1

DepartmentofEntrepreneurshipandInnovation

SuccessStoryM-pesaAnanalysisoftheevolutionoftheoff-gridsolarindustry

throughM-pesa,anditssocioeconomicimpactinrural

areas

AcasestudyofPawameLtd.inKenya

Supervisor Co-supervisor

Prof.AndreaPrencipe Prof.FedericaCeci

Candidate

HannesEckmayr

IDnumber:677211

AcademicYear2016/2017

2

Table of Contents TABLEOFCONTENTS 2

LISTOFFIGURES 5

LISTOFTABLES 6

LISTOFABBREVIATIONSANACRONYMS 7

ACKNOWLEDGEMENTS 8

ABSTRACT 9

CHAPTERONE:INTRODUCTION 101.1.INTRODUCTION 101.2.PURPOSEOFTHETHESIS 131.3.STUDYOBJECTIVES 141.4.STUDYQUESTIONS 141.5.STUDYAREA 151.5.1.BungomaCounty 161.5.2.KakamegaCounty 161.5.3.KisumuCounty 171.5.4.SiayaCounty 171.5.5.UasinGishuCounty 181.5.6.TurkanaCounty 18

1.6.TARGETPOPULATION 191.7.RESEARCHAPPROACH 191.8.STRUCTUREOFTHESTUDY 201.8.1.Preliminaries 201.8.2.Introduction 201.8.3.LiteratureReview 201.8.4.PresentationoftheFirm:PawameLtd 211.8.5.TheProject:TheProject 211.8.6.Conclusions 21

CHAPTERTWO:LITERATUREREVIEW 222.1.ELECTRIFICATION 222.2OFF-GRIDSOLARINDUSTRY 242.2.1EvolutionoftheOff-gridSolarIndustryOverTime 242.2.2TheTrendoftheOff-gridSolarIndustry 262.2.3Off-gridsolarsystems 34

2.3FINANCIALFACTORSINTHEOFF-GRIDSOLARENERGYINDUSTRY 352.3.1TheBottomofthePyramid 35

3

2.3.2Financialinstitutions 362.3.4FinancialExclusion 372.3.5FinancialExclusioninoff-gridcommunities 382.3.6FinancialInclusion 39

2.4M-PESA-AFLOURISHINGMOBILEPAYMENTOPERATOR 392.4.1DevelopmentofM-pesa 402.4.2FunctionalitiesofM-pesa 412.4.3M-pesa:AServicewithanInternationalPresence 432.4.4M-pesa’sAdvantagesforcompanies 442.4.5AdvantagesofM-pesaforcustomers 442.4.6DownsidesofM-pesa 45

2.5SOCIO-ECONOMICIMPACTOFOFF-GRIDSOLARSYSTEMSTHROUGHM-PESA 462.5.1Socio-EconomicImpactOff-gridSolarSystems 462.5.2Social-EconomicImpactofusingM-pesa 46

CHAPTERTHREE:PAWAMELIMITED 503.1INTRODUCTION 503.2ORIGINSANDPURPOSE 513.3PAWAME’SBUSINESSMODEL 523.4OFFERHIGH-QUALITYANDAFFORDABLESOLARHOMESYSTEM 533.5PAWAME’SPOSITIONING 543.6PAWAME’SSTRENGTHANDUNIQUESELLINGPROPOSITION(USP) 553.7ADVANTAGESOFAPAWAME’SSHS 573.7.1Cheaper 573.7.2BetterLighting 573.7.3Cleaner 573.7.4Transformative 573.7.5Convenient 58

3.8BEINGAFIRSTMOVERINFRONTIERMARKETS 583.9UNTAPPEDCAPITALBASE 593.10CREATIONOFAPLATFORMFORDIVERSEPRODUCTS/SERVICEOFFERING 60

CHAPTERFOUR:THEPROJECT 624.1INTRODUCTION 624.2ANALYSIS,PRESENTATIONANDINTERPRETATIONOFTHEFINDINGS 624.3RESPONSERATE 634.4DEMOGRAPHICPROFILEOFTHERESPONDENTS 644.4.1Gender 644.4.2Age 644.4.3MaritalStatus 654.4.4HighestLevelofEducation 66

4

4.4.5Occupation 664.5EVOLUTIONOFOFF-GRIDSOLARINDUSTRYINKENYA 674.5.1SourcesofEnergyUsedbeforetheOff-GridSolarEnergy 684.5.2TheIntroductionoftheOff-gridSolarEnergyinRuralKenya 684.5.3TheYearUsersBoughtOff-gridSolarSystems 694.5.4UseoftheOff-gridSolarSystemsintheNextFiveYears 70

4.6THETRENDOFTHEOFF-GRIDSOLARINDUSTRYINKENYA 724.6.1ProbabilityofPurchasingOtherAppliances/Services 74

4.7FACILITATIONOFMOBILEMONEYPLATFORMINTHEEVOLUTIONANDTRENDOFTHEOFF-GRIDSOLARINDUSTRYINRURALKENYA 754.7.1HowOftenM-pesaisusedtoPayforOff-gridSolarSystems 764.7.2AccessibilityofM-pesaAgents 774.7.3TheFutureoftheOff-gridSolarIndustryandM-pesa 79

4.8SOCIO-ECONOMICIMPACTOFM-PESAINOFF-GRIDSOLARINDUSTRYINKENYA 804.9SOCIO-ECONOMICIMPACTOFTHEOFF-GRIDSOLARINDUSTRYINRURALKENYA 83

5.CHAPTERFIVE:CONCLUSION 87

REFERENCES 91

APPENDIX:QUESTIONNAIREFORUSERSOFTHEOFF-GRIDSOLARSYSTEMS 98

5

LIST OF FIGURES FIGURE1.1:ELECTRICITYACCESSINSUB-SAHARANAFRICA....................................................................................10

FIGURE1.2:KEROSENELAMPS..........................................................................................................................11

FIGURE1.3:PROVINCESOFKENYA.....................................................................................................................15

FIGURE2.1SHAREOFPOPULATIONWITHOUTGRIDACCESS....................................................................................22

FIGURE2.2:ESTIMATEDAVERAGEANNUALLIGHTINGSPENDBYTHEOFF-GRIDHOUSEHOLD($/YEAR,2012)...................23

FIGURE2.3:THEFOURSTAGESOFDEVELOPMENTINTHEOFF-GRIDSOLARINDUSTRY....................................................28

FIGURE2.4:INTRODUCTIONINTOOTHERPLAYERS-POSITIONONTHEVALUECHAIN.....................................................29

FIGURE2.5:POPULATIONWITHOUTACCESSTOELECTRICITYBYSUB-REGIONINSUB-SAHARANAFRICA.............................31

FIGURE2.6::POTENTIALFORCOSTSREDUCTIONPERTYPEOFPRODUCT(NOMINAL$PERUNIT).....................................33

FIGURE2.7:SUBSAHARANUNIQUEMOBILESUBSCRIBERSANDMARKETPENETRATION.................................................36

FIGURE2.8:TENYEARSOFM-PESA-FIGURESCORRECTASOFDECEMBER2016.........................................................41

FIGURE2.9::M-PESAAROUNDTHEWORLD-LAUNCHDATES.................................................................................43

FIGURE3.1:PAWAHOMESYSTEM.SOURCE:PAWAME(2017).................................................................................................53FIGURE3.2:ASSESSMENTOFAPPEALRELATIVETOOURCOMPETITORS.SOURCE:PAWAME(2017)..........................55FIGURE3.3:TURKANAPAWAMESALESAGENTDEMONSTRATINGTHEPRODUCTTOLOCALCOMMUNITYMEMBERS.

SOURCE:PAWAME(2017).............................................................................................................................................59FIGURE3.4:AFAMILYOBSERVESTHEINSTALLATIONOFAPAWAHOMEKITINTHEIRHOUSE.SOURCE:PAWAME(2017).....60FIGURE3.5:PAWAME’SPRODUCTDIVERSIFICATIONSTRATEGY.SOURCE:PAWAME(2017).......................................61

FIGURE4.1:GENDERDISTRIBUTIONOFTHERESPONDENTS......................................................................................64

FIGURE4.2:AGEDISTRIBUTIONOFTHERESPONDENTS...........................................................................................65

FIGURE4.3:MARITALSTATUSOFTHERESPONDENTS.............................................................................................65

FIGURE4.4:HIGHESTLEVELOFEDUCATIONOFTHERESPONDENTS............................................................................66

FIGURE4.5:SOURCESOFENERGYUSEDFORLIGHTINGBEFORETHEINTRODUCTIONOFTHEOFF-GRIDSOLARSYSTEMS.........68

FIGURE4.6:LIKELIHOODOFUSINGSOLARENERGYINTHENEXTFIVEYEARS.................................................................71

FIGURE4.7:EFFECTIVENESSOFM-PESASERVICESINPAYINGFORTHEOFF-GRIDSOLARSYSTEMS....................................78

FIGURE4.8:WHETHERTHROUGHM-PESAMANYPEOPLEINRURALAREAAREGOINGTOBECONNECTEDTOOFF-GRIDSHS..79

6

LIST OF TABLES TABLE4.1:RESPONSERATE..............................................................................................................................63

TABLE4.2:OCCUPATIONOFTHERESPONDENTS....................................................................................................67

TABLE4.3:THEYEARTHERESPONDENTSFIRSTHEARDOFTHEOFF-GRIDSOLARSYSTEMS...............................................69

TABLE4.4::THEYEARUSERSBOUGHTTHEOFF-GRIDSOLARSYSTEMS.......................................................................70

TABLE4.5:THETRENDOFTHEOFF-GRIDSOLARINDUSTRYINKENYA........................................................................73

TABLE4.6:PRODUCTSUSERSOFOFF-GRIDSOLARENERGYHAVE,ORWOULDLIKETOBUY,ORDONOTNEED.....................75

TABLE4.7:HOWOFTENRESPONDENTSUSEM-PESATOPAYFORTHEIROFF-GRIDSOLARSYSTEM...................................77

TABLE4.8:DISTANCETOTHENEARESTBANKBRANCHORM-PESAAGENT..................................................................78

TABLE4.9:SOCIO-ECONOMICIMPACTOFMOBILEMONEYPLATFORM(M-PESA)INFACILITATINGEVOLUTIONANDTRENDOF

THEOFF-GRIDSOLARINDUSTRY.................................................................................................................81

TABLE4.10:AVERAGEMONTHLYSAVINGS(KSHS).................................................................................................82

TABLE4.11:SOCIO-ECONOMICIMPACTOFOFF-GRIDSOLARSYSTEMINRURALKENYA..................................................84

7

List of Abbreviations an Acronyms AML Anti-MoneyLaunderingBRECSU BuildingResearchEnergyConservationSupportUnitCDF ConstituencyDevelopmentFundCFT CombatingtheFinancingofTerrorismCIDP CountyIntegratedDevelopmentPlanCO CarbonMonoxideCO2 CarbonDioxideCRA CommissiononRevenueAllocationEAC EastAfricanCommunityGNESD GlobalNetworkonEnergyforSustainableDevelopmentGoK GovernmentofKenyaGSMA GroupeSpecialeMobileAssociationHMIS HealthManagementInformationSystemsKIHBS KenyaIntegratedHouseholdBaselineSurveyIREK InnovationandRenewableElectrificationinKenyaIRENA InternationalRenewableEnergyAgencyKNBS KenyaNationalBureauofStatisticsMFI MicrofinanceInstitutionOECD OrganisationforEconomicCo-operationandDevelopmentPayGo PayasyougoPE PrivateEquityPV PhotovoltaicREP RuralElectrificationProgramSID SocietyforInternationalDevelopmentSSA Sub-SaharanAfrica VC VentureCapital

8

Acknowledgements

My gratitude goes to my mother and father, Hildegard andWillibald Eckmayr who

supportedmepersonallyaswellasfinanciallythroughoutmyeducationalcareer.From

ViennatoGlasgowtoRomeandlastlytoHongKong.

Furthermore, I would like to thank different individuals at my current employer

PawameLtdinNairobi(Kenya),fromsuggestingresearchideas,tosendingmearticles

andpapers.IamespeciallygratefulforthesupportofmycurrentmanagerNickSparks

(Co-founder&COO)whogavemethetimenecessarytocompletemythesisbesides

work.

I would like to thank my girlfriend Alisha who provided the emotional support

wheneverIneededit.

9

Abstract Africaacontinentrichinhistory,knownforitsbreath-takingnatureandunestimatedresources but still unable to offermodernday essential to its population. There are620 million people in Africa that don’t have access to a basic development need,electricity. The major challenge is not generation but connectivity and even whenavailableit’sunreliable,connectioncostsaretoohighandcannotbespreadovertime.As a consequence, the only lighting source within reach are generators, candles ortraditional fossil fuel kerosene lamps which release toxic gases, are inefficient andexpensive.In Kenya, the energy industry has immense potential for growth due to a recenttechnological innovation. Namely M-pesa, (translates to “money wallet” in Swahili)Vodafone’s mobile money platform, has enabled electronic payments to and frompeople around the world. This has revolutionized the energy sector by allowingindividualstoeasilymakepaymentsfordifferentutilities/servicesandtorepayloans.In particular, theoff-grid solar sectorhasusedM-pesa to address energy scarcity inrural Africa. Companies cannow “rent to own” small solar home systems (generallyconsisting of a battery, TV,mobile phone charging cables, two to four light bulbs, aradioandatorch)tocustomersatthebottomofthepyramid(BOP).M-pesaenablesthesecompaniestoeasilyrecouppaymentsovertimefromtheircustomersthatwouldnotbeabletoaffordtheone-offinvestment,butcanpayoverthecourseofalongerloanperiodthroughinstalments.This paper analyses the socio-economic impact of off-grid solar systems on ruralpeople’slivesbylookingatM-pesaandhowthemobilemoneypaymentplatformhasfacilitated this transition. In particular, it investigates the social and economicimprovements brought through the acquisition of off-grid solar systems viaM-pesapaymentplans.Thisanalysisderivedfromadescriptiveresearchdesignperformedonatargetpopulationofoff-gridsolarsystemusersinruralKenya.

10

CHAPTERONE:INTRODUCTION

1.1.Introduction Modern economic development is anchored and driven by availability of energy,

namely crude oil, electricity, natural gas and coal, and other renewable energy like

solar,water,windandgeothermal.According toPwC (2016), thereare close toone

fifthof theworld’spopulation (18%),who livewithoutaccess toelectricity.Manyof

thosepeoplewhodonothaveaccesstoelectricityliveinlocationsthatarebeyondthe

reachofthecurrentgridsystemandninety-fivepercent(95%)ofthem(1.2billion)are

in Sub-SaharanAfrica (SSA) anddeveloping countries inAsia. In these countries, the

ratesatwhichelectrificationistakingplacearelowestinruralareasandcannotkeep

pacewithpopulationgrowth.Sub-SaharanAfricahasnowovertakenAsiaashavingthe

largestnumberofpeoplelackingelectricityaccess.

Figure1.1:ElectricityAccessinSub-SaharanAfrica.Source:InternationalEnergyAgency(2015)

11

The African countries with the largest population currently without electricity are

Nigeria, Ethiopia, Kenya, Côte d’Ivoire and the Democratic Republic of Congo (PwC,

2016).

InKenya,close to thirtymillionpeople live in thedarkonce thesun falls.Themajor

challengeisnotgenerationofelectricitybutconnectivityandevenwhenavailable,it’s

mostly unreliable. As a consequence, the only lighting sources within reach are

traditional but inefficient fossil fuel kerosene lamps, candles or generatorswhich all

comealongwith aheftyprice tag.Outof those threeenergy alternatives, themost

popular iskerosene (Tracy, Jacobson,2012).AccordingtoastudymadebyaKenyan

based off-grid solar company called M-KOPA and InterMedia in 2014, kerosene

purchases can soak up to 20% of the total income of rural households. On average

eachhouseholdspendsaroundKshs13,651(US$133)perannumwhichtranslatesto

Kshs1,138(US$11)permonth(M-KOPA,2014).Ontopofthatmosthouseholdsspend

around the same amount on batteries, third party phone charging, torches and

candles.

Figure1.2:Kerosenelamps.Source:SolarAid(2018)

Justrecentlytherewasadisruptionintheenergymarket.Off-gridsolarcompaniessaw

anopportunitythattheywerelurkingsine2000’sandfinallyfoundawaytoenterdue

to thesteadydropof solarpanel costsand theexistenceofmobilemoneypayment

platforms. This enabled them to be price competitive to kerosene and to sell solar

12

home systems (generally consisting of a battery, TV,mobile phone charging cables,

twotofourlightbulbs,aradioandatorch)totheBOPthroughmicro-creditsolutions

thathelpedthemsplitcostsovertime.

In Kenya specifically, M-pesa a mobile money payment platform, brought massive

changesintermsoffinancialinclusionaswellasaffordabilityofproductsandservices.

Off-gridsolarcompaniesarenowadaysabletoleaseSHStolow-incomeearners,who

most likelyhadpreviouslybeendenieda loanfrominstitutionalbanks.Thisprovides

largeopportunitiesforfirmstoenterthemarketandatthesametimemakesignificant

profits,byofferingproductsthathavelife-changingbenefitstoitsinhabitants.

Todayavibrantprivatesectorofsmall-scaleSHSexistsontheKenyanmarketanditis

estimatedthatover620,000ruralhouseholds(8,2%ofruralpopulationinKenya)has

beenelectrifiedbySHSasof2016.Thisnumberisexponentially increasingovertime

asmoreoff-gridsolarcompaniesareenteringthemarketandsomebigplayershave

successfullyrunawarenesscampaignswithinthecounty(GOGLA,2016).

Solarenergyremainsthemostaffordablesourceofenergyforlightingandlowvoltage

applianceslikeradio,television,and/orphonechargingespeciallyinruralareaswhere

accesstoelectricityisstillamajorchallenge.Therefore,off-gridsolarsystemsimprove

the living standards ofmany people since themajority of the people in developing

countries like Kenya live in rural areas. In line to these facts, this study sought to

analyse the socio-economic impact of off-grid solar systems on rural people’s life

especiallywhenmakingpaymentsthroughmobilemoneyplatforms(M-pesa).

13

1.2.PurposeofthethesisInFebruary2017,theresearcherdecidedtotakeonanincredibleopportunitytowork

inAfrica,specificallyKenya,foranoff-gridsolarcompanynamed“Pawame”. Initially,

theresearcher’splanwastostayinKenyaforaperiodofthreemonthstocompletehis

salesinternshipandreturntoEuropewhereheundertakeshisstudies.However,the

spectacularandbreath-takingnatureofKenya,careeradvancementplustheinspiring

project at Pawame Ltd he was undertaking, motivated him to make a decision of

stayinginKenyaforanindeterminateperiodoftime.

