For companies that offer asset financing for everything from solar panels to bicycles, consumer protection measures aren't just good for customers; they can also help companies to manage credit risk and improve their loan portfolios.
Rapid growth in credit sectors, even if motivated by a desire for social impact, can lead to overindebted customers and insolvent lenders. For funders, it is important to recognize that investing in asset finance is investing in risk management.
Last-mile distributors around the world are working to increase low-income households' access to solar systems, cookstoves, water purifiers and other important assets. Many offer financing to customers. How are they managing credit risk?
By partnering with pay-as-you-go (PAYGo) solar companies, electric utilities in Africa could expand low-income households' access to responsible consumer finance for refrigerators and other electric appliances.
Pay-as-you-go solar companies and other asset finance providers are using cutting-edge tools to manage credit risk, but many lack the risk culture, governance structures and processes to use them effectively.
New asset finance business models are breaking down old barriers to putting life-changing assets into the hands of poor households. But to meaningfully advance SDGs, they’ll need to scale responsibly, and this is where funders can play a role.
One company offers microcredit. The other offers PAYGo financing for smartphones, tablets and solar home systems. In what may be a template for other microfinance institutions, they are helping each other to reach more low-income customers.