Digitally Financed Energy

09 March 2016
For those relying on expensive, risky fuel sources, access to solar energy can be life-changing.

Digitally Financed Energy: How Off-Grid Solar Providers Leverage Digital Payments and Drive Financial Inclusion

Energy poverty is a development challenge that traditional, centralized approaches have been slow to overcome. Globally, 1.1 billion people remain without access to electricity, including 589 million in sub-Saharan Africa (SSA). They rely on dangerous and inefficient alternatives to light their homes and operate appliances: kerosene lamps, diesel generators, and dry-cell batteries. By providing longer access to cleaner sources of energy, electrification brings immediate health benefits, improved educational outcomes, and opportunities for small businesses. Unfortunately, connecting households outside of densely populated areas to centralized electric grids is prohibitively expensive: up to $2,300 per rural household in SSA. Alternatives such as photovoltaic solar panels have existed for decades, but their upfront costs have been unaffordable for most low-income customers, with the vast majority unable to access the credit necessary to extend repayment over time. And where credit is available, the geographic dispersion of rural customers makes routine payments to a fixed branch or agent prohibitively expensive.

The expansion of digital finance systems in the developing world has altered this financial context and enabled new business models that rely on small, regular payments. In the off-grid energy sector a group of solar companies, primarily in East Africa and South Asia, are leveraging digital finance to offer pay-as-you-go (PAYG) energy. This Brief explains how digital finance is enabling PAYG energy expansion, which in turn provides a gateway to a range of financial products for the financially excluded.