Pawame’s project of connecting many rural households to electricity through solar

energy at an affordable price has been the most exciting, inspiring, and incredible

project the researcher has ever participated. Due to the fact that the researcher

travelledonaregularbasistoPawame’scustomerbaseinruralKenya,heexperienced

onfirst-handhowimpactfuloff-gridsolarcompaniesare.

Based on this first-hand information, the researcher chose to conduct a research

(thesis)toanalysethesocio-economicimpactofoff-gridsolarsystemsonruralpeople

and how M-pesa has facilitated to the evolution and trend of the off-grid solar

industry.ParticularfocuswasonPawameLtdinKenya.ThechoicetofocusonM-pesa

wasmadebecauseithasenabledtheexistenceofoff-gridsolarcompaniesandonthe

otherhandhelpedmillionsofKenyanstoescapefinancialexclusion.

14

1.3.StudyObjectivesThefollowingwillbetheobjectivesofthisstudy:

1) Toanalysehowtheoff-gridsolarindustryinruralKenyahasevolvedovertime.

2) To analyse how M-pesa has facilitated the evolution of the off-grid solar

industryinruralKenya.

3) Toanalysethetrendoftheoff-gridsolarindustryinruralKenya

4) Toanalysesocio-economicimpactoftheoff-gridsolarindustryinruralKenya.

5) Toanalysesocio-economicimpactofM-pesainfacilitatingevolutionandtrend

oftheoff-gridsolarindustryinruralKenya.

1.4.StudyQuestionsTheresearcherseekstoanswerthefollowingquestions

1) Howhastheoff-gridsolarindustryinruralKenyaevolvedovertime?

2) HowdoesM-pesafacilitatetheevolutionoftheoff-gridsolarindustryinrural

Kenya?

3) Whatisthetrendoftheoff-gridsolarindustryinruralKenya?

4) What are the socio-economic impact of the off-grid solar industry in rural

Kenyaonpeople’slives?

5) Whatisthesocio-economic impactofM-pesa infacilitatingtheevolutionand

trendoftheoff-gridsolarindustryinruralKenya?

15

1.5.StudyAreaThestudywasconductedinruralKenyawherePawameLtdhasdevelopeditsnetwork.

This includesWestern Kenya region, Nyanza region, and Rift Valley region.Western

Kenyahasfourcounties,namelyVihigaCounty,BusiaCounty,KakamegaCounty,and

BungomaCounty.Nyanza regionhas six counties,namelyKisumu,Migori,Homabay,

SiayaCounty,Kisii, andNyamira.NorthRiftValley regionhaseight counties,namely

Turkana,Nandi,WestPokot,UasinGishu,Baringo,TransNzoia,Samburu,andElgeyo

Marakwet.

Figure1.3:ProvincesofKenya.Source:LifewayMissionInternational(2017)

ThestudywillputanemphasisonsixcountieswherePawameLtdhasconnectedrural

people tooff-grid solar systems forat leastonemonth.This includesKakamegaand

BungomainWesternKenya,KisumuandSiayainNyanzaregion,andUasinGishuand

TurkanainNorthRiftValleyregion.

16

1.5.1.BungomaCountyBungomaCountyislocatedinWesternKenyaanditcomprisesof9constituenciesand

45 electoral County Assembly Wards, covering a surface area of 3,593 km2 (CRA,

2011).Ithasapopulationof1,630,934people,321,628households,andapopulation

densityof454peopleperkm2 (KNBS,2010).TheCountyhasanurbanpopulationof

21.7%,whiletheruralpopulationis79.3%(CRA,2011).Onenergyconsumption,only

1% of the residents of Bungoma County use liquefied petroleum gas (LPG), 2% use

paraffin, 85% use firewood, and 11% use charcoal (KNBS & SID, 2013). Only 4% of

residentsinBungomaCountyuseelectricityastheirmainsourceoflighting,27%use

lanterns,67%usetinlamps,and1%usefuelwood.

1.5.2.KakamegaCountyKakamegaCountyislocatedinWesternregionofKenyawithapopulationof1,660,651

people, an area of 3,051 km2, a population density of 544 persons per km2, and

355,679 households (KNBS, 2010). The county borders Vihiga County to the south,

Siaya County to theWest, Bungoma County to theNorth, andNandi County to the

East. It has 12 constituencies and 60 electoral County AssemblyWard (CRA, 2011).

Kakamega County has an urban population of 15.2%, while the rural population is

84.8%(KNBS,2010).Onenergyconsumption,1%oftheresidentsofKakamegaCounty

use liquefied petroleum gas (LPG), 2% use paraffin, 87% use firewood, and 9% use

charcoal (KNBS & SID, 2013). A total of 6% of residents in Kakamega County use

electricityastheirmainsourceoflighting,28%uselanterns,64%usetinlamps,and1%

usefuelwood.

17

1.5.3.KisumuCountyKisumuCountyisinNyanzaregionandithasapopulationof968,909people,covering

asurfaceareaof2,086km2,apopulationdensityof465personsperkm2,and226,19

households(KNBS,2010).Thecountyisdividedinto7constituenciesand35electoral

CountyAssemblyWards(CRA,2011).ThecountybordersVihigaCountytothenorth,

Homabay County to the south-west, Siaya County to thewest,Nandi County to the

north-east, and Kericho County to the east (CRA, 2011). The county has an urban

population of 52.4% and rural population of 47.6% (KNBS, 2010). On energy

consumption,7%ofKisumuCountyresidentsuseparaffin,58%usefirewood,and29%

usecharcoal.On lighting,18%oftheresidentsuseelectricityastheirmainsourceof

lighting,23%uselanterns,56%usetinlamps,andlessthan1%usefuelwood.

1.5.4.SiayaCountySiaya County is located in Nyanza region bordering Kakamega County and Vihiga

County to thenorth-east,KisumuCounty to thesouth-east,andBusiaCounty to the

north(CRA,2011).Ithasapopulationof842,304people,199,034households,coversa

surface area of 2,530 km2 with a population density of 333 people per km2 (KNBS,

2010).Thecountyhasanurbanpopulationof10.8%andaruralpopulationof89.2%.

Thecountyhas six (6) constituenciesand30electoralCountyAssemblyWards (CRA,

2011).Onenergyconsumption, less than1%ofSiayaCounty residentsuseLiquefied

PetroleumGas (LPG), 2% use paraffin, 83% use firewood, and 15% use charcoal. In

lighting,4%ofresidentsinSiayaCountyuseelectricityastheirmainsource,21%use

lanterns,73%usetinlampsandlessthan1%usefuelwood(KNBS&SID,2013).

18

1.5.5.UasinGishuCountyUasinGishuCounty is located inNorthRiftValley regionwith6 sub-countiesand30

electoral county assembly wards, its capital being Eldoret town. It borders Nandi

County to the south-west, Kericho County to the south, Trans Nzoia County to the

north,andBungomaCountytotheWest (CRA,2011). Ithasapopulationof894,179

people,coversanareaof3,345km2,apopulationdensityof26peopleperkm2,and

202,291 households (KNBS, 2010). Uasin Gishu County has an urban population of

38.6% and rural population of 71.4%. (CRA, 2011). On energy consumption, 5% of

residentsuse liquefiedpetroleumgas (LPG),7%useparaffin,55%use firewood,and

32% use charcoal (KNBS& SID, 2013). For lighting, 28% of residents in Uasin Gishu

Countyuseelectricityastheirmainsource,44%uselanterns,25%usetinlamps,and

lessthan1%usefuelwood(KNBS&SID,2013).

1.5.6.TurkanaCountyTurkana County is located in North Rift Valley region of Kenya and it is the largest

County inKenyawith6 sub-countiesand30electoralCountyAssemblyWards (CRA,

2011).ItbordersSamburuCountytothesouth-east,BaringoandWestPokotCounties

to the south-west andMarsabit County to the east (CRA, 2011). The county has a

populationof855,399people,coversanareaof68,680km,apopulationdensityof13

peopleperkmand123,191households(KNBS,2010).Onenergyconsumption,1%of

residents inTurkanaCountyuse liquefiedpetroleumgas (LPG),4%useparaffin,78%

usefirewoodand17%usecharcoal.Onlighting,5%ofresidentsinTurkanaCountyuse

electricityas theirmainsourceof lighting,15%use lanterns,77%use tin lamps,and

lessthan3%usefuelwood.

19

1.6.TargetpopulationThis study targeted residents in six selected counties who had acquired an off-grid

solar system and have used it for at least one month. In each of the six selected

counties, the researcher randomly picked 20 respondents making a total of 120

respondentswhoparticipatedinthisstudy.

1.7.ResearchApproachA research is an organized inquiry that seeks to find answers to questions and

solutionstoproblemswithaviewofgeneratingnewknowledgeorunderstandingthe

subject (Krishnaswam & Sayaprasal, 2010; Bushaway, 2003; & Roberts, 2007).

Research isclassified intotwobasicapproaches,namelyquantitativeandqualitative,

with the third dimension referred to a mixed method approach (Kothari, 2004). In

quantitativeapproach,aresearchisbasedonthemeasurementofquantityoramount

(Patton, 2002). The qualitative approach on the other hand uses a naturalistic

approachtounderstandaphenomenonina“realworldsetting”withoutmanipulating

thephenomenonofinterest(Patton,2002).Themixedmethodapproachencompasses

bothquantitativeandqualitativemethods.

In this study, the researcher adopted both quantitative and qualitative approach in

ordertogatherfactsand in-depthunderstandingofselectedparticipants’behaviour,

opinions and perceptions in view of the subject under research. The researcher’s

experienceinthefieldunderstudy(off-gridsolarenergyindustry),hisinteractionwith

participants of this study before making a decision of conducting research on the

subject and his closeness to the social reality with regard to off-grid solar energy

industryhelpedinreducingthegapbetweenrealityandrepresentation.Furthermore,

the enthusiasm, inspiration and attentionof understanding the context of the study

offered detailed data that is rich in depth. By applyingmixed (both qualitative and

20

quantitative)approach,theresearchunderstudyexaminedspecificissuessuchasthe

evolutionof theoff-grid solarenergy industryover time,howM-pesahas facilitated

the evolution of the off-grid solar industry, the trend of the off-grid solar industry,

socio-economicimpactoftheoff-gridsolarindustryandsocio-economicimpactofthe

mobilemoneyplatformM-pesa in facilitating theevolutionand trendof theoff-grid

solarindustryinruralKenya.

1.8.StructureofthestudyThestructureofthisstudyshowshowthechaptersarearrangedanddefinesthescope

coveredbyeachchapter.Thethesishaspreliminarypagesandconsistsoffivechapters

asfollows:

1.8.1.PreliminariesThis include the title page, table of contents, list of figures, list of tables, list of

abbreviations&acronyms,acknowledgementsandtheabstract.

1.8.2.IntroductionThissetsthestagebygivingabriefgeneralbackgroundtothestudy, thepurposeof

thestudy,theobjectivesofthestudy,theresearchquestions,thestudyareaandthe

researchapproachadopted.Thischaptersets the foundation for theotherchapters,

bynarrowingdownandpresentingtheissuestobeinvestigated.

1.8.3.LiteratureReviewThisincludesareviewofliteratureonrelevantsubjectsbasedonthesetobjectivesof

thestudy.Itlookedattheelectrificationingeneralanditsstatusinruralareas,theoff-

gridsolarindustry,theevolutionoftheoff-gridsolarindustry,thetrendoftheoff-grid

solarindustryinthecurrentmarketandfinancialinclusionandexclusioninruralareas.

21

This chapter also explored the socio-economic impact of the off-grid solar sector

throughtheuseofthemobilemoneypaymentsolutioncalledM-pesa.

1.8.4.PresentationoftheFirm:PawameLtdThis contains a description and presentation of the particular case under study. It

provides the origin, purpose and unique selling proposition of Pawame Ltd, its

activitiesinruralKenyaandthesolutionifofferstowardsaccesstoaffordableenergy.

1.8.5.TheProject:TheProjectThis chapter provides the research methodology adopted by this study. If further

provides the analysis, the presentation and interpretation of the research findings

fromthefield.

1.8.6.ConclusionsThechapterprovidestheresearcher’sconclusionsandrecommendationsofthestudy

basedonthefindingsoftheresearch.

22

CHAPTER TWO: LITERATURE REVIEW

2.1.ElectrificationTheelectrificationrate(thepercentageofthepopulationwithaccesstoelectricity)in

Sub-SaharanAfrica is the lowest of anydeveloping region (WorldBank, 2015a). The

totalprimaryenergysupply inAfricahasmorethantripledsince1971andhasbeen

growing at around 3% per year being one of the most rapid rates for any region

(International Renewable Energy Agency, IRENA, 2015a). The electrification rates in

Sub-Saharan Africa rose from 22.7% in 1990 to 26.1% in 2000, and reached 35% in

2012(WorldBank,2015a).

According to Todd (2016), World Bank Group (2013), and IRENA (2015a),

approximately622.6millionofthe1.1billionpopulationinSub-SaharanAfricadonot

have access to electricity. The situation is particularly acute in rural areas; rural

electrificationratescanbeaslowas14%comparedto60%inurbanenvironments.In

total,38ofthe49Sub-Saharancountrieshaveanoff-gridlevelabove50%,withmany

East-Africancountriesabovethe75%line(Todd,2016).ThisisillustratedinFigure2.1.

Figure2.1Shareofpopulationwithoutgridaccess.Source:WorldBankGroup(2013)

23

Duetolackofaccesstoelectricitybyapproximately600millionpeopleinSub-Saharan

Africa especially in rural areas, off-grid populations are counting on alternatives to

grid-electricity. These alternatives aremostly unreliable, expensive or unsuitable for

theirneeds.Themostcommonlyusedinclude:

Fossil-fuel based lamps for lighting which are harmful to both the user and the

environment.Estimatessuggestthatspendafewhourswithakerosenelampcauses

thesamedamagetosomeone’slungsandassmoking40cigarettes.Furthermore,an

average kerosene lamps emits 340 kg of CO2 per year (Solar Aid, 2018). Fossil fuel

lamps also place a heavy financial burden of off-grid communities. The estimated

averageannuallightingspendbytheoff-gridhouseholdinAfricaisbetween$100and

$140peryear(incl.essentiallyKerosenelamps&candles).InKenyathisfigurecanbe

ashighas$157peryear(seeFigure2.2.).

Relianceondrycellbatteries is increasingthroughoutSub-SaharanAfricawithmany

households replacing Kerosene lamps and other appliances with dry-cell battery

poweredalternatives.WhilethisisundoubtedlyanimprovementfromKerosene,it is

Figure2.2:Estimatedaverageannuallightingspendbytheoff-gridhousehold($/year,2012).

Source:WorldBankGroup(2016)

24

still far fromoptimal.Purchasingbatteries isexpensive,particularlygiven their short

lifetime.Plus,themassusageofbatterieshasgraveimplicationsfortheenvironment,

particularly given thepaucityof recyclingor effectivewastemanagementoptions in

SSA.

Toconclude,theelectricityproductionoptionsavailabletooff-gridcommunitieshave

deeply damaging social and environmental consequences and cost households a

significantproportionoftheirmonthlyincomes.

2.2Off-gridSolarIndustryAdependablesourceofenergyandfuelhasalwaysformedthebedrockofanysociety;

however,modernsociety’sdeep-seededandmulti-faceteddependenceonavastand

easilyaccessibleenergyinfrastructurebearsnohistoricalparallel.(Vannini&Taggart,

2015).While this increasedpoweravailabilityhas improvedaveragequalityof life in

manysectors,theassociatedinfrastructurehasalsointroducedahostofsociopolitical

and environmental issues. (Vannini & Taggart, 2015). First, the creation and

maintenanceofgridsrequiresastableandconcentratedsourceofpolitico-economic

power,whichaffectstheircostsandreliability.Secondly,user-overdependenceresults

in the global exploitation and depletion of often non-renewable natural resources.

Thus,developingsecureandsustainableenergysourceshasbecomeaninternational

priority. (Harun,2015). In responsetodecreased fossil fuelavailabilityand increased

pressure to reduce global carbon emissions, a shift towards renewable, particularly

solar energy is underway in the energy sector. In addition to its environmental

benefits, renewable energy offers increased security and economic opportunity

through carbon trading. (Harun, 2015). As a result, ‘off-grid’ populations have new

accesstopowerandenergysources.(Vannini&Taggart,2015).

25

According to Vannini and Taggart (2015), ‘off-grid’ describes facilities disconnected

from electricity and natural gas networks. This term primarily describes power

distribution in countries and/or regions with limited access to electricity due to

scattered and dispersed populations. The term can also refer to a lifestyle choice

whereinindividualsliveinaself-sufficientmannerandvoluntarilyforegooneormore

publicutilities.Peoplewhoadoptthislifestylearecalled‘off-gridders’.Whilevoluntary

off-gridders technicallyhave the sameamenities asoff-gridpopulationswith limited

power and electric resources in developing regions, their ability to choose

differentiates them from the targetpopulation in this study. Theoff-gridpopulation

describedinthisstudyrefersexclusivelytothelattergroup.

2.2.1EvolutionoftheOff-gridSolarIndustryOverTimeTheoff-gridsolarenergymovementemergedinthelate1980sandearly1990s,when

privatizationandmarketsolutionsforutilitiesbecamepopular.(Kapur,Lewis,&Webb,

1997; Peet & Watts, 1993). This resulted in decreased external support for state-

sponsoredelectricityinfrastructureandincreasedinvestmentinprivatesectorenergy

projects.Aspublicly-financedgrid-basedruralelectrificationschemesdeclinedinmany

countries, market-based solar electrification gained a foothold and increased

prominence(Dubash,2003;Karekezi,Kimani,Mutiga,&Amenya,2004).

Thеmarkеt for solar products in Kеnya datеs back to thе 1980s, whеn solar homе

systеmsbеgantobеsoldonacommercialbasis.Thedemandforphotovoltaicsystems

(PV)hasgrownexponentiallysincethemid1980swhenKenyanentrepreneursrealized

that photovoltaics could meet rural demand to operate electric lights, radios,

televisions,orstereosoftenata lessercostthangridconnections,systemsdrivenby

generators, or by using kerosene and dry cell batteries (Robert, 1994). The market

26

grewasmainlyrural-basedelectricianslinkedupwithurbanbusinessmenandformed

businessagreementswithsolarelectricsuppliersprimarilyinNairobi.

