-africa\/#5658965570f4<\/a><\/p>\n [11]\u00a0 Faris, Stephan, The Solar Company Making a Profit on Poor Africans, 2015 Bloomberg, Accessed Nov 2016: http:\/\/www.bloomberg.com\/features\/2015-mkopa-solar-in-africa\/<\/a><\/p>\n\n