M-KOPA on the pay-as-you-go asset financing model
It can be hard to imagine living on less than $6 a day, but that is the reality for 85% of the population in Saharan Africa.
In addition to the economic hardship this creates, people in this category are extremely underserved by financial services, as their low income and lack of credit history often prevent them from accessing credit cards or a service like buy now, pay later (BNPL) current in more mature credit markets.
This means making full upfront payments for everyday essentials is often a challenge, a problem M-KOPA has been trying to solve with its pay-as-you-go business model since it launched in 2011, funding products that improve lives such as smartphones, solar lighting, energy-efficient televisions and refrigerators as well as digital financial services through its funding platform.
“People can’t necessarily save for a big lump sum, but what they can do is pay something every day over time and have access to that service. [or product] at the same time,” Mayur Patel, Commercial Director of M-KOPA, told PYMNTS in an interview.
In 2019, the company launched smartphone financing and has sold more than 750,000 Nokia and Samsung smartphones to date through partnerships with Nokia and Samsung, allowing customers in Kenya, Uganda and Nigeria to spread their payments on daily or weekly installments after paying a deposit.
But despite the model’s success, it’s often small amounts, with people making daily payments as little as 30 cents. Patel said what makes the economy work for M-KOPA is the fact that it’s a “large scale game”.
In its first nine years, the company served one million customers with solar, refrigeration and electronics products, but it will take less than two years to serve the next million, an acceleration caused by the rapid adoption of smartphones in the region and the huge opportunity it presented for the company’s smartphone funding.
According to Patel, one of the challenges the company has faced in replicating the business model in other markets has been the uneven adoption of digital payments across the continent, which is mainly concentrated in East Africa where M -Pesa dominates.
But that is starting to change, with the growing adoption of mobile money in West Africa and in countries like Ghana, which has the fastest growing mobile money market in the region.
More inclusive than the BNPL model
Traditionally, most BNPL companies run credit profiles on customers to determine if they are eligible for a loan. But M-KOPA is “very inclusive,” Patel said, and instead of intense credit checks that would disqualify most of their customers who don’t have a bank account or guarantor, a valid ID and a small deposit is enough to access its service.
What also makes the company different is that it strives to help customers so no one is “stuck with an obligation to us that they can’t afford,” Patel said.
Customers who sign up for an uncovered product can return it within the first 30 days for a full refund of their deposit “for any reason,” he said. “Perhaps the smartphone is not what you wanted, it does not suit your needs, or you may have encountered financial difficulties.”
Even beyond the 30 days, customers can get a 50% refund of their deposit within the first 90 days, and in the event of a crisis or emergency where there is no safety net, a customer can always return the product provided it is in working condition and in exchange have their outstanding debt cancelled.
“That makes this model fundamentally different from a lot of other FinTech companies that try to fund customers cash-only,” Patel noted, adding that “it has no value.” [to us] to have someone there with an asset they can’t afford.
The model seems to work. To date, the company has provided over $500 million in funding that has enabled more than one million customers to access its products and services.
Go beyond asset financing
In 2019, M-KOPA and InsurTech Turaco teamed up to provide a bundled insurance product for M-KOPA customers and direct sales reps who can access overnight cash back in case of unexpected admission to the hospital, with payment made to the next of kin in the unfortunate event that the insured dies.
Since its launch, more than 25,000 Kenyan consumers have been insured, access to insurance made possible by the credit history customers can build through repaying their assets with M-KOPA.
Patel said the aim now is to expand the offer from hospital bills to cover funeral and burial costs, going beyond Kenya to other countries.
“We took time to build a highly repeatable business model [and] there is no longer anything unique that makes this an opportunity for East Africa,” he said.
The opportunity to evolve could number “in the tens of millions” in the future, he added.