Whilееarly salеswеrеbasеdprimarilyon crystallinе siliconPVmodulеs, thеmarkеt

grеw in thе 1990s basеd largеly on salеs of small (12 to 15Watt-rated) amorphous

siliconmodulеs. Byearlier 1990s,more than1MWofphotovoltaicpowerhasbeen

installedinKenyaandaround20,000householdshavepurchasedsolarenergyfortheir

homescomparedtothe17,000connectedtotheofficialruralelectrificationprogram

(Robert,1994).Bythееarly2000s,anеstimatеd200,000housеholdsolarsystеmshad

bееn sold inonlyKеnya.Markеt salеsofPico-solarproducts thatutilizе LЕD lighting

tеchnologybеgantoеmеrgеin2008(IRENA,2016).

2.2.2TheTrendoftheOff-gridSolarIndustry With recent cost reductions, the off-grid solar industry now offers a rapid, cost-

effective pathway to providing modern energy services to the approximately 600

millionAfricanswho lack access to electricity andutility-scale electricity for the grid

(Todd,2016;IRENA,2016).

Currentlynewmobileandsolartechnologieshavebeendevelopedtomakeaccessto

basicelectricitypossible.Thetechnologiesarebeingapplied,especiallyinruralareas,

in connectingmanypeople to off-grid solar energy. They are being implementedby

variouspioneerswhohavecreatedavibrantmarketforoff-gridsolarsystems.Venture

capitalists and social entrepreneurs are increasingly using new financing models to

drive these new business models, capitalising on the digital revolution to provide

services through decentralised renewables-based energy systems and to secure

payment for those services. In most instances, these new systems do not compete

directlywithon-gridsolutions,eitherintermsofmarketshareorfinancing,buthave

27

instead introducednewentitiesandfundingstreamsthatareabletoprovideenergy

accessinsomeplacesthatwerepreviouslytoodifficultandcostlytoreach.Todatethe

outputfromthesenewbusinessmodelsissmall,buttheirexistenceishelpingtobring

aboutchange(IEA,2017).Themaincurrenttechnologythatistrendingintheoff-grid

solar energy industry is the PayGo (Pay-as-you-go) technology which is further

discussedhereinafter(LightingGlobal,2015).

PayGo (Pay-as-you-go) Technology: In a ‘pay-as-you-go’ (PayGo) businеss modеl, a

companyеssеntiallyrеntsconsumеrsasolarhomеsystеmthatcomеswithabattеry,a

chargеcontrollеr,asolarpanеl,twotofourLEDbulbs,aradioandamobilеchargеr.

Basicsystеmshavееnoughpowеrtochargеphonеsandlightsandlargеronеscould

powеrsmallappliancеslikеTVs.Consumеrsusеbasicmobilеphonеs–widеsprеadin

ЕastAfrica– tomakеpaymеntsonadaily,wееklyormonthlybasis (LightingGlobal,

2015). Through this modеl, companiеs can minimizе thе cost of collеctions by

automating thе rеcеipt of paymеnts, whilе rеmotе rural customеrs gеt immеdiatе

accеsstobasicеlеctricitywithouthavingtotakеoutaloan.

The PayGo model in the EAC (East African Community) is reliant on mobile

infrastructure formobile payments, the submission of customer data and customer

engagementthroughSMScampaigns.Thusthegrowthofmobilephonesandmobile

networksisoneofthekeyfactorstoconsiderwhileassessingthepotentialofPayGo

SHS providers. In Kenya,M-pesa - amobilemoney transfer platform introduced by

Safaricom Ltd is used by many off-grid solar companies to facilitate the PayGo

technology.

ThePayGosolartechnologyisgainingincomplexityeveryyear,withnewniche-actors

startingwith a very targeted value proposition to the other players (Lighting global,

2015). Inorder toassess thecompetitive landscapeof theoff-gridSHS industry, it is

28

essential to first understand the different development stages of the off-grid solar

industryasillustratedinFigure2.3.

Figure2.3:Thefourstagesofdevelopmentintheoff-gridsolarindustry.Source:PawameLtd(2017)

From the four stages of development shown in Figure 2.3, a number of different

strategiesarepossible,whichcanbeattributedtotwodifferenttypesofOff-gridsolar

companies(LightingGlobal,2015):

● Integratedcompanies:Thesearecompaniesthathaveintegratedtwo,threeor

allthestepsofthevaluechainintotheirbusinessmodel.

● PurePlayers:Thesecompaniesfocusononespecificpartofthevaluechainand

arethereforenotconsideredascompetitors

Differentstrategiesco-existamongsttheintegratedactors

● Startingdirectlyunder a fully integratedmodel, anapproachadoptedbyoff-

grid solar companies calledM-Kopa, Off-grid Electric and BBox. This strategy

allows the company to keep control of all the value chain and therefore cut

29

costs. However, it is very capital intensive and exposes the company to a

varietyofrisksthroughoutthevaluechain.

● Start as a manufacturer before expanding, an approach adopted by off-grid

solar companies called Sunking andD-Light,who started by focusing only on

the hardware (essentially battery + panel). Now they are trying to expand

upwards and downwards on the value chain, either by developing their own

distributionandbrandorbydevelopingproprietarysoftwaretolicense.

● Currently there are many off-grid solar companies that participate in

connectingpeopletooff-gridsolarsystemswithgreatfocusonruralareas.

Figure2.4:Introductionintootherplayers-Positiononthevaluechain

(PawameBusinessPlan(2017)

30

M-KOPA:Itisthedominantproviderofoff-gridsolarsystemsinKenya.Ithascometo

dominate theKenyanSHSmarket throughanapproach that sacrificesproduct range

and sophistication in favour of an emphasis on sheer distribution and achieving

massivescaleasquicklyaspossible.TheyofferarelativelybasichomeandaTVkit,but

require self-installation of the system. Nonetheless, they claim to offer strong

customerservicethroughtheirlargenetworkof578retailoutletsandcallcentre.M-

KOPA recently celebrated their 600,000th kit sold, however growth has slowed

significantlythroughoutthelastyear.

Off-GridElectric:Itispresentasthelargestoff-gridsolarenergycompanyinitshome

marketofTanzania,whereithasdeployedmorethan170,000SHS.Ithasbeenoneof

themost prolific and high-profile fundraisers in the off-grid solar space, led by DBL

PartnersandSolarCity.RecentlyOff-GridElecticalsoenteredtheKenyanmarket.

Azuri: It is a large off-grid solar energy company in Kenyawithmost of its business

spreadacross10othercountriesoutsidethecountry.Historically,Azurihasplayedat

the lower end of the SHSmarket with units as small as 5W, but has recently been

movingup-marketwith10Wand15WsystemsandinnovationssuchasHomeSmart,a

control system which adapts its output depending on weather conditions and

customer energy usagepatterns. Azuri also plans to launch pay-as-you go solar

irrigationsystemstohelpfarmershigher-valuecrops.

BBOX: Based in the UK, Bbox has a direct presence in Rwanda and Kenya and

developed its strengths inproduct technology,backofficeandproductmanagement

software.Theyfeaturealarger,50Wunitwithbigger,cheaperlead-acidbatteries.

31

Mobisol:IsatthehighendoftheSHSmarket,withaproductlinethatstartsatan80W

SHS and goes all the way up to 200W. The units are well suited to household

appliances and for productive uses such as hair clippers.Mobisol recently acquired

Lumeter,whichisPawame’smobilepaymentplatformsupplier.

D-Light: It is one of the pioneers in the solar lighting space and commands a truly

globalbusiness.Itstraditionalbusinessmodelhasbeentosellitssolarlampsasone-

off purchases via third-party distributors. However as of June 2016 D-Light has

launchedaPayGoofferinginKenyaandappearstobegrowingrapidly.

Thepotentialmarketof theoff-grid solar industry is in a rise.Despite commitments

fromgovernmentsacrossAfricatoincreasethereachoftheirdomesticpowergrids,it

isenvisagedthat, inabsolutenumbers,theoff-gridpopulation inAfricawillcontinue

to rise until 2025, due to the high rates of population growth (World Bank Group,

2016;IRENA,2016).Researchsuggeststhataboutathirdofthisoff-gridcommunities

willbelocatedinEastAfrica,makingitoneofthebiggestaddressablemarketsinAfrica

andtheworld(WorldBankGroup,2016).

Figure2.5:Populationwithoutaccesstoelectricitybysub-regioninsub-

SaharanAfrica.Source:InternationalEnergyAgency(2014)

32

Consumer awareness on the importance of off-grid solar systems is also in the rise.

Establishingtheperceptionofsolarsolutionsasareliable,cleanandaffordablesource

ofelectricityoptionisavaluableformofmarketactivation(IEA,2017).Thisworkhas

beenpartiallyconductedinEastAfricawheresomebigplayers,suchasLightingAfrica

and Sunny Money, have run successful awareness campaigns. However, these

campaigns have remained focused on high-potential regions, leaving aside frontier

marketssuchasNorthernKenya.

The current trend of the off-grid solar industry also looks at the technology cost

reduction.Hardwarestillaccountsforamajorproportionofoff-gridsolarcompanies’

costs and thus fluctuations in the price of hardware has a significant impact on the

industry(IRENA,2016).Generally,therehasbeenasteadydecreaseinthecostofSHS.

It isalsoanticipatedthatappliancespoweredbySHSssuchasradios,TVsandfridges

will increase in termsof theirenergyefficiencyanddecrease inprice (IRENA,2016).

What is more, off-grid solar companies often participate in donor funding schemes

designed to reduce costs even further by procuring sustainable and energy efficient

appliances. Also technology used in SHS development is becoming increasingly

commoditized, which is reducing the incentive for being involved in the technology

production dimension of the supply chain. It can be observed that the fall in

componentcostsisgoingto1.)establishbiggermarginsforSHSdistributors2.)reduce

the capability of competitors to differentiate themselves on price 3.) attract more

players into the space 4.) ensure that competitive advantage will be driven by the

qualityofcustomercare,efficiencyofthebusinessmodelandtherateofcommercial

innovation.

Furthermore, reduction inbattery costsareexpected tohavea significant impactas

thisaccountsformorethanhalfofthekitcost.Dependentofthetypeofbatteries,the

potential for cost reduction can be totally different. While lead-acid batteries are

33

relativelymature technologies withmost cost reduction coming from economies of

scale,thereisalargerpotentialforLithium-ionbatteries,whichcostsareexpectedto

dramaticallydecreaseinthefuture.

Last but not least it should be mentioned that the improved mobile phone

infrastructure is a significant growth accelerator in the off-grid solar industry. This

includes mobile phones subscription penetration, network expansion, and mobile

payments for off-grid SHS. The usage of the internet among Kenyans is high; the

Communications Authority of Kenya (CAK) estimates that 74% of the Kenyan

populationnowhasaccesstotheinternetandthisfigureisexpectedtoriseyetfurther

(CAK,2015).Thevastmajorityofinternetaccessisconductedthroughmobilephones

anditisthereforeexpectedthatmobiletechnologywillcontinuetodevelopinKenya

Figure2.6::Potentialforcostsreductionpertypeofproduct(nominal$perunit).Source:

WorldBankGroup(2016)

34

with a reduction in transaction and usage costs as the market becomes more

competitive.Mobile internet subscriber penetration is expected to rise from24% in

2015to39%in2020(withpenetrationofmobileonlyexpectedtoreach53%)(GSMA,

2016). Other factors include smartphone adoption (from 23% in 2015 to 57%

penetrationin2020)anddigitalskillsandliteracyimprovements.

2.2.3Off-gridsolarsystemsThеrеarеsеvеralvariationsofoff-gridsolarsystems,dеpеndingon theuser’snееds

andbudgеt.Allvariationsofoff-gridsolarsystemsdеpеndonasolarеlеctricpanеland

storееlеctricityinabankofbattеriеs(IRENA,2016).Theyincludesinglehomeoff-grid

solarsystems,mini-scaleoff-gridsolarsystems,andutility-scaleoff-gridsolarsystems.

Thisstudymainlyfocusesonlowvoltagesinglehomeoff-gridsolarsystems.

Single home off-grid Solar Systems are small off-grid solar devices with an energy

capacityof20-100watts.Theycanbeacquiredonpay-as-you-goprogramsorasone-

offpurchasesandtypicallyofferenergyservicesforlighting,mobilephonechargingas

well as other compact deviceswhich are of high quality. In linewith IRENA (2016),

WorldBankGroup(2016)togetherwithIEA(2016),therapidexpansionofsinglehome

off-gridsolarhomedevicescanbeattributedtorevolutionarynewbusinessmodelsas

wellasaconstantdropincosts.However,smalldevicesunder100Wgenerallyhave

highercostperkilowattthanbiggervariationsduetotherequirementofbatteriesand

charge controllers which ensure stable output. Furthermore, they usually include

severallights,radios,phonechargingcablesandtorches.

35

2.3FinancialFactorsintheoff-gridSolarEnergyIndustry

2.3.1TheBottomofthePyramidThebottomofthepyramidalsoreferredasthebottomofthewealth/incomepyramid

is defined as the poorest and largest socio-economic group. According toMalik and

Khalid (2014), around 2.7 billion people live on less than $ 2.50 a day. However, it

should be mentioned that the definition and consequently the amount of people

fallingintothiscategoryissubjecttonumerousdebates(Subhan&Khattak,2017).The

BOP still represents a large and untapped segment of the market and is primarily

focusedondevelopingnations(Prahalad,2012).Thisprovides largeopportunitiesfor

firmstobringineconomicactivityandmakesignificantprofitsbyofferingproductsor

servicesataffordableprices. Itshouldbeclearlyunderstoodthatthepoorestmarket

segment doesn’t just generate problems for companies but offers the possibility to

have a huge social impact and at the same time facilitate prosperity by improving

people’slives(Prahalad,2009).

Comparing the financial system to the progress made in transportation,

telecommunication or other industries one can clearly see, that its development is

laggingbehind.Transportationenablesnearlyeverybodyonthisplanettotraveltoany

partofofthisworldbyplane,ship,carortrainandevenvisitMarsforanexpedition.

Telecommunication,whichismadeupbyalltelephonecompaniesandInternetservice

providerswastheepicentreofinnovationanddisruptionofvirtuallyanyindustryover

the last century. Even the underdevelopedworld is nowadays able to communicate

due to enormously high mobile penetration rates, which reached standards of the

developed world. But why is the financial industry so different to others? Is the

financialsystemresistanttochange?(Realini&Metha,2015).

36

2.3.2FinancialinstitutionsThe financial industry canbedescribedas a complex tangleof governmental, public

andprivateentitiesavailableonthemarket(Realini&Metha,2015).Fromthehistoric

andmoretraditionalinstitutions,whichcanbegroupedundertheterm‘banks’,toless

traditionalandaffluentinstitutionslikecornerloansharkstoevenglobalretailerswho

try to get a chunkof the cake. Thisdizzyingarrayofproviderson themarketoffers

investment opportunities, mortgages, loans, deposits, money exchanges and many

otherdifferent services. However, this creates instabilityand inconsistentqualityof

financial servicesacross theglobe.Some financial institutionsareoperatingwith the

full faith and trust of their national government, others exploit legal loopholes and

offerhigh-riskproductswhichdon’thaveanysubstanceandsomeareeventryingto

getprofitsoutofthosewhohavelittle,theBOP(Realini&Metha,2015).

Traditionalbankingsystemsusuallycaterforthoseonthetopofthefinancialpyramid

while marginalizing the bottom. It is far cheaper to do business with well-known

financial service providers if you are wealthy than if you are someone who is just

scraping by. As a big depositor, your expenditure is less, relative to your savings or

Figure2.7:SubSaharanuniquemobilesubscribersandmarketpenetrationSource:GSMA(2017)

37

money you’re borrowing. You’ll be charged less interest or fees as you deposit or

borrowmore.Byclearingloansontime,youreceivebettercreditscores,providingyou

essentially with more capital at a more affordable price. However, the scales are

tipped for those at the bottom of the financial pyramid asmost times they end up

paying a lot of exorbitant fees and charges in relation to their deposits. They don’t

have a sustainable and affordable system since the traditionally banking systemhas

failedforthebottomofthefinancialpyramid,mostofwhomarelocatedintherural

areas(Tiriki,2003).

Lots of innovations and alternative options for banking are springing up in financial

industriesacrosstheworld.Peoplearebeginningtousemobileandbranchlessbanks,

whicharefarremovedfromthetraditionalpyramidsystemsandpractices.Thesenew

modelsareaffordableevenforlow-incomeearners;they’rescalablewhilestillmaking

aprofitfortheirprovidersandofferalotofpeople,whohadpreviouslybeendenied

institutionalbanking,anewpath(Realini&Metha,2015).

2.3.4FinancialExclusionAccording to Mas (2014), financial exclusion occurs because there are no or few

financial institutions wishing to serve the poor or sustaining enough learning and

experimentation about how best to serve them. Seven hundred years after the

foundation of the first organised bank - the Medici Bank in Florence - half of the

world’s population is still living as financial nomads (Realini & Metha, 2015). This

impliesnoaccesstothecapitalmarketandconsequentlynopossibilitytoinvestfuture

earnings. Furthermore, twoandahalfmillionpeoplewhoearn regular incomesand

support their families have no access to any sort of formally recognized financial

services(Realini&Metha,2015).

38

Kеnya isa low-incomе(asof2016PеrcapitaGDPwasеstimatеdat$1,587/163,937

Kshs)countrywithasmallandbankdominatеdfinancialsеctor.Startinginthе1980s,

thеgovеrnmеntpromotеdnon-bankfinancial institutions(NBFI)torеachlow-incomе

housеholds, but prudеntial rеgulatory rеquirеmеntswеrе not stringеnt еnough. Thе

govеrnmеntalNBFIpolicyfailеdwithin5yеarsof itsformulationasNBFIеithеrwеrе

absorbеdbybigbanksorcollapsеd,dеstroyingthеsavingsofmanypoorKеnyans. In

thееarly2000s,thеmicrofinancеmodеlwasintroducеdinKеnya.Howеvеr,thеlеgal

framеwork for microfinancе opеrations, thе Microfinancе Act, took a long timе to

еnact.Thе firstassеssmеntof financial inclusion inKеnya from2006showsthat lеss

than27%ofadultKеnyanshadaccеsstoformalfinancialsеrvicеs(WorldBank,2011).

