In the past, you could only buy Africa’s off-grid solar products if you could afford to pay outrightly. This put lower-class households, particularly those in rural areas at a disadvantage.
However, with the growth of the pay-as-you-go (or PAYGo) market across Africa, this is changing. Consumers no longer have to pay outright for solar products but can provide down-payments and pay in periodic installments for electricity generated.
As of 2018, Sub-Saharan Africa had the highest percentage of solar products sold through PAYGo models compared to regions like South Asia, East Asia and Latin America. In South Africa, all solar products were sold through PAYGo channels, while Central, East and West Africa sold 84%, 89% and 92% respectively.
The relationship between mobile money and the PAYGo model is mutually beneficial. While PAYGo is successful in Africa because of the prevalence of mobile money services, mobile money operators also gain more customers and get more value from existing customers due to the proliferation of the PAYGo model on the continent.
Research shows that 21 to 31% of PAYGo solar customers were new to mobile money, or reactivated their accounts after being inactive for 90 days or more. Also, existing mobile money account holders ramped up their mobile money usage from 27% to 113%.
This means that as mobile money penetration deepens across markets, an increasing number of companies will adopt the PAYGo model. While this will help their profitability, it will also mean that consumers get to afford larger products. However, it’s also important that consumers are well informed about the process, especially unbanked consumers with no prior exposure to the consumer-financing model.
It is crucial that they understand the repayment structure, as well as any risks involved, so that they are not put under any undue financial strain. Governments can support consumer-protection regulations, but these policies should be formulated with the goal of enabling and not restricting financial inclusion.
Although the PAYGo model is allowing more Africans to access sustainable power sources while driving financial inclusion, this inclusion should not come at the expense of the consumer. The necessary guard rails must be put in place so the model does not defeat its own purpose.
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