When it comes to energy access, we’re fond of saying small is big.
That’s because all those small scale solar lanterns, solar home systems, and solar mini-grids add up to a very big market. But the size of that market, and its social impact, could well be dwarfed by an even larger opportunity the solar revolution is engendering. With the explosion of mobile money platforms, and the pay-as-you-go (PAYG) solar financing options they enable, companies working Beyond the Grid are collecting reams and reams of data that could provide rural communities with perhaps the most transformative intervention yet -- financial inclusion.
It’s important to first take a step back and understand just how profoundly important financial inclusion is for these off-grid rural communities. For many populations living beyond the grid, they are also living beyond the reach of the formal economy and the financial system. That means they can’t take out loans for productive uses (say a sewing machine to make clothes and generate extra income) that could improve their lives, which in turn restricts their ability to move up the economic ladder and reinforces the poverty trap.
But it doesn’t have to be this way. Rural communities already pay tremendous amounts for heavily polluting sources of energy -- nearly $40 billion for kerosene lighting. Solar entreprenuers are redirecting those cash flows to cheaper, cleaner sources of energy saving them money and improving their quality of life. But more importantly, by paying off these products, they are demonstrating the people’s ability to pay, and therefore their creditworthiness.
Photo courtesy of Angaza
But there is a wide gulf between being creditworthy in principle and creditworthy in practice. That’s because the financial institutions that would be granting loans to these people need historical data on which to judge risk (this is the same dilemma that faces solar providers in the U.S. as they try to securitize loans). That is where we reach a classic Catch-22: without credit history you can’t get credit, and if you can’t get credit, you can’t build credit history.