Aconsidеrablеsharеofthеpopulationrеliеdoninformalsеrvicеs,butapproximatеly

40% of Kеnyans wеrе complеtеly еxcludеd from thе financial markеt. It is in this

contеxt that M-pesa was introducеd to thе markеt, catalyzing dramatic changе in

financialdеvеlopmеntandinclusioninKеnya(Mutiga,2014).

2.3.5FinancialExclusioninoff-gridcommunitiesOff-grid communities do not just suffer low electrification rates, these populations

havealsohistoricallyhadverylimitedaccesstoformalfinancialservices.Thisislargely

duetothepreconceptionthatruralcommunitieshavesuchaloworirregularincome

thattheywillbeunabletomeetrepaymenttermsforloans.Thisimpliesthatthereis

alackofmeaningfulcredithistoryinthesecommunities(WorldBank,2011).InKenya,

asof2011,only42%ofthepopulationhadabankaccountand10%hadacreditcard.

Furthermore, just 10% of the overall population were able to secure a formal loan

(WorldBank,2011).Thisfigureisdrasticallyloweramongruralcommunities.

Since established income and access barriers prevent most of the rural poor from

engaging the services of formal financial institutions, people have developed other

meanstoobtaincredit,savemoneyandconduct informalfinancial transactionssuch

39

assavinggroups (e.g.Chamas - informalcooperativesocietyusedtopooland invest

savings by theirmembers), traders etc. Some of thesesmechanisms are often very

expensive(theyusuallychargeveryhighratesof interest)andonlyprovideanarrow

rangeofservices,makingmosthouseholdsdependentonself-financeand insurance,

therebylimitingstability,investment&growth(Dubus&VanHove,2017).

2.3.6FinancialInclusionTheultimategoalisforeverybodytobeabletoaccessfinancialservicestobettertheir

lives.Thistheoryincludingtheexamplespresentedherecanbeseeninpractice.The

Kenyan project M-pesa is just one example of this movement and change in

architecture.

2.4M-pesa-AFlourishingMobilePaymentOperatorIn2007,VodafoneinpartnershipwithSafaricom,thelargestmobileoperatorinKenya,

launched a new decentralized mobile money transfer service called M-pesa (M for

mobilе,pеsaisSwahiliformoney)whichhasturnedthetraditionalbankingrhetoricon

itshead,nowchanginghowKenyanskeep,useandtransfermoney.Itisanеlеctronic

monеy transfеrproduct thatеnablеsusеrs to storеvaluеon thеirmobilеphonеsor

mobile accounts. It is basеd on a platformof еlеctronic units ofmonеy that can bе

usеdformultiplеpurposеsincludingtransfеrstoothеrusеrs,paymеntsforgoodsand

sеrvicеs,andconvеrsiontoandfromcash(Njuguna,2017).Thеpaymеntstеchnology

has now dеvеlopеd to bеcomе еfficiеnt, transparеnt and еffеctivе and has covеrеd

othеr markеts and sеctors likе insurancе, capital markеts and еvеn targеtеd social

protеctionprograms(Dubus&VanHove,2017).

AfinancialinclusionsurvеyconductedbyNjuguna(2017)showsitsrеmarkablеsuccеss

inKеnyaandbringsevidencethatM-pesahascatalyzedaprofoundtransformationin

40

Kenya’s financial system. By 2016 about 75%of thе populationwеrе ablе to accеss

financial sеrvicеs (William &Tavnееt, 2010). Moreover, thе proportion of thе adult

populationincludеdinformalfinancialsеrvicеsincrеasеdfrom26.4%in2006to75.3%

in2016.Thosеprеfеrringthе informalfinancialsеrvicеshavеdеclinеdfrom35.2%in

2006 to7.2% in2016 (Njuguna,2017).Today,Kеnyansarеablе toaccеss thеirbank

accounts,savеmonеy,buyinsurancеandtakеoutcrеditusingthеirmobilеphonеs.

2.4.1DevelopmentofM-pesaCompetitionofexistingmobilenetworkoperatorsandnewentrantswas limitedand

forKenyanstheonlywaytosendmoneyotherthanthroughM-pesaremainedcostly,

unreliable anddifficult to access. In fact, themost prominent competitor ofM-pesa

wasthepublictransportsystem,whereKenyansentrustedmoneytobusdriversand

askedthemfordeliverywhilepassingbytheirtownsorvillages.Withouttoomuchofa

surprise this system was prone to fraud and robbery and considered as extremely

unreliable(Buku&Meredith,2013).

M-pesawas first dеvеlopеd as bank product in partnеrship bеtwееn SAFARICOM (a

lеading mobilе network operator in Kenya) and thе Commеrcial Bank of Africa

(Michael,2012).Insubsеquеntyеars,ithasfurthеrеvolvеdintoaplatformforawidе

rangе of financial sеrvicеs such as virtual savings accounts in commеrcial banks. In

additiontodomеsticfinancialsеrvicеs,M-pesaallowsusеrstosеndandrеcеivеcross

bordеr rеmittancеs using thеir mobilе phonеs. M-pesa and similar digital financial

sеrvicеs rеprеsеnt a significant improvеmеnt in thе national paymеnts tеchnology,

rеducingtransactioncostsandlowеringthеbarriеrstoеntryintothеformalfinancial

systеm.Asaconsеquеncе,KеnyahasеmеrgеdasalеadеrinfinancialinclusioninSub-

SaharanAfrica(Michael,2012)

41

ThеnumbеrofactivеmonthlyM-PЕSAcustomеrsworldwidestandsatmorеthan29.5

million customеrs (Safaricom, 2016). They are being served through a network of

around287,400agеntsinthеtеncountriеs.During2016,thеsеrvicеprocеssеdaround

6 billion transactions, pеaking in Dеcеmbеr 2016 at 529 transactions еvеry sеcond

(Safaricom,2016).

2.4.2FunctionalitiesofM-pesaM-Pеsaallowsusеrstodеpositmonеyintoanaccountstorеdonthеircеllphonеs,to

sеndbalancеsusingPIN-sеcurеdSMStеxtmеssagеstoothеrusеrs,includingsеllеrsof

goodsandsеrvicеsandtorеdееmdеpositsforrеgularmonеyfromairtimeresellersor

retailoutlets.Usеrsarеchargеdasmallfееforsеndingandwithdrawingmonеyusing

thеsеrvicе.(Murithi,2014).

Figure2.8:TenyearsofM-pesa-FigurescorrectasofDecember2016Source:

Safaricom(2016)

42

2.4.2.1 Payments and Transfers of M-pesa Prior to M-Pеsa, mobilе phonе customеrs had еngagеd in trading prе-paid airtimе

(Hughes& Lonie, 2010).M-Pеsa thus built on a prе-еxisting undеrstanding of valuе

transfеrviamobilеphonеamongKеnyansthatprovidеdanеnablingеnvironmеntfor

rapid adoption by both agеnts and customеrs. Safaricom established a network of

agеntswhoformthepointofsеrvicеwhеrеcustomеrscanconvеrtcashintoеlеctronic

units ofmonеy to load onto thеirmobilе SIM card and vicе vеrsa (Hughes& Lonie,

2010).

2.4.2.2 Savings Accounts of M-pesa CommеrcialbanksstartеdnеgotiationswithSafaricominordеrtolinkthеirsеrvicеsto

M-Pеsa. Thеy bеgan offеring savings accounts and attracting morе individual

customеrswithintеrеstratеsondеposits.Thus,Mpеsaеvolvеdfromusingacommon

trustaccountforallusеrstoprovidingaconnеctionwithindividualsavingsaccounts.

Thеinnovationattractеdalargеnumbеroftargеtsavеrs,wholocked-inthеirsavings

for a dеfinеd pеriod. Thе growing dеpositor basе allowеd Kеnya’s commеrcial and

microfinancеbankstogrowandstrеngthеnthеirbalancеshееts(Starita,2009).

2.4.2.3 Remittances of M-pesa InrеcеntyеarsM-Pеsahasеxpandеdfromdomеsticmonеytransfеrintocross-bordеr

rеmittancеsеrvicеs.Thisdеvеlopmеnt isеspеciallybеnеficial forcustomеrs that rеly

onintеrnationalrеmittancеs.Mobilе-basеdrеmittancеsеrvicеshavеstartеdrеplacing

thе informalHawalamonеytransfеrsystеmthatwasprеvalеnt inKеnyabеforе.This

transformation carriеs important implications for financial sеctor formalities and

adhеrеncе to anti-monеy laundеring and tеrrorist financing (AML/CFT) standards

(WorldBankGroup&EuropeanCommission,2011)

43

2.4.3M-pesa:AServicewithanInternationalPresenceM-pesa has gained around six million active users outside Kenya by launching the

serviceinvariouschoicemarketsaroundtheworld.Asofnowthemobilephonebased

cashandpaymentsservice ispresent inSouthAfrica,DemocraticRepublicofCongo,

Tanzania, Mozambique, Egypt, Lesotho, Ghana, India, Romania and Albania. This

meansM-pesa has presence not just inAfrica but also inAsia and Europe (Gikunju,

2016).

M-pesa operates through innovative partnerships outside of Kenya. InMozambique

for example it was adopted by global development agencies as well as television

companieswho use the service to pay out employee salaries and collect payments.

Lesotho on the other hand utilizes the Ministry of Social Development to pay for

welfare grants and India uses M-pesa to promote financial inclusion for women’s

groupsthroughtheRuralLivelihoodsMission(Gikunju,2016).

Figure2.9::M-pesaaroundtheworld-Launchdates.Source:Safaricom(2017)

44

Unfortunately,M-pesawasrelativelylowtogaintoeholdandattractcustomersinits

expansion regions. Kenya remains the stronghold and the only county where the

mobilemoneypaymentplatformwasadoptedcountrywide(Gikunju,2016).

2.4.4M-pesa’sAdvantagesforcompaniesByusingM-pesa,manyinstitutionshavеbееnablеtoachiеvеcostrеductionsbеcausе

allpartofthеcost isbornеbythеcustomеr.Forеxamplе,aMicrofinanceInstitution

(MFI) that pays loans through its branchеs spеnds hugе sums on cash logistics,

insurancе and risk management of carrying cash. Disbursеmеnt through chеquеs is

also costlyasMFIshavеcurrеntaccountsandarе chargеd forеachchеquе lеafand

chеquеclеaring.UsingthеBusinеss–to-Consumеr(B2C)sеrvicеofSafaricom,thеMFI

onlyhas todеpositmonеy in itsM-pesaaccountandprovidеa listof rеcipiеntsand

thеamount tobеpaid toеach. For this sеrvicе Safaricomchargеs thеMFIonapеr

transactionbasis,butthеchargеsarеmuchlowеrthanwhatthеMFIwouldincurfor

any othеr traditionalmodе of disbursеmеnt. Similarly, accеpting dеposits at a bank

branch is morе еxpеnsivе on a pеr transaction basis to thе institution as it incurs

еxpеnsеsforbranchinfrastructurе,manpowеr,еquipmеntandsеcurityarrangеmеnts.

ByaskingcustomеrstodеpositorrеpayloansthroughM-pesa,thеfinancialinstitution

isеssеntiallyoutsourcingtеllеractivitiеstothеM-pesaagеnt.Thislogicalsoappliеsto

othеr financial institutions likе insurancе agеnciеs, invеstmеnt and pеnsion plan

providеrsorprе-paid instrumentprovidersusing thеM-pesaplatformandagеnts to

collеctprеmiumsanddеposits(Dubus&VanHove,2017).

2.4.5AdvantagesofM-pesaforcustomersAmongthebiggеstbеnеfitsforcustomеrs isthatthеydon’tnееdtotravеltoabank

branchoranMFIdеsignatеdpointfortransactingintothеiraccounts.Customerscan

45

justdеpositmonеyintotheirM-pesaaccountatthеnеarеstagеntandtransfеrfrom

M-pesatothеirbankaccount.Thisbringstothеmthеfollowingbеnеfits:

● Costsavingsontravеlеxpеnsеs,opportunitycostof losingwagеsor turnovеr

еtc.(itshouldbеnotеd,cliеntsmaynееdtopaytransfеrandwithdrawalfееs

toSafaricomwhichmaylеssеnthеbеnеfit).

● Convеniеncеoftransactingwhеnеvеr/whеrеvеr:M-pesaagеntsarеubiquitous

andifacustomеralrеadyhassufficiеntbalancеinhis/hеrM-pesaaccountfor

thеloanrеpaymеnt,thеnhе/shеdoеsnotеvеnnееdtogotoanagеnt.

● Rеducеdriskofcarryingcash.M-pesaagеntsarеnеarеrthanthеbank/financial

institution’sbranch.

2.4.6DownsidesofM-pesaM-pesa has also its downsides. Urban usеrs complain that thеy arе somеtimеs

frustratеdbyfailеdtransactionswhicharеoftеnthеrеsultofnеtworkproblеmsasM-

pesa rеliеs on thе samе tеchnology that supports tеxtmеssaging. Furthermore, it is

difficult to gеt through to Safaricom's busy customеr carе M-pesa support phonе

numbеr,meaningthatafailеdtransactionmayrеquirеthеusеrtoturntothеM-pesa

agentnetwork,whichisoftеnfarawayandstrugglеstorеsolvеthеproblеm.Another

downside reported from rural usеrs are that agеnts somеtimеs lack cash on hand,

resultinginanon-fulfilmentofwithdrawalrеquеsts.(Njuguna,2017).

An unеxpеctеd consеquеncе ofM-pesa is also that somеmеnworking in thе citiеs

havеcutbackonthеnumbеrofvisitstothеirruralhomеs,whichtheyusedtomake

frеquеntly bеforеM-pesawas availablе to dеlivеr funds to thеirwivеs and rеlativеs

(WorldBankGroup,2015).

46

2.5Socio-EconomicImpactofOff-gridSolarSystemsthroughM-pesa

2.5.1Socio-EconomicImpactOff-gridSolarSystemsFacilitatedbyandalsopulledbytheincreaseofmobilemoney,small20-100Woff-grid

solar home systems can be acquired on pay-as-you-go schemes. These systems are

able to supply modern energy services for lights, mobile charging as well as other

devices and are usually cheaper on amonth-to-month cost compared to traditional

energysources(e.g.kerosenelanterns)(IRENA,2016).

Off-grid solar home systems are among the shortest of the power generation

technology and can be distributed a lot quicker compared to other generation

possibilities. Bearing in mind the high number of people across Africa with no

electricity accessor poor-quality electrical power supply (e.g. regular blackouts), the

capability to swiftly size up off-grid solar home systems is an important advantage

(IRENA,2016).

Also thedecreasingpricesofPVmoduleshavemadeSHSa cost-effectiveoption for

thearoundsixhundredmillionAfricanswithoutapropergridconnection.Forinstance,

Kenyahasexperiencedaccelerated,market-baseddevelopmentinSHS,withavariety

ofhomesmakinguseofSHS,doublingoreventriplingbetween2010and2014.Yearly

expenses these days for off-grid lightning and mobile phone charging can range

between $ 84 dollars (e.g. Ethiopia) and $ 270 dollars (e.g. Mauritania) each year.

Comparing these amountswith alternative energy sources, one can clearly say that

SHSareaveryeconomicalalternative(IRENA,2016).

47

Furthermore, off-grid solar systems have resulted in lower transportation costs for

journeyscommittedtomobilephonecharging,whichcouldaddupto$25permonth

insomecases(IRENA,2016).AlsoLEDlightingimprovedthequalityofenergyfrom380

to400lightlumensasopposedtokerosenelampswhichexhibitaroundatenthoflight

lumens(IEA,2017).

AlsothePayGotechnologygaveoffachancetoreducetransactionandmanagement

costsonloanandenergyservicepayments,henceallowingcustomerfundingforloan

sizeswhicharemuchsmallercomparedtopreviouslypossible(IEA,2017).Thisuseof

consumer-levelfundinghadalwaysbeenknownasaseriouskeyfactorforimproving

poweraccessibilityofcash-poorcustomersparticularlyinruralareas(IEA,2017).

Health benefits of off-grid solar systems are also important to mention, as they

representacleanandnon-pollutantsourceofpowerasopposedtofossilfuellanterns.

Indoor air pollution caused through kerosene lamps and CO2 emissions have been

significantly reduced by users of off-grid SHS. Furthermore, nearby warehouse of

vaccines in solar operated refrigerators, prolonged length of evening health

companies,aswellassolar lightning forsafechilddeliveryareamongfurtherhealth

benefits(IEA,2015;Harun,2015).

For long periods, a lot of people, particularly in countryside places, happen to be

making use of kerosene and also firewood for lighting. Off-grid solar home systems

giveandenablestudentstocompletetheirhomestudyevenaftersunset.Moreover,

off-gridsolarpowerlightsimproveaccessibilitytotheeducativecourseinTVandradio

stationsandfostersocialgatherings(Harun,2015).

48

2.5.2Social-EconomicImpactofusingM-pesaSocialvalueGeneration:PriortoM-pesamanypeoplewouldhavetoresorttosending

moneywithsomeone(possiblyastranger)whowastravellingtotheirvillage.InKenya

38%ofpeopledidn’tuseanyformoffinancialservice;formal,semiformalorinformal

priortothe launchofM-pesawhileonly19%ofthepopulationhadaccesstoformal

financial services. National remittance is the main product offering of M-pesa.

Safaricompositionedtheproductasafast,safeandeasywayto‘sendmoneyhome’.

Theservicealsoenablesairtimepurchase,billpayment,ATMwithdrawalandpurchase

ofgoodsandservices.AtеnyеarstudybyNjuguna(2017)showsthatM-pesa’simpact

is immense. Its social valuе gеnеratеd by grеw from $0.85 million in 2007, to $1.7

millionbythееndofMarch2016.(Njuguna,2017).

WomenEmpowerment:M-pesaеmpowеringruralwomеn(usuallyrecipients)bеcausе

it makеs it еasiеr for thеm to solicit and gеt monеy from thеir husbands (usually

senders) and othеr contacts in Kеnyan citiеs. Rеmittancеs through M-pesa rеliеvе

womеn in ruralarеasof thеburdеnto travelbybus tocitiеs to rеcеivеmonеy from

thеirhusbands,aprocеssthatforsomеcouldtakеaslongasonеwееk.Transactions

made by urban senders arе usually small and are intended to support rural family

mеmbеrs financially. However, sometimes transactions happen also as lump sum

transfеrs, when big expenses arise, for example the payment of school fееs (World

BankGroup,2014).Bymakingsmallеrbutmorеfrеquеnttransfеrs,urbanmigrantson

avеragеarеsеndingmorеmonеyhomеthanеvеrbеforе.Thisrеprеsеntsasubstantial

boost for rural rеcipiеnts, for whom rеmittancеs can rеprеsеnt up to 70% of thеir

housеholdincomе(Bigman,2002).

