Digital Finance Plus is the use of branchless banking to make basic, essential services and utilities - in energy, health, education, and water - more accessible. Finance is not an end itself but a means to help solve significant development challenges in order to improve the lives of the poor.
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What is CGAP?
We Build Knowledge on issues such as customer needs
and business models
We Strengthen Markets so that promising services can
thrive
We Promote Policies and Regulations that allow services to
expand and reach unbanked populations
CGAP (the Consultative Group to
Assist the Poor) is a global
partnership of 34 leading
organizations that seek to
advance financial inclusion.
Housed at the World Bank,
CGAP develops innovative
solutions through practical
research and active engagement
with financial service providers,
policy makers, and funders to
enable approaches at scale
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3. Digital Finance+
The use of branchless banking to make basic, essential services and
utilities - in energy, health, education, and water - more accessible.
Finance is not an end itself but a means to help solve significant development
challenges in order to improve the lives of the poor.
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PAYG Solar – Off-Grid:Electric
Customer signs up
for “solar-as-a-
service” contract
Technician installs
solar system at
customer’s home
Customer enjoys low-risk,
prepaid energy services
Customer enters code,
product unlocks for prepaid
time
Automatically disables
service when credit expires
Customer pre-pays for
energy days via mobile
money
Receives unique usage
code via SMS
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Digital Finance Plus – Sector Overview
• At least 100 DF+ Enterprises across energy, water,
health, agriculture, education
• Over 30 PAYG Solar providers
• High concentration in East Africa
• Lot of attention and buzz, but few proven models
• Startups drive tech innovation, but need MNOs and
other distribution partners
• Massive markets, limited competition, changing fast
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• Grants/risk capital for tech/ business model demonstration
• Increased equity investment, innovations in third-party
financing and debt facility structures
• Increased awareness, engagement of MNOs in DF+ offerings
• Energy/water access and financial inclusion policies that
embrace DF+ business models
• Cooperation around risk management
• Improved mobile money integration tools for startups
• Standardized metrics/language for measuring portfolio health
What is missing to accelerate growth of DF+ services?
In the last five years, dozens of new businesses are emerging that leverage mobile payments to provide solutions to poor people in energy, water, sanitation, health, agriculture and other development sectors, which we call Digital Finance Plus.
These businesses rely on the infrastructure of mobile payments – wallets accessible via mobile phones and widespread cash-handling agents.
For example, businesses use this infrastructure to collect small-value payment, under pay-as-you-go or lease-to-own models, for use of devices such as solar lanterns and basic water pumps.
In many markets, these innovations are providing access to essential services to consumers not being served by traditional utilities like piped water and the national electricity grid, and often beyond the reach of banks and MFIs.
While the industry is young, some of these businesses could disrupt traditional models of providing basic services and change the arc of development in those actors. It is too early to identify yet which of these businesses are truly transformative and could make a big difference in the lives of poor people.
The desired outcome of the DF+ Initiative is to have a wide range of markets with solutions that bring essential services in multiple sectors leveraging digital finance; end game is not financing innovation but solutions in the real sector enabled by that financing innovation and proven in diverse market contexts
We’re focused on:
Improve understanding of the financing innovation needed and identify which business models are likely to succeed
We identify what ecosystem conditions need to be changed/improved to create more innovation, and create solutions with regulators and businesses
And we develop demonstrated cases for both private and public led solutions, and Understand the appropriate role of government and public policy
We do this through:
Public good research. For example:
We’ve published a White paper analyzing the PAYG solar sector,
We’ve undertaken a DF+ Market readiness study in Tanzania conducted by McKinsey,
We are currently conducting a Demand-side analysis looking at how people pay for water services in India
Develop awareness of the potential of linking DF and Water/Energy, providing tools and analysis:
Through Videos, Blog Series, speaking at conferences
Direct support to companies with a focus on DF+Energy and Water
Currently working with 3 PAYG solar providers in East Africa and structuring a partnership with one Water provider in India
And finally through Problem solving/generating solutions through working group sessions held this year Digital Finance and Energy, Water, Education
In the energy sector, we have research partnerships with three pay-as-you-go solar providers operating in East Africa
One partner is Off-Grid:Electric, an innovative startup headquartered in Tanzania that provides energy-as-a-service to off-grid households and businesses
Off-Grid:Electric customers sign up as energy subscribers through a network of independently commissioned agents
After paying an initial deposit, customers prepay for days of energy use via mobile money, and unlock their solar system by entering a code in their home solar box
Off-Grid:Electric’s proprietary technology includes a software backend that tracks agents and customers, integrates with multiple mobile money providers, and their own hardware at each customer’s home ties energy usage to proof of payments
Off-Grid:Electric is unique in the PAYG solar sector because the offering is structured as a perpetual service, where the company always retains ownership of the solar assets. If a customer decides stops paying or decides they no longer want to use the system, Off-Grid removes the asset and redeploys with a new customer.
