In sub-Saharan Africa, nearly 590 million people lack access to electricity, including eighty-five per cent of rural populations. M-KOPA Solar is seeking to change this. Based in Kenya, M-KOPA Solar (www.m-kopa.com) is an innovative asset financing company that sells small-scale solar home systems (SHSs) to off-grid households on an affordable, 12-month mobile money payment plan via hire purchase. As of February 2014, M-KOPA actively provided affordable solar power to over 50,000 Kenyan households – and is adding a thousand more households per week. M-KOPA has ambitious plans: it has just raised US$20 million to fund expansion of its customer base from fifty thousand to one million households by 2018.

M-KOPA was established in 2011 following successful consumer trials. Its three founders are experienced mobile technology innovators who believe in the transformative potential of affordable products designed for underserved consumers. They lead a team that includes over 200 staff, 1,000 field-based agents across Kenya and 75 retail shops. Over the next three years, they expect to expand to 300 more local staff and 2,000 more agents to help M-KOPA reach its target of one million households by 2018.

To capitalize on the advantages of using wireless micropayments for renewable energy products, M-KOPA developed M-KOPAnet, a proprietary technology platform that combines embedded GSM and mobile payments. M-KOPAnet rides on top of Safaricom’s world-leading, well-known m-banking and money-transfer platform, M-PESA, through which users can transfer money via mobile phone for as low as 5 Kenyan Shillings (US$0.06). A customer puts down an initial deposit followed by daily micropayments for up to one year, after which the customer own the system outright. Payments are made via M-PESA. A two-year warranty, from point of first purchase, is included. Being a pioneer in a pioneer market allowed M-KOPA to tap into M-PESA’s 20+ million customers. This was not blind luck. M-KOPA’s director of strategy and co-founder, Nick Hughes, is the former head of global payments at U.K.-based Vodafone Plc, which has a 40 percent stake in Safaricom and was, along with the UK’s Department for International Development, crucial in getting M-PESA from idea to implementation. Competitors Bharti Airtel Ltd., Telkom Kenya Ltd. and Essar Telecom Kenya Ltd. have since started operating mobile phone-based banking systems in the country.

M-KOPAnet distinguishes M-KOPA from other companies and allows the extension of credit to customers who do not have formal collateral or a credit history. It can do this because solar energy – aside from the health, security and educational benefits it brings – saves households money. A recent independent survey by TNS Research International Kenya reported that 97 percent of households who are paying for solar lighting from M-KOPA were saving money compared to what they had previously spent on kerosene. Meanwhile, M-KOPA reports a 95 percent repayment rate.

M-KOPA currently offers customers two systems: the d.light d10g SHS, a 4W system with three lights and phone and USB charging ports for which the user outlays a deposit of Ksh 2,500 (US$30), and pays Ksh 40 (US$0.50) per day for 360 days; and the d.light d20g SHS, a 5W system with three lights (two wall-hanging and one portable), phone and USB charging ports plus a chargeable radio for which the user deposits Ksh 2,999 (US$35) and pays Ksh 50 (US$0.60) per day for 360 days. When the system is owned outright at the end of the payment term, the user saves even further. When you combine this financial “no-brainer” with the convenience of mobile money for making regular, tiny repayments and the computational efficiency of processing these micropayments over an automatic network, you have a recipe for scale.

Plenty of organizations in various countries offer SHSs on hire purchase or incorporate PAYG technology. Essentially, M-KOPA has attracted attention for its combination of an affordable payment plan with mobile money. Kenya is the world’s leader in m-banking, with almost 20 million M-PESA customers – well over half of Kenya’s population, and representing, by some measures, half of the global m-banking market. As m-banking expands in other countries, many millions more customers will have the chance to access a credit facility for asset finance in an efficient, cost-effective way, with the regular, very small repayments that are so desirable for consumers with high income volatility.

Offering solar with a credit facility is extremely capital intensive, so M-KOPA’s recent US$20 million fundraising accomplishment is welcome news. Sourcing includes a US$10 million commercial-grade syndicated debt facility fronted by Commercial Bank of Africa (CBA). The collateral for the CBA-led loan is M-KOPA’s future cash flows from its customer payment plans – a remarkable securitization of a loan book composed of low-income consumers, who are sometimes without bank accounts or fixed residence, paid entirely through the Safaricom M-PESA system. This deal reflects the confidence the private sector now has in the credibility, demand, distribution and supply of small-scale solar in Africa, and the use of mobile to pay for it.

The other US$10 million comprises debts the Bill & Melinda Gates Foundation, LGT Venture Philanthropy, clients of Imprint Capital and Netri Foundation; grant funding from DFID in the UK, and the Gates and Shell Foundations; and re-investment by lead equity investors Gray Ghost Ventures. Funds are being used to scale-up sales and operations in East Africa and expand into other markets, R&D and business intelligence.

Several factors have contributed to M-KOPA’s success in tapping capital. The company has demonstrated proficiency in delivering the “airtime” concept, something with which Kenyan consumers are extremely familiar and comfortable. In addition, M-KOPA received international recognition when it won the FT/IFC Award for Excellence in Sustainable Finance in June 2013. Also worth noting is M-KOPA’s determination to always set its micropayments cheaper than the daily cost of kerosene, simplifying its marketing efforts. Finally, being based in a development “petri dish” such is Kenya allows the convenience of mobile money to make hire purchase and Pay-Go incredibly convenient.

M-KOPA is able to deliver to the market something absolutely desirable, which people intuitively understand, which will save them money, and which is convenient and easy.