Positive Change in Savings:M-pesa also rеsults in a positivе changе in savings. Thе

financial businеss diariеs rеvеal that many customеrs arе intеgrating M-pesa with

49

popular savings tools, such as bank accounts and informal savings clubs. Thе most

frеquеnt usеrs who keep financial diariеs wеrе making on avеragе 15 to 20 small

dеposits tothеirM-pesaaccountsеachmonth.Somеusеdthеsеsavingsto invеst in

thеir rural homе, for еxamplеbypurchasing cattleor building ahomе,whilеothеrs

transfеrrеdthеmonеyintobankaccountstoеarnsomеintеrеst(WorldBankGroup,

2014). Thеmobilе phonе is also thе prеfеrrеdmodеof savings in thе country,with

60%ofKеnyanshavingthеirsavingsinsеrvicеssuchasM-pesa,M-ShwariandKCBM-

pesa - a mobilе basеd bank account offеrеd еxclusivеly to M-pesa customеrs

(Vaughan,2008).

Poverty Eradication:M-pesa has liftеd 194,000 Kеnyan housеholds out of еxtrеmе

povеrtythrough2006-2016(Omwansa,2016).Asastakеholdеrgroup,M-pesaagеnts

еxpеriеncеdthеsеcondhighеstsocialvaluеfrom$2millioninthеyеarеndingMarch

2016.Thеnumbеrofagеntsincrеasеdfrom2,000in2007tomorеthan101,000atthе

еnd of March 2016 in Kеnya. M-pesa’s agеnts bеcomе thе grеatеst bеnеficiariеs,

еxpеriеncinganavеragеsocialvaluеof$134еachyеarinthеlasttеnyеars(Omwansa,

2016).

50

CHAPTER THREE: PAWAME LIMITED

3.1IntroductionPawame provides solar home systems (SHSs) and more to off-grid communities in

Africaonarent-to-ownbasis.Startingfromitsbase inKenyaPawameistacklingthe

still virtually untapped >$35b opportunity to electrify and serve over 600 million

peopleinsub-SaharanAfricathatdon’thaveaccesstogridpower(IRENA,2016;Todd,

2016). Pawamealsoaimstofosterfinancial inclusionincommunitieswherebanking

opportunitiesarelimitedandcredithistoryispracticallynon-existent.Theirproductis

not only cheaper, cleaner, and more convenient than traditional solutions, it’s also

transformational.

StartinginAugust2016,Pawamehasdeployedover4,000off-gridsolarhomesystems

till February2018andplans to sustainably reach20,000by theendof the year and

250,000by2021(Pawame,2017).BythetimeacustomerhaspaidoffaPawameSHS

systems (after about 18months), the company can profitably lease them other life

changingproductsandservicesthattheywouldusuallynotbeabletoaccessorafford.

The company also seeks to increase customers' financial resilience through micro

insuranceandtargetedloans,improvingtheirabilitytopay(Pawame,2017).

Pawame’svisionistobenotjustanenergyaccesscompanybutaconsumerproducts

and services company for the BOP, a trusted life partner for their customers and

becomeoneofthestrongestandmostrespectedbrandsinAfrica.CurrentlyPawame

isactiveinmorethantencountiesacrossKenyaandoperatesinremoteandfrontier

regions like Turkana, deemed inaccessible and unprofitable by competitors. Unlike

Pawame’s competitors, every kit is installed by a professional technician, customers

then receivea followup call to assess their levelsof satisfactionandare capableof

51

raisingquestions to the customer care team,whoare accessible sevendays aweek

(Pawame,2017).

Pawame’s SHS are built in Germany before an exclusive freight forwarding agent

delivers them to the central warehouse in Nairobi. From there, the kits are

transported to local storage units across the county so they can be sold and

distributed.

Theoff-gridsolarindustryiscapitalintensive;eachofSHShavetobepaidforupfront

withprofitsonlyrecoupedwhencustomersareinadvancedstagesoftheirrepayment

plan.FundraisingisthereforeakeyfocusforthecompanyandoneinwhichPawame

hasmadesignificantprogress.Withover$1.3millionraisedintheirsecondseedround.

Pawame envisages to complete its Series A round March 2018, where $8 million

should be raised. Series B will begin in August 2019 and the target is $3 million

(Pawame,2017).

3.2OriginsandPurposeAccordingtoPawame’sBusinessPlan(2017),Pawamewasbornfromacommonwillof

four founders. They had all roots in the Middle East and expertise in the Energy

industry.Allveryinterestedinthematter,theymetseveraltimesinRenewableEnergy

Conferencesaroundtheworld.Throughouttheirexchangesover4years,theyalways

had an aura of ambitionwhich drove them to collaborate in someway around this

passioninthefuture.Afterlearningaboutnewbusinessmodelsintheoff-gridspace,

oneoftheco-founders initiatedconversationsonstartingasocialenterprise.Finally,

theytoucheddowninKenyainApril2016tostartPawamewithoneclearpurpose:

52

“Tousetechnologytodramaticallyimprovethelivesofoff-gridcommunitiesandmake

ameaningfulcontributiontothesocialandfinancialinclusionofthesecommunitiesin

theglobalizedworld.”

Pawamehaschosenafor-profitmodelasthemosteffectiveandsustainablemeansof

achievingitsmissionandthestrategicgoals.Itsvisionarticulatesalong-term,credible

and aspirational end-state beyond the accomplishment of their mission. It is an

outcome to be reasonably expected as a result of Pawame (and other like-minded

enterprises)succeedingoverasustainedperiod.Itsvisionis:

“Aworldwhereruralcommunitiesparticipatefullyinthemarchofhumanprogress”

Thisvisionisbornof(a)arealisationthatwhilethetradeandtechnology-drivenglobal

economicgrowthofthepast50yearshasundeniablylefttheaveragehumanbeingfar

betteroff,thebenefitshavebeenunevenlydistributed,withurbancentersbenefiting

disproportionatelyandaccentuating theurban-ruraldivide;and (b)a conviction that

technologyisacriticalcomponentofthesolutiontorebalancethosebenefits.

3.3Pawame’sBusinessModelAccording toPawame’s2017BusinessPlan,Pawame’sbusinessmodel isbasedon2

pillars:

1. Capturing the customers by selling high-quality SHSs on an 18-month

repayment plan, with monthly repayments designed to equate to existing

monthlyexpenditureonKeroseneandmobilephonecharging.

2. Retainthecustomersbyestablishingatransformativeplatformofferingother

life changingproductsand services that theywouldnototherwisebeable to

afford. This isbasedonthefirm’sbeliefthat it isgoingtocreatea longterm

53

relationshipandstrengthentheircustomer’screditprofileover the18-month

repayment period. This way, Pawame will be able to expand the range of

products & services offered to the customers and upgrade them to new

productsandservices,stillunderthePayGomodel.

3.4OfferHigh-QualityandAffordableSolarHomeSystemPawame’s first and core product is a Solar Home System called PawaHome. The

PawaHomeisthebasisoftheplatformandwillbethestartingpointofanyadditional

offering to customers. Thus, it is extremely important for Pawame to continually

improvethequalityoftheconstituentpartsinordertogetthebest-in-classsolution,

which isbothreliableandaffordable.ThecurrentPawahomesystemiscomprisedof

the following components: a 12v Battery pack with 2 USBmobile charging ports, a

solarpanel,4xhighefficiencyLEDbulbs,aremotecontroldevice,atorchwithanin-

builtrechargeablebatteryandahighfrequencyFMradiowithrechargeablebattery

Thetotalpriceofthemanufacturedproductissetat$267,whichwillbepaidbackas

follows:

Figure3.1:PawaHomeSystem.Source:Pawame(2017)

54

● Ensure customerpaymentupfront ($30): Conduct initial credit assessment to

assessthecustomer’sabilityandwillingnesstopay,andcollect$30upfrontto

provehis/hercommitment.

● Buildpaymenthabitandcredithistory:Bycollectingdaily,weeklyormonthly

payments ($0,45 - daily, $3 - weekly, $12,50 - monthly) and progressively

buildingacustomer’screditprofile.

3.5Pawame’sPositioningPawamewas born from the intuition that there is space and demand for amiddle-

product.Thecompanyaimstobridgethegapbetweenthelowperformanceproducts

under$215andthepremiumstandardsproductsabove$400.Itstargetcustomersare

similartoM-Kopa,D-LightorSunking,eventhoughittriestoappealtotheupperend

of the market too. The general belief is that these customers are left with no

alternatives if theywant tobuyhigherqualityproducts, as they are still not able to

affordupperendproductslikethoseofBBoxorMobisol.

Pawame offers a higher quality and more durable product. This requires a longer

customerrepaymentperiodthanitscompetitors(18months),withouttheimpacton

thecustomer’sabilitytorepay(asdailypaymentsaresimilartoitscompetitors)

55

Figure3.2:Assessmentofappealrelativetoourcompetitors.Source:Pawame(2017)

Pawame’s strategy is to focus onbranding anddistributionby providing a customer

experience and creating an intimate link with the customer. Having established

intimaterelationshipswithsuppliersandasinglefreightforwardingagent,Pawameis

able tokeepcosts low.Futureplansof thecompanydon’t ruleout thepossibilityof

developingitsownSHS.

3.6Pawame’sStrengthandUniqueSellingProposition(USP)Pawame is at the forefront of a new wave of off-grid solar companies. Whereas

competitors have pursued sales at the expense of quality of service, Pawame has

developedabusinessmodelthatplacesthecustomerattheheartofeverythingthey

do.Pawameistheonlyplayerinthefieldthatistryingtoprovideapremiumproduct

andapremiumservicetothelowincomesegment.Furthermore,thecompanytriesto

bemorethanjustasolarenergyproviderbybeingacomprehensiveconsumerproduct

and services provider for the bottom of the pyramid and therefore a trusted life

56

partnerfortheircustomers.Pawamerelentlesslyfocusonunderstandingwhoaretheir

customers,whattheywantandhowtoreachthem.

PawamebelievesthatpeoplewholiveintheremotestandmosthostilepartsofAfrica

shouldnotbeexcludedfromthemarchofhumanprogress.Therefore, thecompany

hasrefineditsoperationsandlogisticalfunctionstoallowtheirsolarkitstobesoldin

frontiermarketsdeemedinaccessibleandunprofitablebyitscompetitors.Thismeans

thatPawame iswellplaced tosell theirproducts in regions thatare trulyoff-gridall

acrossAfrica.

ThecornerstoneofPawame’sstrategy is thedevelopmentofa trustedandenduring

brand. This brand building is undoubtedly a slow process that requires investment,

expertiseandobsessiveattention tomeetingcustomers’needsoverandoveragain.

Onceestablished,however,a strongbrand isoneof themostdefensibleand lasting

sourcesofcompetitiveadvantage.

The brand building process is multifold and consists of different elements: (1)

intimately knowing customer (2) designing a flawless and nuanced customer

experience(3)offeringaresponsive, friendlyandknowledgeableservice,availableat

anytime,tosupportthecustomerandmeethisorherneeds.Thecompany’sbeliefis

that this will translate into trust, loyalty and most importantly a strong positive

emotional connection to its brand. The rent-to-own plan for Pawame’s SHS ensures

thatPawamemaintainsadirectrelationshipwiththecustomerforatleast18months

andprovidesanaturalwindowofopportunitytoupgradethemtootherproductsthat

are currently offered or are under development. Many of these, such as micro

insuranceandremotehealthservicesandperhapsevenaproprietarymediaoffering,

lend themselves to open-ended fee-for-service arrangements that customers could

onlyaccessviathePAYGplatformbuiltintotheSHS.Offeringserviceagreementsand

57

extended warranty service on the kits themselves is another opportunity, as it is

allowingcustomerstorefinancethekitsandenableaccessotherproducts.

3.7AdvantagesofaPawame’sSHS

3.7.1CheaperPawame’sanalysis indicates that thecostof lightandphonechargingcanequate to

$188/yearforaKenyanhousehold.Bycomparison,thePawameSHSequatestoacost

of$164.peryear.All inall,Pawame’ssolution isaround15%cheaperforanoff-grid

householdandbringsalongmanyothersocialbenefitsasfollows:

3.7.2BetterLightingLEDlampsprovidedbyPawame’sSHSprovidesabrighter(100lumens)lightthanmost

KeroseneorDry-CellPoweredlightingoptions

3.7.3CleanerTheusageofaPawame’sSHSismuchcleanerandmoreenvironmentallyfriendlyand

incurs less waste than the use of either kerosene lamps or dry cell batteries.

Furthermore, the increase of solar power over kerosene leads to huge long term

healthbenefits.

3.7.4TransformativeBeyond the direct impact of providing a better energy source for the off-grid

household,theSHSisdesignedtohaveamuchwiderimpact,inparticularthroughthe

innovative Pay-GoModel. This model allows a customer to pay for a product on a

predefined period, through mobile payments or local collection when mobile

paymentsarenotavailable.Asaresult,individualscanaccessproductstheywouldnot

beabletoaffordwithoutthispaymentfacility.

58

3.7.5ConvenientBoth dry cell batteries and kerosene need to be regularly replaced and therefore

requiretheconsumerstomakeregulartripstosalespoints,whichcanbeofsignificant

distances from their household. Furthermore, in many off-grid communities’

consumershave to charge their phoneat communal chargingpoints. By centralising

energyaccessinoneappliancethatdoesnotdependonanexpendablefuelresource,

Pawame’sSHSoffersoff-gridconsumersahugepotential timesaving.What ismore,

Pawamecustomerscanalsousetheirbatteriestochargetheirneighboursphonesand

ask for a small fee ($ 0,10 per charging) comparable towhat theywould otherwise

needtopayincitycentreswhereelectricityisavailable

3.8BeingaFirstMoverinFrontierMarketsThe nature of the PayGo solar business model makes being a first mover in new

regionsasignificantcompetitiveadvantage.Witheachnewcustomer,Pawamemakes

acustomerunavailabletoitscompetitorsforat least18monthsandeffectivelyearns

‘rightoffirstrefusal’forextendingtherelationshipwithhimorher.

ThefirstwaveofSHScompaniesfocusedontherelativelywealthierandmoredensely

populatedmarketsofLakeVictoria,NorthernandSouthernRiftValleyandtheregions

surroundingMount Kenya. While Pawamehas forever lost the opportunity to be a

firstmoverintheseareas,theyareaimingtoexpandintotheuntouchedNorthernand

Eastern regions,alsoknownas theunderservedcounties.Pawamebelieves that this

approachwillyieldlong-termbenefits;theinitiallogisticalchallengeswillhelptorefine

its business model and leave Pawame well prepared to expand into frontier and

inaccessiblemarketsacrossAfrica.

59

3.9UntappedCapitalBaseThePayGoSolarindustryisextremelycapitalintensiveasthecostofinventoryneeds

to be purchased upfront and will only be recouped in the advanced stage of the

customers’repaymentplans.Thismeansthatthecapabilityforgrowthiscloselylinked

totheabilitytosecureadditionalsourcesofcapitalaswellashavingreadysourcesof

capitalcantranslatedirectlyintoacompetitiveadvantageinthemarketplace.

Thevastmajorityofthecapitalthathasflowedintotheoff-gridSHSindustrysinceits

inceptionhascomefromtheUSandEurope.Manypotentialinvestorsintheseregions

arelargelyunavailabletoPawameandotherlatermarketentrantsbecausetheyhave

alreadybeentappedbythefirst-waveplayers.

ThismakesPawame’slinkstotheMiddleEast,aregionwithampleprivateliquidity,a

valuable asset. All four of Pawame’s co-founders as well as its CEO have extensive

experienceandwide-rangingconnectionsintheGulf.MostofPawame’sinvestmentto

Figure3.3:TurkanaPawamesalesagentdemonstratingtheproducttolocalcommunitymembers.Source:Pawame(2017)

60

datehascomefromthisregionandthecompanyrecentlyreceivedstrongexpressions

ofinterestfromahandfulofrespectedGulfVC/PEplayers.

Itshouldbenotedhoweverthatwhile these investorscanbringcapital, theycannot

normallybringstrategicexpertiseintheformofknowledgeofthesocialimpactspace,

off-gridsolarindustryortheAfricanmarket.Asaresult,whiletheyarewillingtoco-

invest,theyarenotinmostcasessuitableleadinvestors.

3.10CreationofaPlatformforDiverseProducts/ServiceOfferingOnce Pawame has established a relationship with its customers through the

PawaHomesystem, thecompanyaimstostrengthenanddevelopthisconnectionby

offeringarangeofother transformationaland life-changingproductsandservicesat

affordableprices.Pawame’svision isnot tobe justanenergyaccesscompanybuta

consumerproductsandservicescompanyfortheBOP.Specifically,Pawameattempts

toretaincustomersthroughthequalityofitscorePawaHomesystemandatargeted

andexpanding lineofproductsbasedon indepthunderstandingofcustomerneeds,

ascertainedthroughdatacollectedoverthe18-monthrepaymentperiod.

Figure3.4:AfamilyobservestheinstallationofaPawaHomekitintheirhouse.Source:

Pawame(2017)

61

Furthermore, the establishment of a trusted relationship through its premium

customercareoffer,includingprofessionalinstallationsandproactivepostsalescheck-

upcallsshouldhelptoretainPawame’sexistingcustomerbase.

Whilecreatingthepipelineofproductsandservicestooffer,Pawameconstantlykeeps

in mind its strategic objectives which are impact, financial Inclusion and financial

performance.

Thepipelineforfutureproductscanbedividedintothefollowingthreecategories:

1. Financial services: building on the payment data that Pawame has collected

and aggregated it will be able to offer a suite of financial service to its

customers.

2. Additional appliances: Pawame already offers a TV SHS kit to customers and

planstoexpandthelineofappliancesthatitofferstocustomers

3. NetworkEnabledServices:Pawame intendstooffere-educationande-health

servicesaswell asmediaapplicationswithin itsproductportfolio in thenear

future

Figure3.5:Pawame’sproductdiversificationstrategy.Source:Pawame(2017)

62

CHAPTER FOUR: THE PROJECT

4.1IntroductionThe survey for this study was carried out in rural Kenya with particular focus on

counties thatPawameLtdhashadaccess in termsofconnectingruralpeopletooff-

grid solar systems. A descriptive research design was adopted whereby both a

qualitativeandquantitativeapproachwasappliedincollectingdatafromthefield.The

target population included rural people who had been connected to off-grid solar

systemsforatleastonemonth.Atotalofsixcountieswereselectedthroughpurposive

samplingtechniqueandtheyincludeBungoma,Kakamega,Kisumu,Siaya,Turkanaand

Uasin Gishu. From each of the six counties, the researcher randomly sampled 20

respondentsmakingatotalsamplesizeof120people.Theresearcherusedstructured

questionnaires for primary data collection from the consumers of the off-grid solar

systems in the six selected counties. Thequestionswere designed in amanner that

most of themwere closed-endedwith a few open-ended. The questionnaires were

administered by research assistants who were recruited and trained. The research

assistants were compiled sales agents of Pawame Ltd working in the study area.

