An Inside Perspective on Change and Evolution In the Micro Solar Sector: A Conversation with Ned Tozun, d.light Design

Product R&D and design, high volume manufacturing, global distribution, sales and marketing – this is the range of one of the world’s best known micro solar companies, d.light. Since 2006, the company has been developing and distributing high-quality, solar portable lighting products to low-income, off-grid customers worldwide. Ned Tozun, d.light’s President and Co-Founder, recently took some time to speak with Arc Finance about the company’s growth, its approach to distribution and marketing, and the role he sees for microfinance in making improved energy affordable for d.light’s target customers.

ArcFinance: Maybe we can start with an update on d.light’s growth and progress: give us a sense of your current scope of operations and market presence, globally, five years after you founded the company.

NT: At present we are shipping product to 40 countries. We have offices in Nairobi, Delhi, Shenzhen and San Francisco.We also have staff based in Nigeria, Pakistan, and Afghanistan. From our Nairobi office, our people serve the Ugandan and Tanzanian markets too.

Arc Finance: There is enormous variety between the national and regional contexts in which you operate. How much does d.light’s approach to reaching customers and distributing products differ from place to place?

NT: There’s not a standard approach. We work with quality distribution partners that have access to off-grid consumers. Those channels can look really different from one another, and are very country-specific and partner-specific. For instance, in Afghanistan, we are partnering with a large telecomm provider; yet right across the border in Pakistan, we are working through an agriculture and fertilizer distribution channel – totally different. There is such a variety in the types of partners we work with that it’s hard to characterize in general terms.

Arc Finance: How important is consumer finance to unlocking demand for d.light products in your target markets?

NT: I think that getting marketing and distribution right is more important for our products. Our USD S1 and USD S10 lanterns don’t really need external financing – they are cash products. The d.light USD S1 is retailing at about USD $8-9 in the market. People can afford it and they’ll pay for it with cash. They know solar technology is good, and they know d.light is a good brand. If you can price the product under USD $20 and convince people there’s a lot of value, then people are willing to pay for it.

All that said, if you can offer financing, and we have done this in various geographies, it’s extremely successful. That’s how people prefer to pay for the product. They want to pay in installments. They can pay essentially in the same way as they pay for kerosene. It becomes really a no-brainer, and you’ll get massive adoption. In that sense, if we could crack financing, or work with a partner who is willing to finance our products, it will really open up the market in a kind of new way.

Arc Finance: So there’s an appetite on your side, but scalable partnerships with MFIs have not yet developed. Why do you think that is?

NT: MFIs can be very attractive partners for us, and we’ve worked with MFIs in different geographies. Our expectation is that we can get a lot of scale through MFIs because many of them have a very large network of members, many of whom don’t have electricity. In one pilot we did a few years back with a large institution, we had insane adoption rates when our MFI partner promoted the product: over 20% within a month – a very impressive result.

But in the end, many MFIs have a hard time focusing their energy on product financing when it seems much more economical to focus on signing up more people for their larger, standard entrepreneur loans. It was too much of a distraction from their core business. There was another case where we worked with a small, very locally-concentrated MFI that was willing to experiment with different things like energy. In that case, with product financing we got an adoption rate of 70 to 80% of all households. But the MFI was so small and locally focused, that ultimately it was not scalable for d.light. We’re still very interested in microfinance, but we’ve not really seen MFIs that are either willing or able to scale-up with product financing.

Arc Finance: Many MFIs say that they are unwilling to take on product and distribution risk – which is understandable – but are things less risky now, given the growth of maturation of product suppliers such as d.light? When you look at the state of your sector today, do you think  it’s time for MFIs to reassess and revisit energy?

NT: I’d love to have the conversation with them now because we do have a lot more established distribution and marketing capabilities at this point. Assuming we did have an overlapping distribution with their networks, we could essentially handle the product distribution side for them and they just need to provide financing. It’s actually much simpler for them to work with a company like d.light because we have a lot better and more established distribution resources on the ground to support that end. I know they do not want to get into the business of product distribution, which is totally understandable, just as we don’t want to get into financing services. There’s a clear partnership potential. We are working on some opportunities. It just takes time. Again, we haven’t given up on MFIs at all, but it can be challenging to work out an arrangement that works for everyone.

Arc Finance: Is there a role for MFIs in other areas of finance – loans for your stockist/distributors, for example?

NT: Yes. Especially the guys down the chain that have a hard time getting credit. They end up out of stock a lot of the time. It’s definitely a factor in driving sales and just making sure stock is available. I think the absence of finance for these types of energy entrepreneurs really is a limiting factor. In most places, we would love to have a working capital opportunity available to our distributors or sub-distributors. I’m very interested in that, actually. There’s a real need for loans to sub-distributors and to retailers, to free up working capital for them. I think it’s probably lower-hanging fruit, honestly, at this point. We are in discussions around that as well.

Arc Finance: What are some of the things that have changed in the world at a macro level that have altered or influenced your business approach since d.light was founded? 

NT: Well, much bigger distributors who are sensitive to their brand really want to get into the space now. Whereas before, I think no one wanted to touch micro solar products because there’s so much poor quality in the market and they didn’t want their brand to be damaged by it. But now, there’s definitely been a shift. It’s hard to quantify what it is, but we see the market maturing very quickly. Everyone is in the space all of sudden. The tone of the conversation is really different. We don’t have to explain to any of these new partners why this is a great product. They are coming to us. That’s been a big change.