Sun in the sky and jugaad in my pocket for a business model based on empowerment
Few years ago a woman in rural Tanzania had an idea for an innovative investment. She bought a square meter of solar panel and used it to charge people’s mobile phones for a little charge, which after a while allowed her to earn a decent living. Paul Needham, Co-founder, Simpa Networks, happened to pass through her village and was impressed by her entrepreneurial concept.
She showed not only that selling solar power can be profitable as it is free of costs and renewable; but also that the population of the village was primarily interested in the services the solar panel provided, rather than its ownership. This might seem obvious, because they are BoP consumers and lack purchasing power; however, it is not as immediate to use this assumption to build a business model that allows consumers to become owners by gradually purchasing the services.
“Distributed solar power hasn’t scaled up in rural India for two reasons: first, because the upfront costs are too high, and second, because traditional lenders are uncomfortable underwriting the technology and consumer payment risks,” explains Paul.
After hacking the idea for quite some time, Paul developed a business model for Simpa Networks which led its team – now with 270 full-time employees and over 350 village level entrepreneurs – to break through the Indian BoP market. It now reaches out to 9,000 customers, sells nearly two million clean energy days, saves over 120 metric tonnes of Co2 emissions, generates over 100 MW of clean energy and is useful to over 45,000 beneficiaries (April 2015 data).
The concept is simple: instead of selling products which consumers in rural and semi-rural areas cannot afford, Simpa Networks starts by selling the services of the products through a pay-as-you-go system. Paul explains, “Customers make a small initial payment to have the solar home system installed. Then, they pay per day to use the system by purchasing ‘recharge’ or top-up credit, available at multiple convenient payment points. After the completion of an 18-month contract, the system unlocks permanently, ownership is transferred to the customer, and the system provides electricity free and clear.”
Paul shows that Simpa’s technology platform “first creates a convenient pay-as-you-go experience for our customers; secondly, it reduces the transaction costs of collecting small payments from a highly distributed user base; and finally it mitigates the risks of serving people who are often unbanked. We track every customer, every system, every agent that is using Simpa energy currency; we develop credit scoring models and customize our customer engagements to ensure good payment behaviour.”
The company has unfolded its solutions by following three steps, says Paul .
- First, our Village Level Entrepreneurs (VLEs) market Simpa to friends and neighbours in their rural communities. This process is important to earn trust and win the mass market. We have roughly 350 agents to date, trained by Simpa staff to sell solar systems directly into their village networks.
- Next, our credit officers review customer applications, verify their identification documents, and approve their applications based on our proprietary credit scoring model.
- Following this, our certified Solar Technicians are dispatched via ERP to install solar home systems at rural customer’s home or microenterprise. The technicians (who are now more than 100) are recruited and trained in rural areas where we provide a loan to successful graduates, who purchase a complete tool kit and begin work. Simpa guarantees a minimum number of installation and service calls to each Solar Technician, providing some security of income as the newly trained technician embarks on their new career.”
For three years since 2010, Simpa Networks developed its technology and started distributing its products in Karnataka through its partner Selco India. In 2013, the team outsourced production to two partners in China and Bengaluru and expanded its market to Uttar Pradesh (which counts nearly half of India’s 400 million energy-poor), where they now serve eight districts.
Simpa’s most popular line of products is ‘Turbo’, launched in September 2014, which makes up more than 90 per cent of their sales. Paul tells us that “this set of solar home system products was catered after months of interviewing customers and relaying their feedback to our hardware and software teams. The solar home system contains a 40W panel, three lights, one fan and two mobile charge points. The system runtime is 12 hours and uses 110 Wh.” He goes on to explain that another important innovation they have introduced is the ‘Flexi’ Plan’, “which allows the customer to buy back the system after six months into the contract, allowing the customer a larger degree of flexibility.”
Simpa has still room for improvement when it comes to deliveries and meeting the increasing demand efficiently. “Suppliers sometime don’t deliver on time, so now we are working on developing relationships with multiple suppliers for all components,” says Paul. He also adds, “Sales can grow faster than our ability to service. It’s easier to find customers than it is to recruit and train rural solar technicians. To address this, we are continually running training programs for our village level entrepreneurs and solar technicians, creating incentives for them to aim higher and achieve larger targets than the prior month.
In December 2014, Simpa Networks (which is backed by Khosla Impact, Village Capital, Sorenson Foundation, Hilti Foundation, Asian Development Bank, DOEN Foundation, Arc Finance, Invested Development, Schneider Electric, the International Finance Corporation, GDF Suez and the Overseas Private Investment Corporation) raised $4 million commercial debt financing from OPIC and GDF Suez. When asked why they opted for debt funding, Paul said, “Historically, Simpa used equity and grants to finance this CAPEX. However, our sustainable operating model uses consistent cash flows categorized as regular payments, and the stability of these cash flows allows for debt financing being easily suited to this model.” He continues, “We own the solar home systems which we lease to our customers which appear in our books as fixed assets. These revenue generating assets are capitalized and depreciated. We need capital to invest in these assets, a need which grows over time.”
Surfing the wave of their achievements, the team says that by 2019 they want to reach one million customers with solar rooftops.
For more information check their website.