Collected data was analyzed using the Statistical Package for Social Sciences (SPSS)

version 23.0. The findings are presented in form of frequency tables, charts, and

graphs.

4.2Analysis,PresentationandInterpretationoftheFindingsThe section comprises of the response rate of the respondents, demographic

information, evolution of off-grid solar system, how M-pesa has facilitated the

evolutionof theoff-grid solar industry in rural Kenya, the trendof theoff-grid solar

industry in rural Kenya, socio-economic impact of the off-grid solar industry in rural

63

Kenyaandthesocio-economicimpactofM-pesainfacilitatingevolutionandtrendof

theoff-gridsolarindustryinruralKenya.

4.3ResponseRateThe researcher targeted 120 respondents. However, 106 questionnaires were fully

filledandreturnedtotheresearchermakingtheresponseratetobe88.3%asshown

inTable4.1. Forgeneralization,MugendaandMugenda (2003)andNeuman (1997)

notedthataresponserateof50%isadequateforanalysisandreporting,60%isgood,

while70%andaboveisexcellent.Therefore,thisstudy’sresponserateof88.3%was

satisfactoryenoughandarepresentativeofthestudypopulation.

Countyofresident TargetSamplesize ActualResponse ResponseRate

Bungoma 20 20 100%

Kakamega 20 20 100%

Kisumu 20 18 90%

Siaya 20 17 85%

UasinGishu 20 16 80%

Turkana 20 15 75%

Total 120 106 88.3%

Table4.1:ResponseRate

64

4.4DemographicProfileoftheRespondentsTheresearchersoughttofindoutthedemographicinformationoftherespondentsin

order toascertain their suitability toundertake the study.Focuswason thegender,

age,maritalstatus,highestlevelofeducationandoccupationoftherespondents.

4.4.1GenderFindings on the gender distribution of the respondents indicate that 56% of the

respondentsweremalewhile44%werefemaleasshowninFigure4.1.Thisshowsthat

all genderwere included in this research thusprovidinga reasonable representation

forthestudy.

Figure4.1:Genderdistributionoftherespondents

4.4.2AgeFindingson theagedistributionof the respondents indicate thatmost (40.6%)were

31-40years, followedby thosewhowere21-30yearsat29.2%, then41-50yearsat

17.9%,51-60yearsat10.4%,andafew(1.9%)whowereabove60yearsasshownin

Figure4.2.Thesefindingsindicatethatallagegroupswerecoveredandrepresentedin

thisstudythustheinformationprovidedwasreliable.

65

Figure4.2:Agedistributionoftherespondents

4.4.3MaritalStatusTheresearcheralsosoughttoknowthemaritalstatusoftherespondentsinorderto

understand the accessibility and affordability of off-grid solar systems based on

people’s marital status. Findings in Figure 4.3 show that majority (83.0%) of the

respondents who were connected to off-grid solar systems in rural Kenya were

marriedpeople, followedbythosewhoweresingleat12.3%,thenafewwerethose

thatweredivorced,separatedorwidowed.Thesefindingsimplyoff-gridsolarsystems

areaccessibleandaffordabletomanypeopleinruralareasregardlessoftheirmarital

status.

Figure4.3:Maritalstatusoftherespondents

66

4.4.4HighestLevelofEducationOn level of education, most (38.7%) of the respondents had attained secondary

education, followedby25.5%whohadattaineddiploma leveleducation, then those

whohadattainedonlyprimaryeducationat15.1%,undergraduate(bachelors)levelof

education at 6.6%, and very few (0.9%) had attained postgraduate (masters) level

educationasshowninFigure4.4.Only1.9%oftherespondentshadnoeducationat

all. These findings imply that most of the respondents were knowledgeable hence

couldunderstandtheevolution,trendandsocio-economicimpactoftheoff-gridsolar

systemsontheirlife.

Figure4.4:Highestlevelofeducationoftherespondents

4.4.5OccupationLast but not least, the research sought to understand the occupation of the

respondentsthatenabledthemaffordtheoff-gridsolarsystems.FindingsinTable4.2

show thatmost of the consumers of the off-grid solar systemswere self-employed

personsat46.2%,followedbythosewhowerecarryingoutfarmingactivitiesat24.5%,

67

thenthosethatwereemployedintheprivatesectorat13.2%,civilservantsat12.3%,

andafewwhowereengagedinotheractivitiesasshownintable4.5.

Occupation Frequency Percentage

Self-employed 49 46.2

Farmer 26 24.5

Employed(private) 14 13.2

CivilServant 13 12.3

Hostelmanager 1 .9

HouseWife 1 .9

Pastor 1 .9

Others 1 .9

Total 106 100.0

Table4.2:Occupationoftherespondents

4.5EvolutionofOff-GridSolarIndustryinKenyaOff-gridsolarsystemsarecurrentlywidelyavailable inKenyaespecially inruralareas

where access to electricity is still a challenge. The researcher sought to understand

howoff-gridsolarsystemshaveevolvedinKenyaovertime.

68

4.5.1SourcesofEnergyUsedbeforetheOff-GridSolarEnergyTostartwith,theresearchersoughttounderstandthevarioussourcesofenergythat

were used for lighting before acquiring off-grid solar energy systems. Findings

presentedinFigure4.5indicatethatmajority(41.5%)oftheusersoftheoff-gridsolar

systemsusedtinlamps(kerosenelamps)beforetheintroductionoftheoff-gridsolar

systems.Othersusedelectricity(18.9%),lanterns(18.9%),firewood(4.7%),andtorch

(1.9%). The findings also indicate that 14.2% of the respondents had usedmultiple

sourcesofenergybeforetheintroductionoftheoff-gridsolarsystems.

Figure4.5:Sourcesofenergyusedforlightingbeforetheintroductionoftheoff-gridsolar

systems

4.5.2TheIntroductionoftheOff-gridSolarEnergyinRuralKenyaThe customers of off-grid solar systems were asked to indicate the year they first

heardoftheoff-gridsolarsystems.Studyfindingsindicatethatmajority(68.8%)ofthe

customersoftheoff-gridsolarsystemsheardabouttheproductsbetweenthecurrent

decade (2011 – 2018), followed by some (26.4%) who heard about off-grid solar

69

systemsinthepreviousdecade(between2001–2010),thenafew(4.8%)whoheard

aboutittwodecadesago(1991–2000)asshowninTable4.3.

Yearrespondentsfirstheardofoff-gridsolar

system

Frequency Percentage(%)

2011-2018 73 68.8

2001-2010 28 26.4

1991-2000 5 4.8

Total 106 100.0

Table4.3:Theyeartherespondentsfirstheardoftheoff-gridsolarsystems

Literature review reveals thatoff-grid solar industrywas first introduced inKenyaat

thebeginningof the20th century.However, as yearswentby,morepeoplebecame

awareoftheoff-gridsolarenergyhencetheincreasedaccessibilityandaffordabilityin

thelastdecade(2011–2018).Thiscouldbeduetoadvancedtechnologyandreduced

pricinginthesolarenergyindustryandemergenceofoff-gridsolarenergycompanies

whoseworkistoconnectasmanypeopleaspossibletotheirproducts.Forexample,

M-kopawas introduced inKenya in2011but ithasconnectedmanypeople (around

600.000systems-by31.12.2017)tooff-gridsolarsystemsespecially inWestern,Rift

Valley and Nyanza regions of Kenya. In addition, the introduction ofmobilemoney

platformlikeM-pesain2007hasfacilitatedtheconnectivityofmanypeopleespecially

inruralKenyatotheoff-gridsolarsystems.

4.5.3TheYearUsersBoughtOff-gridSolarSystemsTheresearchersoughttounderstandtheexactyeartherespondentsacquiredtheoff-

gridsolarsystems.StudyfindingsshowninTable4.4indicatethatmost(83.0%)ofthe

70

customersoftheoff-gridsolarsystems inruralKenyahadboughtthesystems inthe

last three years (2016 – 2018), followed by 12.3% who bought the off-grid solar

systemsbetween2011–2012,andafew(4.5%)whohadacquiredtheoff-gridsystem

between 2000 – 2010. These findings imply that the off-grid solar industry started

diversifyingitsmarketfrom2010byreachingasmanypeopleaspossibleespeciallyin

ruralKenya.ThiscouldbeduetothefactthatmorecompaniescameintotheKenyan

market hencemore investment wasmade andmore off-grid solar energy products

werebroughtintothecountry.

The year users bought the off-grid solar

systems

Frequency Percentage

2016-2018 88 83.0

2011-2015 13 12.3

2006-2010 3 2.8

2000-2005 2 1.9

Total 106 100.0

Table4.4::Theyearusersboughttheoff-gridsolarsystems

4.5.4UseoftheOff-gridSolarSystemsintheNextFiveYearsLastbutnotleastontheevolutionoftheoff-gridsolarenergy,theresearchersought

to establish the likelihood that the users of the off-grid solar serviceswill use solar

energy systems in the next five years. From the findings in Figure 4.6, slightlymore

thanhalf(52.8%)indicatedthattheywillbe‘verylikely’tousesolarenergysystemsin

71

thenextfiveyears, followedby32.1%whosaidtheywillbe ‘likely’usethemforthe

next fiveyears,12.3%werenotsure,whilevery few(2.8%)wereunlikelytouseoff-

gridsolarenergysystemsforthenextfiveyears.

Figure4.6:Likelihoodofusingsolarenergyinthenextfiveyears

Generally, findings inFigure4.6showmajority (84.9%)are likelytouseoff-gridsolar

systemservicesforthenextfiveyearscomparedtoafew(15.1%)whowerenotsure

orunlikelytousethemforthenextfiveyears.Thesefindingsimplythatoff-gridsolar

systemshavepositivelyimpactedonpeople’slifeespeciallythoseinruralareashence

the assurance from them that they are likely to use them for the next five years.

Therefore, reaching asmany people as possible people especially in rural areas and

connectingthemtooff-gridsolarsystemsisatremendousinvestmentcurrentlywitha

promisingfuture.

Therespondents(15.1%)whoindicatedthattheywerenotsureortheywereunlikely

touseoff-gridsolarsystems in thenext fiveyearswereaskedtogive reasons.Their

responses were equally spread among the following reasons: the introduction of

electricity, frequent breakdown of the off-grid solar systems hence unreliable, the

72

government’s promise of availing electricity soon, and that off-grid solar energy

services are not trustworthy. Therefore, these reasonsneed to be addressedby the

off-gridsolarenergycompaniesinordertoenhancethelikelihoodofcustomersusing

off-gridsolarservicesforthenextfiveyearsandevenmore.

4.6Thetrendoftheoff-gridsolarindustryinKenyaTheresearchersoughttoestablishthetrendoftheoff-gridsolarindustryinKenya.To

achievethis,theresearcherdesignedfivestatementstoanalysethetrendoftheoff-

gridsolarindustryinKenyaandaskedtherespondentstoindicatetheextenttowhich

theyagreeordisagree.TheirresponseswereasshowninTable4.5.

StatementaboutthetrendoftheOff-grid

solarindustryinKenya

Responses

SA A N D SD Total

Solar Systems are very affordable

compared toother sourcesof energy

forlightinglikeelectricity

N 73 28 4 1 0 106

% 68.9 26.4 3.8 .9 0.0 100.0

Sola Systems is very effective in

lighting and using it for simple

appliances like TV, Radio andMobile

Phones

N 50 45 8 1 2 106

% 47.2 42.5 7.5 .9 1.9 100.0

Manypeople especially in rural areas

are likely to purchase off-grid solar

systemsinthenearfuture

N 64 33 8 1 0 106

% 60.4 31.1 7.5 .9 0.0 100.0

73

If Solar Energy Industry move with

speed, it is likely to connect more

people compared toother sourcesof

energylikeelectricity

N 61 35 8 2 0 106

% 57.5 33.0 7.5 1.9 0.0 100.0

Solar energy will soon be the main

sourceofenergyforlightingformany

peopleinruralarea

N 53 28 20 4 1 106

% 50.0 26.4 18.9 3.8 .9 100.0

Table4.5:ThetrendoftheOff-gridsolarindustryinKenya

FromthefindingsinTable4.5,themajority(atleast75%)oftherespondents‘strongly

agreed’and‘agreed’toallthestatementsthatwereprovidedinthetablewithregard

to the trend of the off-grid solar industry in Kenya. The customers generally agreed

and appreciated that off-grid solar systems are very affordable compared to other

sourcesofenergy for lighting likeelectricity.Theyalsogenerallyagreed thatoff-grid

solar systemsareveryeffective in lightingandusing it for simpleappliances likeTV,

radioandmobilephones.Further,theygenerallyagreedthatmanypeopleespecially

inruralareasarelikelytopurchaseoff-gridsolarsystemsinthenearfutureandthatif

solarenergyindustrymoveswithspeed,itislikelytoconnectmorepeoplecompared

toothersourcesofenergylikeelectricity.Thecustomersascertainedthatsolarenergy

willsoonbethemainsourceofenergyforlightingformanypeopleinruralareas.All

these findings show that the off-grid solar industry is penetrating into the energy

market as a source of energy that is affordable, reliable, and efficient especially in

lighting and for householdelectronic appliances such as radios, TVs,mobilephones,

amongothers.Withthistrend,especiallyinacompetitivemarket,therearesignsthat

theoff-gridsolarindustryisadvancingveryfastinKenya.

74

4.6.1ProbabilityofPurchasingOtherAppliances/ServicesThis study sought to establish whether the users of the off-grid solar systems are

willing tobuyother appliances in addition to their off-grid solar systems. Therefore,

respondentswereaskedtoindicatewhethertheyneed,orhavepurchased,ordonot

need some appliances and services like TVs, Health Insurances, cash loans, water

pumps, water tanks, fridges, jikos (charcoal-burning stove used for cooking) and

mobilephones.Theresearcherwasparticularlyinterestedinestablishingtheproducts

thattheusersofoff-gridsolarproductswouldliketobuy.Thefindingsarepresented

inTable4.6.

Product Iwouldbuy

thisproduct

Ihavethis

productalready

Idon'tneedthis

product

Total

TVupgrade N 68 31 7 106

% 64.2 29.2 6.6 100.0

Health

Insurance

N 64 21 21 106

% 60.4 19.8 19.8 100.0

Cashloan N 67 14 25 106

% 63.2 13.2 23.6 100.0

Waterpump N 40 10 56 106

% 37.7 9.4 52.8 100.0

Watertanks N 69 32 5 106

75

% 65.1 30.2 4.7 100.0

Fridge N 43 11 52 106

% 40.6 10.4 49.1 100.0

Jiko N 60 32 14 106

% 56.6 30.2 13.2 100.0

Mobilephone N 36 61 9 106

% 34.0 57.5 8.5 100.0

Table4.6:Productsusersofoff-gridsolarenergyhave,orwouldliketobuy,ordonotneed.

Table 4.6 above shows thatmost of the users of the off-grid solar systems (at least

55%)wouldliketobuyTVupgradepackage,healthinsurance,cashloan,watertanks,

and jikos. Also, 37.7% of the users of the off-grid solar systems would like to buy

fridges,37.7%would liketobuywaterpumps,while34.0%would liketobuymobile

phones.Generally, these findings imply thatmost users arewilling to upgrade their

systems to TV packages and also buy other appliances. As a result it can be further

interpretedthatthebusinessmodelofupsellingandprovidingfutureproductsusedby

off-gridsolarcompaniesisratified.

4.7FacilitationofMobileMoneyPlatformintheEvolutionandtrendoftheOff-GridSolarIndustryinRuralKenyaM-pesahashighlycontributed toeasydeliveryofvariousservicesboth in thepublic

and private sectors. One of the sectors that M-pesa has worked effectively is the

financial sector. Through mobile money platforms, payment for products has been

76

madeeasierwith improved securityon loss and theftofmoney.On this regard, the

researchersoughttoexaminehowM-pesahasfacilitatedintheevolutionandtrendof

theOff-grid solar industry in rural Kenya and its socio-economic impact on people’s

life.

4.7.1HowOftenM-pesaisusedtoPayforOff-gridSolarSystemsTheusersoftheoff-gridsolarsystemswereaskedtoindicatehowoftentheyuseM-

pesatopayfortheirOff-gridsolarsystems.FindingsshowninTable4.7indicatethat

53.8%oftheusersofoff-gridsolarsystemsuseM-pesaonceamonthtopayfortheir

products, 14.2%use it once aweek, 14.2%use it several times aweek, 9.4%use it

daily,4.7%useiteverytwoweeks,while3.8%neveruseM-pesatopay.Thesefindings

indicate that M-pesa is highly used by users of off-grid solar systems to make

payments, an indication that M-pesa is highly contributing to connectivity of many

peopleinruralKenya.TheuserswhoindicatedthattheyneveruseM-pesainpaying

for the off-grid solar systems could be those who bought the system one-off and

thereforedonottakepartintherepaymentscheme.

HowoftenrespondentsuseM-pesatopay

fortheirOff-gridsolarsystem

Frequency Percentage(%)

Never 4 3.8

Daily 10 9.4

Severaltimesaweek 15 14.2

Onceaweek 15 14.2

Everytwoweeks 5 4.7

77

Onceamonth 57 53.8

Total 106 100.0

Table4.7:HowoftenrespondentsuseM-pesatopayfortheirOff-gridsolarsystem

4.7.2AccessibilityofM-pesaAgentsTheresearcherwantedtounderstandhowfarusersoftheoff-gridsolarsystemstravel

toaccessanearestbankbranchorM-pesaagent.Findings inTable4.8 indicate that

majority (90.6%)of theusersof theoff-grid solar systemsare5kmor less fromthe

nearestbankbranchorM-pesaagent.Inparticular,45.3%oftheusersindicatedthat

theyarelessthan1kmawayfromthenearestbankbranchorM-pesaagent,another

45.3%arebetween1–5kmaway,7.5%are6–10kmaway,whileveryfew(1.9%)are

morethan10kmawayfromthenearestbankbranchorM-pesaagent.Thesefindings

clearlyshowthatM-pesaserviceshavebeenmadeeasilyaccessibleeventoruralareas

in Kenyahence theeffective facilitationof theevolution, trendanddevelopmentof

theoff-gridsolarindustry.

