What Do Solar, Mobile and Microfinance Have in Common? Meet Fenix International.

Fenix International is a Silicon Valley based renewable energy company that designs and manufactures income generating energy solutions for mobile telecoms in emerging markets. The company has developed the ReadySet, a plug-and-play smart battery that charges by solar panels or bicycle dynamo to power mobile phones, lights, and many devices powered by USB or Car Lighter Adapters. The ReadySet is sold by MTN, Africa’s largest mobile phone company, through its network of retail outlets in Uganda. The end customers are micro entrepreneurs who use the ReadySet to make additional income from charging phones in off-grid rural areas.

In a conversation with Arc Finance, Brian Warchawsky (Chief Operating Officer) and Peter Glenn (Business Development and Sales Manager) explain how Fenix combines its core skills to ensure that its products work not only for the customer, but for the whole chain from manufacturing, to distribution and financing.

Arc Finance: To start off, can you give us some background on the team and how you approached the renewable energy market?

BW: Fenix is a for-profit renewable energy company that was founded in San Francisco in 2009. Actually, a large number of people who work for Fenix, including me and Mike Lin, our CEO, used to work for a social enterprise called Potenco. Mike and I emerged from that experience with a new vision for addressing the energy needs of the poor in developing countries through a distinctly different business model. Fenix International was founded to realize that vision. We wanted to look at how to combine our energy products with something appealing for telecoms in terms of phone charging and other devices that they wanted to promote in rural areas where power is limited. Around 600 million people who own cell phones live off-grid, and if those people had access to energy, the average revenue per user would increase by at least ten to fourteen percent.

Arc Finance: So your approach was to be more specific than just to extend access to renewable energy among low-income consumers. You had a strategic partnership and particular customer in mind, is that correct?

BW: The experience that we had at Potenco pointed us toward telecoms as being an ideal distribution partner. We had established a few relationships in Uganda when setting up the new company, Fenix, so we decided to go back there to do a field study where the focus was entirely on how to create these entrepreneurial tools for someone in a rural village to sell power services to the community. We did it in collaboration with Africa’s largest mobile telecom company, MTN, and really focused the design process around mobile phone charging with a specific eye on solving this power problem in rural villages while also incentivizing MTN to do the distribution. We wanted to build a product that really is, to some degree, telecom-centric, although the customer can use the power for a variety of different purposes. So, it’s much more telecom focused than any of the other products on the market.

Arc Finance: You seem to have had two clear stakeholders in mind – a large mobile telecom and a particular type of entrepreneur end-user, the phone re-chargers. Can you tell us more about these two customer profiles?

BW: I think first and foremost we see the ReadySet as a very entrepreneurial product; the early adopters are largely small shop owners or individuals who sell products. They basically charge phones and sell airtime and other products from soap to rice. They are early adopters because they already have an existing business and an existing clientele. They’re in rural areas with limited access to power and they understand that charging phones not only creates an income of about USD $40-50 per month, but it can also drive all the other aspects of their business as well. If they’re already mobile money agents, they can increase airtime sales by up to 50% in terms of transactions and commissions.

We’re also looking at how to engage the urban customer because in Uganda right now, and Kampala in particular, rolling blackouts are very common, and access to power is very unreliable. The urban market is also exciting because many people living in major cities tend to send products and money home to their families in rural areas to support them. We would love to find a way, perhaps a financing mechanism like remittances, to finance a product and have it sent to relatives. Finance is starting to come into play for us and we’re in the initial stages of finalizing opportunities with microfinance institutions in Uganda and Rwanda.

Arc Finance: How important is the affordability problem and end-user financing? Have you started to look at “pay-as-you-go” models?

BW: We’re certainly looking at “pay-as-you-go,” but I think first we’re looking to microfinance, particularly at the consumer finance level, because it would be the easiest to get going. We have serious interest from a lot of MFIs on the ground, both in Uganda and in Rwanda, where we’ll soon launch.

