MICROFINANCE PAPER WRAP-UP: “A Tale of Two Sisters: Microfinance Institutions and PAYGo Solar;” by Waldron, Sotiriou, Winiecki; published by CGAP

By Daniel Waldron, Alexander Sotiriou and Jacob Winiecki; published by CGAP (the Consultative Group to Assist the Poor); November 2019; 24 pages; available at https://www.cgap.org/sites/default/files/publications/2019_11_Focus_Note_Paygo_Two_Sisters_2.pdf

In Sub-Saharan Africa, the popularity of acquiring access to solar products in pay-as-you-go (PAYGo) formats is growing. This report assesses options available to microfinance institutions (MFIs) to engage with this market, which is largely dominated by new financial technology (fintech) companies. Devices that use PAYGo technology can be enabled and disabled remotely based on the payments their users make to the financiers of the devices.

The report primarily draws on the experiences of two financial institutions, the Senegalese unit of Baobab and the Ugandan affiliate of FINCA, to analyse the feasibility of MFIs offering PAYGo financing to clients. Both institutions have financed PAYGo solar products through purpose-built subsidiaries, Baobab+ and Brightlife, respectively. The early results from these programmes lead to the following suggestions: (1) design financial products appropriately, in terms of loan tenure and ensuring products are suited to customers’ needs; (2) adapt credit risk management to ensure customers’ credit worthiness is evaluated appropriately; and (3) establish in advance how the partnership between the MFI and PAYGo company will work at all levels of management to ensure successful alignment of operations.

Overall, the report concludes that MFIs can be successful in building strategic partnerships with PAYGo solar companies. However, MFIs should remain cognisant of challenges that may arise when engaging with new customers through unfamiliar product lines.

By Jolene Khor, Research Associate

Sources and Additional Resources

“A Tale of Two Sisters: Microfinance Institutions and PAYGo Solar”
https://www.cgap.org/sites/default/files/publications/2019_11_Focus_Note_Paygo_Two_Sisters_2.pdf

Baobab homepage
https://baobab.bz/

FINCA homepage
https://finca.org/

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