Distance to the nearest bank branch or M-pesa

agent

Frequency Percentage

(%)

Lessthan1km 48 45.3

Between1-5km 48 45.3

Between6-10km 8 7.5

Between11-20km 1 .9

78

Between21-50km 1 .9

Total 106 100.0

Table4.8:DistancetothenearestbankbranchorM-pesaagent

Tomeasure the effectiveness ofM-pesa services in the evolution, development and

trendoftheoff-gridsolarindustry,theusersoftheoff-gridsolarsystemswereasked

to indicatehoweffective isM-pesa inpaying foroff-grid solarenergysystems.Their

responseswereaspresentedinFigure4.7.

Figure4.7:EffectivenessofM-pesaservicesinpayingfortheoff-gridsolarsystems

Findings shown in Figure 4.7 indicate that the majority (67.0%) of the respondents

agreed thatM-pesa serviceshavebeenveryeffective inpaying for theoff-grid solar

systems,23.6%saidtheyhavebeeneffective,4.7%saidtheyhavebeenjusteffective,

2.8%saidtheyhavenotbeeneffective,whileveryfew(1.9%)saidtheyhavebeennot

effective at all. Cumulatively, 90.6% of the respondents ascertained that M-pesa

serviceshavebeengenerallyeffective.ThisimpliesthatmostKenyansregardM-pesa

asanappropriatetooltopayfortheirSHSsandvaluethepossibilityofpayingbackin

instalments.Kenyanswhovoted foreither ‘non-effective’or ‘noteffectiveatall’ are

79

mostlikelylocatedinareaswithpoornetworkconnection,wheretheyhavetotravel

toanofficialM-pesaagentoralocationwithnetworkcoverageeverytimetheymake

apayment.

4.7.3TheFutureoftheOff-gridSolarIndustryandM-pesaForfuturepurposes,theresearchersoughttofindoutwhetherusersofoff-gridsolar

systems thoughtM-pesawillmakemanypeople in rural areasget connected tooff-

grid solar systems. From their responses, 54% agreed that that through accessibility

anduseofmobilemoneyplatforms(M-pesa),manypeopleinruralKenyaaregoingto

beconnected to theoff-grid solarenergy.However,44%of theusersof theoff-grid

solarsystemswerenotsurewhetherthroughM-pesa,manypeople inruralareaare

goingtobeconnectedtooff-gridsolarsystemsornot,while2%ofthemdisagreedas

showninFigure4.8.ThesefindingsimplythatM-pesaisamajordrivingforcebehind

connectingmanypeopletooff-gridsolarsystemsespeciallyinruralareas.Competition

from othermobilemoney platforms in Kenya like AirtelMoney and introduction of

bankagents in rural areas couldbe the reasonwhy44%of theusersof theoff-grid

solarsystemswerenotsurethatmanypeopleinruralareaaregoingtobeconnected

tooff-gridsolarsystemsthroughM-pesa.

Figure4.8:WhetherthroughM-pesamanypeopleinruralareaaregoingtobeconnectedto

off-gridsolarsystems

80

The researcher went further and asked the respondents to give reasons why they

acceptedthatthroughM-pesamanypeopleinruralareaaregoingtobeconnectedto

off-grid solar systems. The reasons given can be summarizedwith themajor reason

being that use ofM-pesa in paying for the off-grid solar systems is convenient, i.e.

easy,affordable,andsecure.

4.8Socio-economicImpactofM-pesainOff-gridSolarIndustryinKenyaThe researcher sought to establish the socio-economic impact of mobile money

platform (M-pesa) in facilitating evolution and trend of the off-grid solar industry in

ruralKenya.InaLikertscaleof1–5where1=stronglydisagreeand5=stronglyagree,

theusersoftheoff-gridsolarsystemwereaskedtoindicatetheextenttowhichthey

agreedordisagreedtothelistedstatementswithregardtosocio-economicimpactof

themobilemoneyplatform(M-pesa)infacilitatingtheevolutionandtrendoftheoff-

gridsolarindustry.ThefindingsareshowninTable4.9.

Statementaboutthethesocio-economicimpactof

mobilemoneyplatform(M-pesa)

Responses

SA A N D Total

Through use of M-pesa in paying for Solar

Energy Systems, I have saved a lot of

transportationcosts.

N 86 15 3 2 106

% 81.1 14.2 2.8 1.9 100.0

Use of M-pesa is very secure when making

payments compared to paying cash due to

theftormoneylost

N 68 34 4 0 106

% 64.2 32.1 3.8 0.0 100.0

81

ThroughM-pesa, am or Iwas able to pay for

Solar Energy systems in instalments hence

makingitaffordablethanwhenpayingcashat

once

N 74 22 9 2 106

% 69.8 19.7 8.5 0.9 100.0

Duetomobilemoneybanking(M-pesa),there

issocialandfinancial inclusionofallpeoplein

paying for various services especially in rural

areas e.g. paying solar energy systems is now

cheapandaffordabletoallpeople.

N 62 35 9 0 106

% 58.5 33.0 8.5 0.0 100.0

Table4.9:Socio-economicimpactofmobilemoneyplatform(M-pesa)infacilitatingevolutionandtrendoftheoff-gridsolarindustry.

FromTable4.9,themajorityoftherespondents(at least84%)‘agreed’and‘strongly

agreed’that:theyhadsavedalotoftransportationcostsbecauseoftheuseofM-pesa

in paying for solar energy systems; use of M-pesa is very secure when making

paymentscomparedtopayingcashduetotheftorlossofmoney;M-pesahasenabled

themtopayforsolarenergysystems in instalmentshencemaking itaffordablethan

when paying cash at once and that there use of M-pesa has enhanced social and

financial inclusionofallpeopleinpayingforvariousservicesespeciallyinruralareas.

These findingsascertain thatuseofM-pesahasahighlypositive impactonpeople’s

life.Most(44.3%)oftheusersoftheoff-gridsolarsystemsconfirmedthattheysavean

averageofKshs100–500permonth,24.5%saveKshs501–1000permonth, 4.7%

saveKshs1001–5000permonth,8.5%savelessthanKshs100permonth,while0.9%

saveaboveKshs5000permonthduetouseM-pesa inmakingtransactions fortheir

off-gridsolarsystems(asshowninTable4.10).Thisshowshowthepositiveeconomic

impact of M-pesa on people’s life and assures that customers of the off-grid solar

82

industry effectively save money compared to their previous incurred expenditures

(mobilecharging,alternativelightingsources,transportationcosts).

Average monthly savings

(Kshs)

Frequency Percentage(%)

Nosavings 18 17.0

Lessthan100 9 8.5

100-500 47 44.3

501-1000 26 24.5

1001-5000 5 4.7

Above5000 1 .9

Total 106 100.0

Table4.10:Averagemonthlysavings(Kshs)

According to this study’s findings, money saved due to use of M-pesa in making

transactionsfortheiroff-gridsolarsystemsisutilizedinotheractivitieslikeinvestingin

businesses, buying food for their families, off-setting other bills like rent andwater,

paying school fees for children, investing in agricultural activities, paying the

instalments of theoff-grid solar systems, amongothers. This showshow sociallyM-

pesahaspositivelyimpactedonpeople’slifeespeciallyinruralareas.

83

4.9Socio-EconomicImpactoftheOff-gridSolarIndustryinRuralKenyaLastbutnotleast,theresearchersoughttoestablishthesocio-economicimpactofthe

off-grid solar industry in rural Kenya. Users of Off-grid Solar System were asked to

indicate the extent towhich they agreed or disagreed to the statements thatwere

listed with regard to socio-economic impact of the off-grid solar industry in rural

Kenya.FindingswereasshowninTable4.11.

Statementaboutthethesocio-economicimpact

ofoff-gridsolarsysteminruralKenya

Responses

SA A N D Total

Through solar energy home system, am

connectedtotheworldthroughwatchingTV

andlisteningtoRadio

N 70 28 3 5 106

% 66.0 26.4 2.8 4.7 100.0

Solar energy systems have reduced air

pollution since I no longer use sources of

energy thatemita lotof smoke thatpollute

air.

N 65 30 10 1 106

% 61.3 28.3 9.4 0.9 100.0

By using Solar Energy systems, I no longer

inhale toxic gases emitted from energy

generatedfromfossilfuels.

N 69 26 7 4 106

% 65.1 24.5 6.6 3.8 100.0

Solar energyhas enhanced security in home

compoundduetosufficientlightingincluding

securitylights.

N 44 44 15 3 106

% 41.5 41.5 14.2 2.8 100.0

84

I feelmyhouseholdhasexperienceda good

developmentsinceIownthesolarsystem

N 63 29 11 3 106

% 59.4 27.4 10.4 2.8 100.0

Evolution of solar energy has created

employment opportunities because there

many people employed in companies in the

SolarEnergyIndustry

N 76 22 7 1 106

% 71.7 20.8 6.6 .9 100.0

Manufacturingandgeneratingsolarenergyis

less expensive than manufacturing and

generating other sources of energy like

electricity

N 59 33 13 1 106

% 55.7 31.1 12.3 .9 100.0

Use solar energy systems saves a lot of

money homes or buildings compared to

electric bills incurred when using energy

generated from fossil fuels like geothermal

power.

N 71 30 5 0 106

% 67.0 28.3 4.7 0.0 100.0

Use of solar energy saves transportation

costs incurred when acquiring and using

energy generated from fossil fuels like

geothermal power e.g. paying for mobile

phone charging in city/town centres,

transport involved to and from

city/town/market centres, kerosene costs or

payingforotherlightingsourcesliketorches

N 66 24 13 3 106

% 62.3 22.6 12.3 2.8 100.0

Table4.11:Socio-economicimpactofoff-gridsolarsysteminruralKenya

85

FromTable4.11,themajorityoftheusersoftheoff-gridsolarenergysystemsagreed

thattheproductshaveatremendoussocio-economicimpactonpeople’slifeespecially

inruralKenya.Forinstance,majority(92.4%)oftherespondents‘agreed’and‘strongly

agreed’ that off-grid solar systems enable many people get connected to what

happensallover theworld throughmainstreammedia like radiosandwatchingTVs.

Forexample,inKenya’s2017generalelection,mostruralpeoplereliedonradiosand

TVs in receiving information on the election progress before and after results were

released. Also, the electoral body and the government relied on radios and TVs in

informingruralpeopleabouttheelectoralprocessbeforeandafterelection.

Furthermore,fromthestudy’sfindings,89.6%oftheusersoftheoff-gridsolarsystems

‘agreed’and‘stronglyagreed’thatbyusingsolarenergysystems,theynolongerinhale

toxicgasesemittedfromenergygeneratedfromfossilfuelslikekerosene.Also,89.6%

of the users of the off-grid solar agreed’ and ‘strongly agreed’ that solar energy

systems have reduced air pollution since they no longer use sources of energy that

emita lotofsmokethatpolluteair.Gases likecarbonmonoxidethatareemittedby

other sourcesofenergy like keroseneand charcoal areunhealthywhen inhaledand

causedeath.Therefore,solarenergyeliminatestheriskof inhalingsuchgaseshence

improvingpeople’shealth.

Off-gridsolarenergyindustryhasalsoempoweredmanypeopleeconomicallythrough

savingsmadeoutofitsaffordabilitycomparedtobeingconnectedtothepowergrid.

Thisisbecausetherearenoelectricbillstobepaidmonthly.Fromthestudyfindings,

95.3%oftheusersoftheoff-gridsolarsystemsindicatedthatusesolarhomesystems

save a lot ofmoney in homes or buildings compared to electric bills incurredwhen

usingenergygeneratedfromfossilfuelslikegeothermalpower.Thesesavingscouldbe

usedforothertopayforotherbillslikerent,water,schoolfeesforchildren,buyfood

stuffsforthefamilyamongothers.

86

Also, off-grid solar energy industry has created employment opportunities to many

peoplewhoareworkingintheindustryassalesagent,technicians,salesmanagersor

shop and kiosk managers. These people’s living standards have improved by

generatingasourceofincomeforthem.

Thefindingsintable4.11alsoindicatethatsecurityinruralareashasbeenenhanced

throughsecuritylightingsinpeople’shomes.Intrudersthatcouldbetargetinghomes

aredeterredbythepresenceofsecurity lights intheruraloff-gridhomes.Therefore

safety isenhancedthroughminimizinghidingspotsand increasingphysicaldetection

of the intruders. In addition,membersof the family, especially children andwomen

feelsaferwithsecuritylightsintheirhomes.

87

5.ChapterFive:CONCLUSION

Thispaperfocussedonanalysingthesocio-economic impactofoff-gridsolarsystems

onpeople’s life especially through the facilitationof themobilemoneyplatformM-

pesa.ParticularconcentrationwasontheruralpopulationofKenyaandtheuseofM-

pesa in facilitating connectivityof people tooff-grid solar systems. Pawame Ltdwas

thecasestudy.Thestudy’sobjectivesweretoanalysehowtheoff-gridsolarindustry

hasevolvedover time,howM-pesahas facilitatedtheevolutionof theoff-gridsolar

industryanditssocio-economicimpact,thetrendoftheoff-gridsolarindustryandthe

socio-economicimpactoftheoff-gridsolarindustryinruralKenya.

Themotivationof this studywas from the fact thatmanypeople, especially in Sub-

Saharan Africa, live without access to electricity yet there is existence of modern

technology that provides accessible and affordable solutions. Themajority of these

people live in rural areas where the electrification rate is low due to poor

infrastructure, inadequategovernmentsupportandfinancial instabilityofmanyrural

people to cover capital and operating costs for generation, transmission and

distribution. Kenya is among the countries in Sub-Saharan Africa facing energy

dilemmas. Limited access to electricity for households, particularly in rural areas as

well as frequent power blackouts has led to a shift tomodern alternatives. One of

them are so called off-grid solar systems that are easily accessible and affordable

becauseofoftheadoptionofthePAGOtechnology.

Various recent empirical studies have revealed that rural electrification, from solar

power inparticular,hashelped insocio-economicdevelopmentofmanycountries in

several ways. A study by Harun (2015) on ‘the role of solar home systems (SHS) in

socio-economicdevelopmentofruralBangladesh’formedtheempiricalcontextofthis

88

study.Similar tothisstudy,Harun(2015) focussedthesocio-economic impactofoff-

grid solar systems in rural set-ups. They include improved household conditions for

education, health, household work, access to information, communication,

entertainmentandperceptiononsafetybringaboutradicalchangesinthetraditional

social life and quality of live of rural people. At the same time, a large number of

people not owning an off-grid solar system benefited indirectly from visiting

households with SHS to watch TVs, listen to radio, charge their mobile phone and

laptops,andgetstudyingfacilities.Therefore,Harun’sstudypointedoutvarioussocio-

economic developments that have taken place in rural areas as a result of the

introductionoftheoff-gridsolartechnology.Inaddition,itwaslearntthatsolarenergy

iswidelyperceivedasapromisingtechnologyforelectricitygeneration inruralareas

especiallyindevelopingcountries.

A descriptive research design was adopted in collecting primary data. The target

populationwasusersoftheoff-gridsolarsystemsinthreeregionsofKenya(Nyanza,

Western, and North Rift Valley) where Pawame Ltd has created market networks.

Questionnaires were primarily used to collect data from the field and statistical

analysiswasconductedusingtheSPSSsoftwareversion23.0.

Theresearcherhasexperiencedthesocio-economicimpactofoff-gridsolarsystemsas

wellasM-pesathroughouthisemploymenttimeatPawameLtdKenya.AstheDeputy

SalesDirectortheresearcher’smaintasksincludethedevelopmentofsalesstrategies

as well as processes and to drive sales growth for the company. Furthermore,

recruitmentofahighlyeffectivesalesforceontheground,trainingactivitiesaswellas

performance measurement to maximise talent effectiveness were among the main

dutiesoftheresearcher.Mostoftheseactivitiesrequiredtheresearchertotravelona

regular basis to Pawame’s customer base in rural Kenya. During those visits the

89

researcherexperiencedon first-handhow impactfuloff-grid solar systemsaswell as

mobilemoneypaymentplatformscanbeanddecidedtomakeittopicofhisthesis.

Thestudyfoundthatbeforetheintroductionoftheoff-gridsolarsystems,mostpeople

in rural Kenya used tin kerosene lamps, while some used lanterns, firewood and

torches. The number of people who first heard about off-grid solar home systems

increased gradually over time and quite a number of people in rural Kenya have

boughtoff-gridsolarsystemsfrom2010onwards.

The study also concludes that M-pesa was found to be the driving force behind

successfulconnectivityofmanyruralpeople inKenyatooff-gridsolarsystems.Most

users of off-grid solar systems in Kenya use M-pesa either daily, weekly or once a

month in making instalment payments for their products. Further, M-pesa has

minimized transportation costs due to the possibility of transferringmoney through

textmessagesandbeingabletochargemobilephonesathome.Subsequently,theuse

ofM-pesahasledtosocialandeconomicbenefitsaswellasfinancial inclusionwhen

payingforvariousservicesespeciallyinruralareas.

One of the social benefits among the study under research found that solar home

systems have enabled rural people to be connected to what is happening locally,

nationally,regionallyandinternationallythroughwatchingTVandlisteningtoradio.It

further found that solar energy systems have helped in reducing air pollution since

people no longer use sources of energy that emit pollutants like smoke and toxic

gases.Furthermore,havingsolarenergysystems in thehouse isconsideredbysome

peopleassocialdevelopmentsincetheyhelp insocialevents likeentertainmentand

otherleisureactivities.Economically,theevolutionofsolarenergyhasledtocreation

90

ofemploymentopportunitiesbecause theremanypeopleemployed inoff-grid solar

companies.

Inadditiontoconnectingruralpeopletooff-gridsolarsystems,thestudyfoundthat

usersoftheoff-gridsolarsystemsarewillingtobuyotherproductssuchasupgrading

TVs,water tanks,water pumps, fridges, jikos,mobile phones, health insurances and

cashloans.Thisisvalueadditionespeciallytotheoff-gridsolarenergycompaniesand

ratifies also their businessmodels with the aim to establish long-term relationships

withcustomers.