The interesting thing is that a number of MFIs in East Africa already have existing relationships with the telecoms. Since they already use their mobile money platforms to disseminate loans and for other things like bill payments, what we’re seeing is an interest by the telecoms in a greater integration with an MFI. The telecoms say they have one or two MFIs that they’re particularly fond of, and so it’ll be interesting to see what happens, as we at Fenix perhaps don’t want to be as hands-on with that relationship. We’d rather see the telecoms and MFIs be able to work together independently to drive this thing forward. So we see microfinance as the first option and then, perhaps, down the line, “pay-as-you-go” as another option. In a lot of cases, as it seems like for “pay-as-you-go,” the technology – putting the chips in and all that – adds a level of cost that we would have to pass on to our customers, and for the time being we’d rather see that cost benefit or that savings passed on to the customer and let the customers themselves continue to generate income without having to pay someone afterwards.

Arc Finance: Many MFIs are nervous about product quality, as well as the distribution and after-sale components of the supply chain. How does Fenix’s approach help mitigate those concerns?

BW: We feel that our model actually eliminates a lot of the pain points that we’ve been hearing from the MFIs we’ve spoken to, and we’ve met with all the leading MFIs in Eastern Africa. What we hear from them is, “Okay, we’re a bank, a finance mechanism. We might want to get involved in marketing … we might want to get involved in delivering product directly to the loan recipient, but we don’t want to be distributors, and we do not, absolutely do not, want to touch after-sales service.” For MFIs, there is great value in having a strong telecom brand on a product, so that customers go to the telecom for support and after-sales service issues, rather than the MFI. The customers already know where the service center is for MTN, and while they’re not always at the last mile of say, a very, very deep rural area, people do know where to find them in the outlying towns. Also, in a lot of ways, for potential customers in Kenya or Uganda, who is Fenix? We think that we’re a great company but in terms of entering these markets, leveraging MTN’s brand along with a leading MFI will just makes the brand of our energy product even stronger. The fact that our partnership is first and foremost with the telecom really eliminates a lot of the headaches for the MFIs.

Arc Finance: It sounds like you are also addressing two other big concerns that many MFIs often express when it comes to energy: does the product generate income, and is the price of the product compatible with the loan sizes that the MFI offers?

BW: Exactly. The ReadySet actually costs about USD $150, and charging phones in Uganda creates an income of about USD $40-50 per month. So at the higher end of income generation, yes, people are potentially able to pay off their loans in as little as three months in some cases.

Arc Finance: Coming back to your partnership with MTN for a minute – has MTN really bought into the idea that it’s essential for it to have more distributed charging capacity out there, or is it still a kind of Corporate Social Responsibility initiative?

PG: That’s a really good question. I think MTN wholeheartedly believes that this is an excellent decision for their bottom line and that it’s going to be crucial. Particularly in Uganda, where there’s a power crisis going on, this limits average revenue per user. I think that energy is a huge hurdle for growth for MTN and the company understands that electricity access is a really great driver of revenue.

Arc Finance: What are the limits of the business model then? For instance, how big is the market for small entrepreneurs charging phones? What’s the saturation point?

PG: What we found in Uganda and other places is that a Readyset can support about 50 phones in a community. It’s hard to say, but in East Africa the electricity penetration is at less than 20% for the whole region, so that in semi-urban areas, electricity access will perhaps come faster, or Readyset penetration steps-up and competition forces the price to drop slightly. But I don’t foresee competition necessarily driving the price down dramatically any time soon, particularly in countries where the electricity penetration is less than 20%, as it is in most of Africa. I think if that were to be the case, we would feel that we had succeeded on a pretty dramatic level.

Arc Finance: Going forward, is the intention to design modular systems, allowing customers to build up higher levels of power capacity over time through additional hardware purchases?

BW: We have always wanted to keep the price as low as possible, but at the same time we want to ensure the product can truly generate significant income. Therefore there is capacity built into the product to handle more solar panels. For example, the product as it stands right now comes with two mechanisms for charging cell phones: through car lighter adapters and USB ports. We designed it so that you can start small, but then add accessories to the product that will let you do more with it – more lights, more cell phone charging. Going forward, you can also add more solar panels, which gives you the capacity to charge more devices over the course of a single day or just give you more lighting time.