The underestimated challenge of PAYG

On March 18th, 2005, the first solar home system with PAYG technology was installed in Sub-Saharan Africa: in Kechemober, an Ethiopian village, 200km north of the capital Addis Ababa. Back then the Stiftung Solarenergie – Solar Energy Foundation equipped an entire village with solar home systems. Payment for maintenance and service was monitored and managed by means of a pay-ment charge controller.
At that time, the payment technology was largely unknown and was widely ridiculed. Today more and more companies rely on this technology to provide loans to their customers: from SunTransfer, through Fenix and Bboxx to M-Kopa. And a catchy name was invented: Pay-as-you-go (PAYG).
The promising principle of retail loans has now at last received the attention that was missing for long. More and more distribution companies in developing countries are convinced that the grant-ing of loans to pay for solar home systems, is an important way to offer off-grid households a comprehensive power supply.
This is undoubtedly true. But PAYG is also the crowning discipline of rural electrification and is underestimated by most.

Financial product in combination with a technical product
Some companies imagine PAYG as a solar system of the plug and play category: easy to use, simple to operate with little service and support costs. The reality is different: end customer loans are a complex financial product that is offered in addition to a technical product (SHS).
For the distribution and management of a financial product, you need different skills than the ones an off-grid solar technician usually has. Here knowledge in the field of lending in micro-credit organizations are needed:

  • What are the costs for the introduction of the PAYG system, including the training of employees in credit management? Then this related expense is as a rule greatly underestimated. Here it is important to train especially the consciousness of a good after-sales customer support.
  • How to determine whether a customer is creditworthy or not? Especially when a customer does not have a monthly salary statement and no bank account, which is why the check of credit ability must be done by other means.
  • Mutual rights and responsibilities – installation and maintenance of a solar system, on the one hand, and prompt repayment, on the other – must be established in a written contract. The contract must also contain possible sanctions for non-fulfillment of terms (for both parties). 
  • Even more important than contracts are social and moral obligations. Contracts made with customers in remote regions are difficult to legally enforce. It is thus crucial to clarify to customers, the social and moral obligations that they are entering into. Guarantors within the customer’s personal environment can also provide support, for example, informing the neighbors works as a form of social control. Customers must understand that their non-compliance with the contract will be known by third parties.
  • Which procedure should be implemented to motivate or even punish defaulters? The PAYG technology only makes sure that the SHS won’t provide power anymore. This does not yet clarify how customers can be motivated to continue. In the worst case the customer has bridged the PAYG technology and uses the SHS happily. Therefore, very concrete dunning processes must be trained and periodically reviewed.
  • Which management of the payment by installments should be used in one’s own accounting? Currently, each manufacturer of PAYG systems has its own management system. Whatever one chooses: the administration of payments has to be cleanly and reliably integrated into the financial accounting of the own company. Administration and professional supervision of tens of thousands of customers cannot be managed by long-hand or excel lists. Credit management should be supported by an appropriate Management-Information-System, such as M-Solar. This includes a professional cash management, to ensure the liquidity of the own company. The more credit customers a company has, the more complex the customer and cash management will be. 

When a company opts for this distribution channel with payment by installments, all these requirements for a safe and professional handling of the hire purchase need to be considered. PAYG offers great potential for rural electrification – provided that the implementation is carried out just as professionally and carefully as the installation of the related solar home system.

Dr. Harald Schützeichel


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