Digital Finance Helps Expand Access to Electricity

08 April 2014
1 comment

The Global Challenge: Energy Poverty

Approximately 2.5 billion people worldwide live without a reliable electricity source. They meet their energy needs with harmful, polluting, and expensive fossil sources that are bad for the environment and for customers’ health. The burning of fuels for illumination alone produces approximately 190 million tons of CO2 emissions worldwide each year. Inhalation of smoke from kerosene lamps leads to serious health problems, open flames in the home present fire hazards, and charging electronic devices and mobile phones with diesel generators and car batteries is expensive and time consuming.

More than 600 million people worldwide own mobile phones but lack access to the electrical grid. Mobile phone subscriptions in Africa have increased from 16.5 million in 2000 to more than 650 million today. The Berlin-based company Mobisol sees this near ubiquity of mobile technology as an opportunity to provide those lacking a reliable electricity source a better option for their household energy needs. Fuelled by the sun, Mobisol offers a clean alternative to fossil fuels with home solar systems that generate enough electricity to light up several rooms, charge mobile phones, power household appliances or support small businesses. The systems produce no air or noise pollution and provide people independence from the volatile market and rising costs of fossil fuels.

Photo by Mobisol

Even though solar panels are steadily becoming cheaper – costs for this technology have dropped by over 80% since 2008 – most are still too expensive for customers at the ‘base of the economic pyramid’ (BoP) to buy them outright. This is where digital finance comes in.

By taking an innovative approach to payments and putting mobile phone technology at the center of its business, Mobisol is making solar systems a real option for low-income families in developing countries. Without digital finance, collecting small-value payments for services such as solar energy is too time consuming and expensive for a business to be successful. By using mobile banking services like M-Pesa, Airtel Money and MTN Money, Mobisol has enabled customers to pay for solar systems in small increments over a span of 36 months on the customer’s schedule, from almost anywhere. In this way, customers without a personal bank account which amounts to approximately 80% of adults in sub-Saharan Africa, are able to purchase a solar system for their home. After three years, clients own the system and receive their electricity free of charge.

The benefits digital finance brings to the solar energy sector aren’t limited to the client side; it also has considerable advantages for energy service providers such as Mobisol. They no longer have to spend excess resources on collecting payments, which becomes increasingly difficult when you reach more customers in remote areas. Digitizing payments help providers keep track of payment flows, patterns and grace-period allowances. Through Mobisol’s database, the company can also send automated payment reminders via SMS and effectively facilitate any requests for customer service.

Photo by Mobisol

Access to reliable energy can greatly improve the socio-economic situation of low-income rural communities. Efficient, bright LEDs and longer hours of light increase the productivity of poorer households by enabling adults to work and children to do their schoolwork throughout well into the evening. Having a reliable energy source can also help elevate families’ standard of living by powering a variety of household appliances. The excess energy a solar home system generates can even be used to generate additional income through small energy-based businesses, like neighborhood phone charging systems.

Decentralized, renewable energy is at the core of meeting the increasing energy demand of low-income customers, as this off-grid approach allows more people to get access to electricity faster than relying solely on the arrival of time consuming, on-grid network infrastructure. Leapfrogging the reliance on accounts at traditional brick-and-mortar bank branches and instead relying on mobile money to pay for energy services is becoming an important mechanism to pay for energy services in remote, low-income communities.

Comments

Submitted by Eky Amrullah on
Agreed on this, however prior to implementing digital payment without agents nearby the ecosystem would also be difficult. In case of mpesa in where they have agents in numerous locations shouldn't be created such challenges. Would appreciate if you also can share which is more important to implement digital payment solutions for start then develop the agents ecosystem afterwards or the other way around.

Add new comment