Giving Compass’ Take:
• Jessica Alderman explains how pay-as-you-go programs are helping people living off a few dolors a day afford services that would otherwise be out of their reach and how these programs can be expanded.
• Is this approach in line with the goals you are working to achieve? How can funders act on the suggestions listed here?
• Learn why energy projects should prioritize scale.
Within the past decade, greater alignment between international development solutions and consumer earning and spending habits has revolutionized access to essential goods and services in emerging markets. Most families living at the base of the economic pyramid (those earning less than $2.50 a day) remain dependent on day labor, and both earn and spend their wages daily. However, some corporations and social enterprises have adapted their solutions to match these spending patterns and thus overcome affordability barriers that previously prevented the scale of new technologies with higher price points, such as clean cookstoves and solar lighting products.
This is most evident in the pay-as-you-go (PAYG) solar lighting sector. PAYG business models enable “nanofinancing”—products and services in exchange for small, daily sums of money—in cases where traditional financing and even microfinancing is too expensive or difficult to implement. Customers can repay loans in amounts as small as 50 cents from their mobile phone when they have the cash to do so. Solar lighting companies using PAYG—including M-KOPA, Greenlight Planet, Angaza, Fenix, and BBOXX—have provided new products or services to more than 8 million people who otherwise wouldn’t have access. Yet the biggest opportunity for PAYG is yet to come. Its adoption is expanding rapidly to other industries, and now is the time to jump on the bandwagon.
The good news is that some PAYG business models are beginning to cross-pollinate. Now is the time for companies and other organizations to engage by expanding existing PAYG technologies to support new products and services. In addition, there are opportunities to work with existing PAYG companies to expand their customer base, and create more possibilities for cross-sector collaboration.
1. Expanding Existing Technologies to Support New Products
PAYG customers have access to a product or service which is installed in their home, and companies turn it on or off like a utility. Customers pre-pay for the amount they will need and when their credit runs out, the light, gas, or water turns off, reminding them to make another payment. In this way, the mechanism serves as a loan agent.
2. Working with Existing Companies to Expand Customer Base
Partnerships that expand a customer base can take several forms. For one, large companies or investors can partner with small companies to enable large-scale expansion. For example, in 2018, one of the world’s largest energy companies, ENGIE, acquired Fenix, a PAYG company in Uganda, to grow its operation. Partnerships are also beneficial among regional allies, such as between the government of Togo and the PAYG start-up BBOXX. In this case, the government provides a $3.50 monthly subsidy for rural households serviced by BBOXX to make the transition from kerosene to solar more accessible.
3. Creating More Opportunities for Cross-Sector Collaboration
One way to encourage collaboration among enterprises and organizations using PAYG is through grants that require organizations across sectors and disciplines to come together. Grant funding is often necessary for research and development, as well as the adaptation of technology for new partnerships, new locations, or additional inputs. If more funders designed grants to support new innovation between partners that are working to solve different challenges, more cross-sector and -industry partnerships would happen. The Hellman Foundation does this on a small scale, and offers grants to support early- and later-stage collaborations that aim to develop new strategies related to systems change.
Read the full article about realizing the potential of pay-as-you-go by Jessica Alderman at Stanford Social Innovation Review.
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