Water station, Bangladesh. Photo by Sohel Parvez Haque, 2017 CGAP Photo Contest Photo by Sohel Parvez Haque, 2017 CGAP Photo Contest

How Digital Finance Boosts Access to Basic Services

Pay-as-you-go (PAYGo) solar loans have emerged as an especially promising solution for energy access. Even in the most remote locations, mobile phones are commonplace. PAYGo loans make it possible for anyone with mobile connectivity to apply for a home solar system via their phone and repay the loan digitally. And because many low-income customers lack collateral to secure a loan, PAYGo uses remote lockout technology to reduce risk for lenders. Meanwhile, as customers pay down their solar loans, they acquire an asset they can leverage for other purposes.

Roughly 1.1 billion people worldwide lack electricity. The problem is particularly dire in Sub-Saharan Africa and Asia. Almost 85 percent of those without power live in rural areas, where it is economically unfeasible to extend electrical grids or brick-and-mortar financial infrastructure for a payments system. However, distributed energy solutions that leverage digital payments open up opportunities to reach millions of people at low cost.  CGAP’s work in energy and financial inclusion focuses on helping PAYGo companies better manage their credit risk, and on helping investors and funders understand how to better evaluate and support these innovative, though unconventional and complex, companies.

Customer Value in PAYGo Energy

Photo Credit: Julie Zollmann, BFA Photo Credit: Julie Zollmann, BFA
Publication

This paper uses research and interviews with customers to understand the value they derive from PAYGo solar, why they decided to purchase it, how they were able to afford and pay for it, and whether they considered the product a “good deal” in the end.
Blog

Lockout technology has enabled creditors to help poor people finance solar systems and light their homes, but it’s not very popular with consumers.
Demystifying the PAYGo Business

What does a platypus and a PAYGo solar company have in common? Both are hard to classify. PAYGo solar companies need capital investment if they are to expand and increase energy access and financial inclusion at scale. But interested investors and donors find it difficult to evaluate PAYGo companies’ financial performance and identify good investments. CGAP, IFC and GOGLA are developing a set of standardized key performance indicators (KPIs) that will help PAYGo companies improve their performance and make it easier for funders to analyze which companies would make a sound investment.

John Gould print image of Ornithorhynchus anatinus (platypus) Image by John Gould
Publication

Despite their relatively recent emergence, PAYGo companies are rapidly approaching maturity. These businesses have the chance to reduce the energy poverty gap, drive financial inclusion, and improve the quality of life for millions of people.
Photo by Mohammad Rakibul Hasan, 2015 CGAP Photo Contest Photo by Mohammad Rakibul Hasan, 2015 CGAP Photo Contest
Publication

Despite its tremendous promise, the PAYGo industry is still young and challenging. Entrepreneurs and investors should expect and prepare for some failures. To plan for the future and prepare for unpleasant contingencies, there needs to be more focus on loan servicing in the PAYGo sector.
Blog

Rapid customer growth in pay-as-you-go solar can come with a cost: too many customers that don’t repay. Is it time to focus on reducing credit risk? To better understand the realities and challenges of running a PAYGo credit operation, we recently spoke with the people who live with it: heads of credit and risk at PAYGo solar companies, equity investors and creditors.
Key Resources
Publication

This paper analyses the synergies in the distribution of energy and financial services. It describes how an integrated approach could enable financial institutions to profitably serve low-income populations, thus enabling a significant source of growth.
Publication

This Brief explains how digital finance is enabling pay-as-you-go energy expansion, which in turn provides a gateway to a range of financial products for the financially excluded.
Publication

Globally, over 1.3 billion people lack access to electricity, and another 1 billion people have unreliable connections to national electricity grids. Startup energy enterprises are leveraging digital finance to deliver modern energy to the poor, sold on a pay-as-you-go basis.