Will Mobile Money be the Future of Tariff Collection for Off-Grid Market in Africa?
By Chijioke Mama, Africa Energy Analyst, Solarplaza
The growing use of mobile money solutions for electricity tariff payment is redefining the solar off-grid market in regions such as Africa. Here, mobile money services have seen a tremendous growth over the last decade.
“Efficient tariff collection systems that would normally pose a hurdle for the fast-paced adoption of home-based solar solutions have now been enabled by telecom companies using the PAYGO model.”
Efficient tariff collection systems that would normally pose a hurdle for the fast-paced adoption of home-based solar solutions (especially in rural and poorly banked communities) have now been enabled by telecom companies using the PAYGO model. They take advantage of the upward penetration of mobile phones in these markets and its ability to reach remote areas where alternative financial institutions and offline payment solutions can barely function.
“By 2020, mobile penetration will have risen to 80-93%. In contrast, universal access to electricity in Africa is estimated to take until 2080 to be accomplished.”
Could mobile money be the future of tariff collection for off-grid solar?
Areef Kassam, head of Mobile for Development (M4D) Utilities at GSMA says “Financial institutions have been involved in tariff collection for off-grid companies in varying degrees in different markets and with varying success. However, mobile operators have a dramatic advantage in providing this service considering there are 37 global markets that have ten times the number of registered mobile money agents compared to bank branches and other 19 markets that have more mobile money accounts than bank accounts.” According to GSMA, “Sub-Saharan Africa continues to account for the majority of live mobile money services (52%),” with West Africa seeing dramatic growth over 2015, with “year-on-year growth at 60.1%, twice the growth rate of any other region,” GSMA says.
Do these advantages make telecom companies indispensable to the growth of off-grid solar solutions? Could they become an alternative to banks and other financial institutions?
“The strategic usefulness of telecom solutions in this sector will be optimized if they team up with banks and other counterpart financial institutions rather than compete.”
For example, PAYGO is essentially a rent-to-own model, which means that the solar appliances remain in the books of an off-grid company for many years in the form of loans. Financial institutions are in a better position to structure, bear and manage these forms of credit thereby enabling energy providers to focus on their core mandate of distributed energy provision. This becomes even more critical when considering that off-grid companies are mostly funded using hard currency (USD or Euro) while loans and customer payments are denominated in local currency, an arrangement that predisposes off-grid firms to the risks of local currency devaluation if not properly structured through local banks.
It is however anticipated that telecom companies will become more aggressive in its outlook towards off-grid solar payment markets, since the proven ease of deployment and adoption for both sellers and buyers of solar solutions respectively is expected to continue to drive further collaboration.