Pan-African Asset Financing Model Changes Lender, Consumer Economics of Pay-as-You-Go Plans

It might be difficult to imagine living on less than $6 a day, but that’s the reality of 85% of the population in Saharan Africa.

In addition to the economic hardships this creates, people in this category are extremely underserved by financial services, as their low income and lack of credit histories often disqualify them from accessing credit cards or a service like buy now, pay later (BNPL) common in more mature credit markets.

That means making full upfront payments for everyday essentials is often a challenge, a problem M-KOPA has been trying to solve with its pay-as-you-go business model since it launched in 2011, financing life-enhancing products such as smartphones, solar lighting, energy-efficient televisions and refrigerators as well as digital financial services via its financing platform.

“People can’t save up necessarily for a big lump sum, but what they can do is pay for something every day over time and get access to that service [or product] at the same time,” M-KOPA Chief Commercial Officer Mayur Patel told PYMNTS in an interview.

In 2019, the firm launched smartphone financing and has sold over 750,000 Nokia and Samsung smartphone devices to date through partnerships with Nokia and Samsung, allowing customers in Kenya, Uganda and Nigeria to spread their payments over daily or weekly installments after paying a deposit.

But despite the model’s success, it often involves small amounts, with people making daily payments as little as 30 cents. Patel said what makes the economics work for M-KOPA is the fact that it’s a “mass scale game.”

In its first nine years, the company served one million customers on the back of solar, refrigeration and electronic products, but it will take less than two years to serve the next million, an acceleration caused by the rapid smartphone adoption in the region and the huge opportunity it presented for the firm’s smartphone device financing.

According to Patel, one challenge the company has had in replicating the business model in other markets has been the uneven adoption of digital payments across the continent, which is mostly concentrated in East Africa where M-Pesa dominates.

But that’s starting to change, with growing mobile money adoption in West Africa and in countries like Ghana, which has the fastest mobile money growing market in the region.

More Inclusive Than BNPL Model

Traditionally most BNPL businesses run credit profiles on customers to determine whether they are eligible for lending. But M-KOPA is “very inclusive,” Patel said, and instead of intense credit checks which would disqualify most of their customers who do not have bank accounts or guarantors, a valid ID and a small deposit payment is enough to access its service.

What also makes the company different is it strives to help customers so that no one is “stuck with an obligation to us that they can’t afford,” Patel said.

Customers who sign up for an uncovered product can return it in the first 30 days for a full refund of their deposit “for whatever reason,” he said. “Perhaps the smartphone isn’t what you had wanted, it doesn’t fit your requirements or maybe you’ve run into financial difficulty.”

Even beyond the 30 days, customers can get a 50% refund of their deposit in the first 90 days, and in case of a crisis or emergency where there is no safety net, a customer can still return the product provided it’s in working order and in exchange, have their ongoing debt obligation forgiven.

“That makes this model fundamentally different from a lot of other FinTech businesses that are trying to finance customers for cash only,” Patel noted, adding that “it is of no value [to us] to have someone out there with an asset that they can’t afford.”

The model appears to be working. To date, the company has provided over $500 million in financing that has enabled over 1 million customers to access its products and services.

Moving Beyond Asset Financing

In 2019, M-KOPA and InsurTech Turaco teamed up to provide a bundle insurance product to M-KOPA customers and direct sales representatives who can access nightly cash back in case of unexpected hospital admission, with a payout made to the next of kin in the unfortunate event that the insured dies.

Since launch, over 25,000 Kenyan consumers have been insured, an insurance access made possible through the credit history build up customers are able to create through their asset repayment with M-KOPA.

Patel said the goal now is to expand the offering from hospital bills to covering funeral and burial costs, moving beyond Kenya to other countries.

“We’ve taken time to build up a business model that is highly replicable [and] there is nothing unique anymore that makes this just an East African opportunity,” he said.

The opportunity to scale could be “in the tens of millions” moving forward, he added.