Through this partnership, we’re learning the advantages and disadvantages of the energy-as-a-service business model as compared to a lease-to-own model, and running experiments with agent compensation and pricing of new systems that include television and satellite dish services
In the water sector, we are developing a partnership with a provider in India called Sarvajal
Sarvajal is a business focused on water purification and delivery through water ATMs managed by franchises
It has set up operations originally in vilages with a population of 1000+ households where water quality issues exist, and has recently expanded to develop solutions for urban areas
Sarvajal maintains the water ATMs while the local entrepreneurs or partners acquire land, electricity and raw water sources
Consumers prepay for water by paying cash to agents who load credit onto an RFID card, which ulocks the amount of prepaid water when “swiped” at the water ATM
The relatively low level of mobile money usage in India has forced Sarvajal to set up its own digital finance model separate from an MNO
Remote monitoring is a critical part of Sarvajal’s business as it oversees operations and maintenance. It also helps in risk mitigation by using data to monitor water quality
They have recently won a tender for a Delhi water utility company to provide water to 10,000 households.
CGAP is working with Sarvajal to look at what kind of partnerships with government will be needed to make this model work at scale
So what are we seeing across the Digital Finance Plus landscape
Right now, we are aware of at least 100 enterprises with a digital finance plus offering.
In the energy sector, there are at least 30 companies offering a pay-as-you-go solar solution that includes some form of digital payments and proprietary hardware that ties usage to prepayment
There is a high concentration in the East African market, largely due to the prevalence of mobile money and large size of underserved energy, water, and agriculture markets
Private sector approaches to providing access to essential services via digital finance are receiving a lot of attention, but there are currently few models that have reached scale and profitability
We’re seeing startups drive technology innovation, but they often require tight partnerships with MNOs for not just mobile payments, but also to piggyback on their agent networks and to leverage their brand
It’s still relatively early. The energy and water sectors are massive, with very few areas where DF+ enterprises are currently competing head-to-head for customers. But things are changing fast. New market entrants are popping up every month, and some existing players are expanding into multiple markets
I was asked to offer some comments on what we think is missing to accelerate the growth of DF+ services.
I’ll preface these points by again pointing out that it’s relatively early, so the same slide could be quite different if I gave the same presentation 12 months from now
First, we need more risk capital for technology innovation and early validation of new models with live customers
There is a big need for more investment into DF+ enterprises to take them from initial concept to growth stages. We also need more capital and innovative debt structures, particularly capex financing for companies extending some form of credit to end-users
There is a need to build awareness of DF+ business models and opportunities among MNOs. We’re seeing DF+ providers such as M-KOPA in Kenya becoming a major driver of mobile wallet usage, and expect to see this grow quickly as other providers begin to scale. In some markets, DF+ enterprises are proactively signing up end-users for mobile money accounts, and many companies are using hardware that requires data connectivity. These are all opportunities for MNOs
In many markets, there is a need to modify existing policies to accommodate these new business models.
We see opportunities for cooperation between DF+ enterprises, MNOs, and financial institutions on initial credit risk assessment and ongoing risk management
Providers are having difficulty integrating with mobile payment platforms in many markets. There is a need for MNOs to look at APIs as a solution to make this easier for DF+ startups
Finally, we need common language for describing the portfolio performance of DF+ enterprises. This is particularly needed in energy, where large amounts of debt are required to grow businesses. Right now most companies are using microfinance metrics that are not well adapted to flexible payments. When you look closely, the business models likely require new metrics that are something between ARPU and Portfolio at Risk