Fromthestudyfindings,itiscrystalclearthatoff-gridsolarsystemsareacceptableas

thebestenergyalternativethatareaccessibleandaffordablecomparedtopowergrid

systemshencetheneedtoconnectmoreruralpeopletooff-gridsolarsystems.Thisis

similar to most of the literature which points out that off-grid solar energy is

affordable and easily accessible. The socio-economic impact of the off-grid solar

systemsonpeople’slifeespeciallyinruralareasismassive.Thispositivelycontributes

tothedevelopmentamongruralpeoplewhichinturnbenefitseconomicgrowthofthe

country.AsnotedbyGlobalNetworkonEnergyforSustainableDevelopment(GNESD,

2007),withoutadequatesuppliesofaffordableenergy,itisdifficulttoimprovehealth,

educationandreductionofpoverty.Renewableenergysources liketheoff-gridsolar

industry is helping in that regard and positively contributes to the development of

ruralcommunities.

91

REFERENCES Bigman.D.2002.GlobalizationandthеDеvеlopingCountriеs:ЕmеrgingStratеgiеsfor

RuralDеvеlopmеntandPovеrtyAllеviation.Retrievedfrom

http://www.sonpikap.com/globalization-and-the-developing-countries.pdf

BRECSU.2001.Solarhotwatersystemsinnewhousing–amonitoringreport.

EnergyEfficiencyBestPracticeProgrammeGeneralInformationReport88.Watford,

UK:BRECSU.

Buku,M.W.,&Meredith,M.W.2013.MobileMoneySymposium2013.Washington

JournalofLaw,Technology&Arts,8(3).

Bushaway,R.W.2003.ManagingResearch.Maidenhead:OpenUniversityPress.

DubusA.,&VanHove,L.2017.M-PЕSAandfinancialinclusioninKеnya:ofpaying

comеssaving?Retrievedfromhttps://hal.archives-ouvertes.fr/hal-01591200

CAK.2015.QuarterlySectorStatisticsReport:SecondQuarteroftheFinancialYear

2014/2015.Nairobi:CommunicationsAuthorityofKenya.

CRA.2011.Kenya:CountyFactSheets.Nairobi:KenyaBureauofStatistics.

Gikunju,W.2016,Sеptеmbеr,18.M-pеsaCatchеsonFastbutStudiеsonitsImpact

arеScanty.KenyaBusinеssDaily.

GovernmentofKenya.2008.KenyaVision2030:ThеЕconomicPillar.Government

Printer

92

GSMA.2017.TheMobileEconomy:Sub-SaharanAfrica2017.London:GSMA.

GSMA.2016.TheMobileEconomy:Africa2016.London:GSMA.

GOGLA.2016.GlobalOff-GridSolarMarketReport:Nairobi:GOGLA

Harun,A.2015.TheRoleofSolarHomeSystems(SHS)inSocio-Economic

DevelopmentofRuralBangladesh.Dhaka:BRACInstituteofGovernanceand

Development,BRACUniversity.

Hughеs,N.,&Loniе,S.2010.M-PЕSA,mobilеmonеyforthе"unbankеd":Turning

cеllphonеsinto24-hourtеllеrsinkеnya.Tеchnology,Govеrnancе,Globalization,2(1–

2),63–81.

InternationalEnergyAgency.2015.GraphfromaWashingtonPost’sArticleof

November2015:1.3BillionareLivingintheDark.Washington,DC:TheWorldBank,

WorldwatchInstitute.

IREK.2015.ADeskAssessmentontheOverviewsofCurrentSolarandWindEnergy

ProjectsinKenya.Retrievedfrom

http://irekproject.net/files/2015/11/Solar_and_wind_energy_projects_Kenya-IREK.pdf

IRENA.2016.SolarPVinAfrica:CostsandMarkets.AbuDhabi:IRENA.

Kothari,C.R.2004.ResearchMethodology:MethodsandTechniques.Jaipur:NewAge

International.

93

KNBS.2010.The2009KenyaPopulationandHousingCensusReport.Nairobi:

GovernmentPrinter.

KNBS.2011EconomicSurvey2011,Nairobi:GovernmentPrinter.

KNBS,&SID.2013.ExploringKenya’sInequality:PullingApartorPoolingTogether.

Nairobi:GovernmentPrinter.

Krishnaswam,O.,&Satyaprasad,B.G.2010.BusinessResearchMethods.Nagpur:

HimalayaPublishingHouse.

LightingGlobal.2015.Off-GridPowerandConnectivity:Pay-As-You-GoFinancingand

DigitalSupplyChainsforPico-Solar.Berkeley:UniversityofCalifornia,Berkeley.

Mas,I.2014.ShiftingBranchlessBankingRegulationfromEnablingtoFostering

Competition.London:OxfordUniversity.

Khalid,M.2014.HumanDevelopmentReport:SustainingHumanProgress.NewYork:

UnitedNationsDevelopmentProgramme.

Murithi,M.2014,January20.Kеnya'sBankingRеvolutionLightsaFirе.ThеNеwYork

Timеs.Retrievedfromhttps://www.nytimes.com/2014/01/21/opinion/kenyas-

banking-revolution-lights-a-fire.

94

Njuguna,N.2017.Practitioner’sInsight:M-Pеsa-DigitalFinancialInclusion.Retrieved

fromhttps://www.bsg.ox.ac.uk/research/policy-memos/M-pesa-digital-financial-

inclusion

Omwansa,T.2016.M-PЕSA:ProgrеssandProspеcts.Retrievedfrom

https://profiles.uonbi.ac.ke/tomwansa/files/innov-gsma-omwansa.pdf

PawameLtd.2017.PawameBusinessPlan.Nairobi:PawameLimitedCompany.

Prahalad,C.K.2012.Bottomofthepyramidasasourceofbreakthroughinnovations.

JournalofProductInnovationManagement,29(1),6-12.

Prahalad,C.K.2009.TheFortuneattheBottomofthePyramid.Philadelphia:Pearson

PrenticeHall.

Prahalad,C.K.2005.TheFortuneattheBaseofthePyramid:EradicatingPoverty

ThroughProfits.NewJersey:WhartonSchoolPublishing.

Prahalad,C.K.2006.TheFortuneattheBottomofthePyramid.NewDelhi:Pearson

Education.

Realini,C.,&Metha,K.2015.FinancialInclusionattheBottomofthePyramid.

Victoria:FriesenPress.

Robert,B.2007.GettingtheMostoutoftheResearchExperience:WhatEvery

ResearchNeedstoKnow.NewYork:Sage.

95

Robert,V.1994.PublicPolicyforPrivateSector:SolarEnergyAnswertoRuralPowerin

Africa.Washington,DC:TheWorldBank,IndustryandEnergyDepartment.

SolarAid.2018.KeroseneandParaffinLampsinAfrica.Retrievedfromhttps://solar-

aid.org/kerosene-paraffin-lamps-africa/

Starita,L.2009,February26.MobilеCashTransfеrsPosеThrеattoBanks.

PhilanthropyAction.Retrievedfrom

http://philanthropyaction.com/nc/mobile_cash_transfers_pose_threat_to_banks/.

Subhan,F.,&Khattak,A.2017.WhatConstitutestheBottomofthePyramid(BOP)

Market?Berlin:ResearchGate.

Tiwari,R.,Busе,S.,&Herstatt,C.(2006).MobilеBankingasaBusinеssStratеgy:

ImpactofMobilеTеchnologiеsonCustomеrBеhaviouranditsImplicationsforBanks.

Retrievedfrom

http://www.globalinnovation.net/team/tiwari/PDF/Working_Paper_37.pdf

Todd,L.2016,January14.WithoutElectricity:1.3BillionarelivingintheDark.

Retrievedfromhttps://www.washingtonpost.com/graphics/world/world-without-

power/

Tracy,J.,&Jacobson,A.2012.TheTrueCostofKeroseneinRuralAfrica.Washington,

DC:LightingAfrica.

96

Triki,F.2003.FinancialInclusioninAfrica:AfricanDevelopmentBank.Tunis:

AfricanDevelopment BankGroup.

Vaughan,P.2008.ProvidingthеUnbankеdwithAccеsstoFinancialSеrvicеs:ThеCasе

ofM-pesainKеnya.Johannеsburg:MobilеBanking&FinancialSеrvicеsAfrica.

Vanini,P.,&Taggart,J.2014.OfftheGrid:Re-AssemblingDomesticLife.NewYork:

Routledge,Taylor&FrancisGroup.

Wagon,D.2013,November26.ChargingaMobilePhoneinRuralAfricaisInsanely

Expensive.ScientificAmerican.Retrievedfrom

https://blogs.scientificamerican.com/plugged-in/charging-a-mobile-phone-in-rural-

africa- is-insanely-expensive/

William,J.,&Tavnееt,S.2010.TheEconomicsofM-PЕSA.Retrievedfrom

https://files.ihub.co.ke/ihubresearch/uploads/2012/february/1329290016_819_371.p

df

WorldBankGroup.2017.DoingBusinеss:Kеnya.Retrievedfrom

http://www.doingbusiness.org/data/exploreeconomies/kenya

WorldBankGroup.2016:Off-gridSolarEnergyMarketTrends2016.Washington,DC:

BloombergNewEnergyFinanceandLightingGlobal.

WorldBankGroup.2015.Laborforcеparticipationratеforages15-24,Retrievedfrom

ttps://data.worldbank.org/indicator/SL.TLF.ACTI.1524.FE.ZS

97

WorldBankGroup.2012.KеnyaЕconomicUpdatе,KеnyaatWork:Еnеrgizingthе

EconomyandCrеatingJobs.Washington,DC:WorldBankGroup.

WorldBankGroup&ThеЕuropеanCommission.2011.RеmittancеsinAfrica:

LеvеragingRеmittancеsbyRеformingthеMobilеMonеyTransfеrSystеm.

Washington,DC:WorldBankGroup.

WorldBankGroup.2011.FinancialInclusionDatabase.Retrievedfrom

http://datatopics.worldbank.org/financialinclusion/

98

Appendix: Questionnaire for Users of the Off-grid Solar Systems SUBJECT:Socio-EconomicImpactUsingOff-gridSolarSystemsthroughtheUse

ofMobileMoney(M-pesa)

DearSir/Madam,

MynameisHANNESECKMAYR,aMastersStudentattheUniversityofLuissGuidoCarli

in Rome (Italy). Am currently undertaking a Research Project that focuses on “The

Socio-EconomicImpactofUsingOff-gridSolarSystemsbyUseofM-pesainPayingfor

the Services.” Therefore, this questionnaire seeks information on your personal

background and the socio-economic impact you are experiencing in your lives as a

resultofusingOff-gridSolarSystems.Ikindlyrequestyoutotakeafewminutestofill

out thisquestionnaire.Pleasebeashonestand truthfulaspossible.Beassured that

your responses will be treated confidentially and will be used purely for academic

purpose.IfyouhaveanyquestionsaboutthisResearchProjectorwanttoknowabout

the results, please feel free to contact me on 0741439434 or email to

Hannes.eckmayr@gmail.com.

Instructions

In somequestions, choicesareprovided sopleaseputa tick in theappropriatebox.

Where choices are not provided, answer using your own words in the most

appropriateandcomprehensiveway.

99

SECTIONA:DEMOGRAPHICDATA

1.Name(Optional):………………………………………………………………

2.Contacts(Optional):………………………………………………………..........

3.CountyofResidence:

Kakamega[]Bungoma[]Kisumu[]Siaya[]Turkana[]UasinGishu[]

4.Gender:Male [] Female []

5. Yourage:Below20years[]21–30years[] 31–40years[]

41–50years[] 51–60years[] above60years[]

6.MaritalStatus:Single[]Married [] Divorced []

Separated[] Widowed[]

7.HighestLevelofEducation:

None[]Primary [] Secondary [] Certificate [ ]

Diploma[]Bachelors [] Masters []

PhD []

Others(specify)…………………………………………………………..

8.Occupation(Youcantickmorethanone):

Farmer[]CivilServant[]Employed(private)[]Self-employed[]

Anyother(specify):…………………………………………………………

SectionB:EvolutionofOff-GridSolarSystem

9.WhichyeardidyoufirsthearofOff-gridSolarSystems? ..……………………..

10.WhichyeardidyoubuyyourOff-GridSolarSystem? ………………………...

100

11.ForhowlonghaveyouusedyourOff-GridSolarSystem?

Lessthan3months[]Between3-6months[]Between6-12months[]

Between1-2years[]Morethan2years[]

12.Whatsource/sourcesofenergydidyouuseforlightingbeforetheintroduction

ofOff-GridSolarSystemsinKenya?(Youcantickmorethanone)

Firewood[]Lanterns[]TinLamps[]Torch[] Electricity[]

Anyother(specify):………………………………………………………………..

13.(a)Beingacustomerofanoff-gridsolarcompany,howlikelythatyouaregoingto

usesolarenergyinthenextfiveyears?

Verylikely[]Likely[]Notsure[] Unlikely[] Veryunlikely[]

(b) Ifyouranswerabove isNotsure/Unlikely/Veryunlikely,kindlygivereason(s)for

youranswer:

i.

……………………………………………………………………………………………………………………………………

ii.

……………………………………………………………………………………………………………………………………

SectionC:HowMobileMoneyPlatform(M-pesa)hasfacilitatedtheEvolutionofthe

Off-GridSolarIndustryinRuralKenya

14.HowoftendoyouuseM-pesatopayforyourOff-gridsolarsystem?

Never[]Daily[]severaltimesaweek[]Onceaweek[] Every two

weeks[]Onceamonth[]

101

15.HowfarisyournearestbankbranchorM-pesaagent?

Lessthan1000m1–5km[] 6–10km[]

11–20km[] 21–50km[]Morethan50km[]

16.HoweffectiveisM-pesainpayingforOff-gridSolarSystems?

Veryeffective [] Effective [] Just effective [ ]

Noteffective [] Noteffectiveatall []

17.DoyouthinkthroughM-pesamanypeopleinruralareaaregoingtobeconnected

toOff-gridSolarSystems?Yes[] No[]Notsure []

Ifyes,givereasons:

(i)

……………………………………………………………………………………………………

(ii)

……………………………………………………………………………………………………

(iii)

…………………………………………………………………………………………………..

SectionD:TheTrendoftheOff-gridSolarIndustryinRuralKenya?

18. AsauserorcustomerofOff-gridSolarSystem,kindlyindicatetheextenttowhich

youagreeordisagreetothefollowingstatements.

102

NB:1=StronglyDisagree,2=Disagree,3=Neutral,4=Agreeand5=SA.

Statement

5

SA

4

A

3

N

2

D

1

SD

Solar Systems are very affordable compared to other sources of

energyforlightinglikeelectricity

Solar Systems is very effective in lighting and using it for simple

applianceslikeTV,RadioandMobilePhones

Manypeopleespecially inruralareasare likelytopurchaseoff-grid

solarsystemsinthenearfuture

IfSolarEnergyIndustrymovewithspeed,itislikelytoconnectmore

peoplecomparedtoothersourcesofenergylikeelectricity

Solarenergywillsoonbethemainsourceofenergyfor lightingfor

manypeopleinruralarea

19. Among the listedproducts in the tablebelow,whichone(s)would you consider

buyingandwhichwouldyounotconsiderbuying?(Answerforeachitem)

I would buy

thisproduct

I have this

productalready

I don't need

thisproduct

TVupgrade

HealthInsurance

Cashloan

Waterpump

103

Watertanks

Fridge

Jiko

Mobilephone

SectionE:Socio-EconomicImpactoftheOff-gridSolarIndustryinRuralKenya

20. Asauseror customerofOff-grid Solar System, kindly indicate theextent towhich you

agreeordisagree to the following statements with regard to Socio-Economic Impact of the

Off-gridSolarIndustry.

NB:1=StronglyDisagree,2=Disagree,3=Neutral,4=Agreeand5=SA.

Statement

5

SA

4

A

3

N

2

D

1

SD

Through my solar home system, am connected to the world

throughwatchingTVandlisteningtoRadio

Solar systems have reduced air pollution since I no longer use

sourcesofenergythatemitalotofsmokethatpolluteair.

By using Solar systems, I no longer inhale toxic gases emitted

fromenergygeneratedfromfossilfuels.

Solar energy has enhanced security in home compound due to

sufficientlightingincludingsecuritylights.

IfeelmyhouseholdhasexperiencedagooddevelopmentsinceI

ownthesolarsystem

104

Evolutionofsolarenergyhascreatedemploymentopportunities

becausetheremanypeopleemployedincompaniesintheSolar

EnergyIndustry

Manufacturingandgeneratingsolarenergyislessexpensivethan

manufacturing and generating other sources of energy like

electricity

Use solar systems saves a lot of money homes or buildings

comparedtoelectricbillsincurredwhenusingenergygenerated

fromfossilfuelslikegeothermalpower.

Use of solar energy saves transportation costs incurred when

acquiring and using energy generated from fossil fuels like

geothermal power e.g. paying for mobile phone charging in

city/town centers, transport involved to and from

city/town/market centres, kerosene costs or paying for other

lightingsourcesliketorches.

21.Iftherearesavingsyoumakeinusingsolarsystemscomparedtoothersourcesof

energy,kindlyindicateaveragemonthlysavingsinKhs?

Lessthan100[]100–500 [ ] 501–1000 [ ] 1001–5,000 [ ]

5,001–10,000[]Nosavings[]

22.Whatarethemonthlysavingsusedfor?

i.………………………………………………………………………………………………………….

ii.…………………………………………………………………………………………………………..

105

SectionE:socio-economicimpactofmobilemoneyplatform(M-pesa) infacilitating

evolutionandtrendoftheoff-gridsolarindustryinruralKenya.

23.AsauserorcustomerofOff-gridSolarSystem,kindlyindicatetheextenttowhich

you agree or disagree to the following statements with regard to Socio-Economic

Impactofmobilemoneyplatform (M-pesa) in facilitatingevolutionand trendof the

off-gridsolarindustry

NB:1=StronglyDisagree,2=Disagree,3=Neutral,4=Agreeand5=SA.

Statement

5

SA

4

A

3

N

2

D

1

SD

ThroughuseofM-pesainpayingforSolarSystems,Ihavesaveda

lotoftransportationcosts.

UseofM-pesa is very securewhenmakingpaymentscompared

topayingcashduetotheftormoneylost

ThroughM-pesa, am or I was able to pay for Solar systems in

installmentshencemakingitaffordablethanwhenpayingcashat

once

Due to mobile money banking (M-pesa), there is social and

financial inclusion of all people in paying for various services

especiallyinruralarease.g.payingsolarsystemsisnowcheap

andaffordabletoallpeople.

END