Escaping Darkness

Understanding Consumer Value in PAYGo Solar
English
BoP as customer
Energy
Financial Services
Global
2. Feb 2017
Escaping darkness

Escaping darkness: Understanding consumer value in PAYGo solar

• 43 pages •

The report elaborates the value that customers derived from PAYGO solar, why they decided to purchase it, how they were able to afford it, the manner in which they paid for it, and if they considered the product to be valuable.

Through the intensive involvement of costumers in this paper, inclusive businesses can learn from their perception on innovative business ideas. Moreover, PAYGo is a good example of how technical and financial innovations can drive access to energy in the BoP.

Importance for businesses

  • The paper expounds consumers’ perspectives and experiences with PAYGo, sharing valuable insights for firms seeking to reach lower-income segments with their products and services

Importance for policymakers

  • For policy makers who wish to support innovative business models as part of their development agenda, this report gives insights into enabling policies and frameworks.

The paper, by CGAP and its partners, is informed by in-depth interviews with 138 households before and after purchasing solar energy, conducted by BFA. The households were from Côte d’Ivoire, Ghana, Kenya, and Tanzania. The report explores consumption behaviours and preferences of these low-income households, in reference to pay-as-you-go (PAYGo) solar energy, providing useful insights into the general consumption behaviours in low-income communities for firms and policy makers. While the Hystra report, Reaching Scale in Access to Energy, also discusses PAYGo solar, it focusses on the practitioners’ perspectives.

PAYGo solar consumers pay over time with small, high-frequency payments, allowing low-income rural communities to gain access to energy. These payments are more flexible than the models typically used by MFIs. Consumers see PAYGo solar as a very good deal and have high opinions of the providers.

The main learnings included in the report are:

  1. People invested in solar for clean overhead lighting, a stable energy source, and to be connected to the outside world. Life satisfaction increased with solar.
  2. Paying in instalments gives poorer households access to energy and allows them to take on multiple projects at once.
  3. Households prefer to own their energy system, rather than pay for a service.
  4. Energy budgets can expand to fit PAYGo, meaning that households are sometime willing to pay a higher price temporarily, if the product is worth the sacrifice. Incomes can also increase with solar.
  5. The decision to buy solar was mainly made by the men in the surveyed households, cutting their wives’ budgets. This has the potential to become problematic.
  6. Payment performance is not just a matter of affordability, mini-shocks, catching up with past payments, misunderstood terms, or managing payment logistics play a large role in missing payments.
  7. PAYGo financing is more vulnerable to risk than traditional lending, for both lenders and borrowers.

The paper recommends for businesses to implement strategies specifically designed to reach low-income customers, and to tailor their operations to the local cash flow. It also recommends for firms to simplify their contract terms and to communicate realistic value propositions to their customers, funders, and investors.

The study also discusses that PAYGo businesses must adapt to changes constantly, to which the Hystra study also gives valuable insights.