M-KOPA Solar: Off-grid Regulations and Business Models in Kenya​

1. TEAM MELIORAExpanding Product Segments and a Microfinance Credit Rating System

2. Story

3. Story

4. Team
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Mike
Alcazaren
Zaccarie
Peone
Shah
Choudhury
Ehsan
Chowdhury
Meghan
Butt

5. Agenda
Problem Facing M-KOPA
Recommendation 1
Recommendation 2
Financials
Implementation
Introduction Recommendation 1 Recommendation 2 Financials Implementation

6. M-KOPA Operations
Kenya
Introduction Recommendation 1 Recommendation 2 Financials Implementation

7. 48,000,000
Population of Kenya
20%
Will not have access to electricity by 2018
11Mhouseholds
Mostly rural
Introduction Recommendation 1 Recommendation 2 Financials Implementation

8. Introduction Recommendation 1 Recommendation 2 Financials Implementation
~500,000 households
M-KOPA households in Kenya
4.5% market penetration

9. How does M-KOPA:
Expand off-grid solar
operations in Kenya?
Remain financially
viable?
Add value to Kenya?
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Problem
Statement:

10. Executive Summary
1. Expand Product Segments
2. Establish Microfinance Credit Rating System
5 year timeline
$4.6M – Net Present Value
Introduction Recommendation 1 Recommendation 2 Financials Implementation
1
2

11. Expanding Product
Segments
Recommendation 1
Introduction Recommendation 1 Recommendation 2 Financials Implementation

12. Introduction Recommendation 1 Recommendation 2 Financials Implementation
By 2018 M-KOPA’s primary
market will be connected to
grid energy
Result of Kenyan Gov’t Last
Mile Connectivity Program
(LMCP)
80% of population
Current Situation

13. Introduction Recommendation 1 Recommendation 2 Financials Implementation
$150 million
World Bank Initiative
14 counties with immediate
need of an alternative energy
solution
Only 35% of region has
access to energy
Current Situation

14. Introduction Recommendation 1 Recommendation 2 Financials Implementation
7 counties –
10% of total population
Represents smallest presence
of mini-grid sites
Accessible cluster with Nairobi
and Mombasa as central hubs
Target Market

15. Introduction Recommendation 1 Recommendation 2 Financials Implementation
1 of 7 identified
counties
Willingness to
pay of $5 per
month for 3
years
Nomadic and
rural
communities
where grid
solutions are low
risk
Customer Profile
225,000 households

16. Introduction Recommendation 1 Recommendation 2 Financials Implementation
Customer Profile
Political instability in designated regions
Risks
Sparsely populated customer base
Solution: Local salesforce

17. Microfinance Credit Rating
System for Financial
Institutions
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Recommendation 2

18. Introduction Recommendation 1 Recommendation 2 Financials Implementation
Data is the new oil
Monetization of data

19. Introduction Recommendation 1 Recommendation 2 Financials Implementation
What data can be sold?

20. Microfinance
Customer Database
Introduction Recommendation 1 Recommendation 2 Financials Implementation
What data can be sold?

21. “
“If you boil it down,
what we are is a
financecompany”
- Nick Hughes, M-KOPA
Strategy Director & Founder
Introduction Recommendation 1 Recommendation 2 Financials Implementation

22. 25% of
customer base
returns for new loans
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Monetization of Microfinance
Customer Data
Initial M-KOPA repayment rate 93%
Returning M-KOPA repayment rate 98%
Average repayment rate in Kenya 52%

23. $10 per report
Selling Credit Rating to Microfinance Institutions

24. Develop Credit Rating
Algorithm
UTILIZE EXISTING DATA
Build Partnerships
SELL TO EXISTING LENDERS
Create Customer
Awareness
TRAIN SALES FORCE
Success Factors:
- Customer behavior
- Technology introduction
- Stronger returns
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Implementation Strategy

25. Colombia:
35% to 15% reduction in operational cost
Doubled the amount of loans per loan officer
20% increase in likelihood of employment
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Success Stories

26. TALA – Different customer segment
Connects 10,000+ data points per customer to build a
credit score by utilizing smartphone inputs
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Risks: Competition & Regulation
Strict lending regulations – Non-Performing Loans of 11.66% in 2016
Credit ratings - Tangible solution without present regulations

27. 2 Market share over the period of 5 years
25%
1 Opportunity Cost of Capital
12.77%
3 Operating margins:
50% for regular business
80% for credit report sales
Assumptions
Introduction Recommendation 1 Recommendation 2 Financials Implementation

28. Overall Impact
7.4% CAGR of Sales
NPV of
$4.6M
Inclusion of 94K customers
Introduction Recommendation 1 Recommendation 2 Financials Implementation
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2019E 2020E 2021E 2022E 2023E
REVENUEINUSD
Revenue & Net Income Impact
Estimated Sales Net Income

29. 2 Market share over 5 year period
10%
1 No aid from World Bank
4 year repayment structure
Sensitivity Analysis
Introduction Recommendation 1 Recommendation 2 Financials Implementation

30. Sensitivity Analysis
3.0% CAGR of Sales
Introduction Recommendation 1 Recommendation 2 Financials Implementation
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2019E 2020E 2021E 2022E 2023E
REVENUEINUSD
Sensitivity Analysis
Estimated Sales Net Income
NPV of
$2.2M

31. Key Performance Indicators
KPI Criteria
Organic growth in existing market 5%
Market share captured through expansion 7%
Number of credit reports sold 4% of existing customers
Accuracy in collected data 90%
Introduction Recommendation 1 Recommendation 2 Financials Implementation

32. Final Recommendations
1. Expand Product Segments
2. Establish Microfinance Credit Rating System
5 year timeline
$4.6M – Net Present Value
1
2
Introduction Recommendation 1 Recommendation 2 Financials Implementation

33. Year 1 Year 2 Year 3 Year 4 Year 5
Request World
Bank Funds
Launch sales in Tana
River & Taita-Taveta
counties
Incorporate best practices
and launch full scale sales
operation
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Expanding Product Segments
25% market share
in target market

34. Year 1 Year 2 Year 3 Year 4 Year 5
Develop algorithm for
credit rating system
Train sales team &
develop partnerships with
lending institutions (84%)
Monetization other data
sources for additional
revenue stream
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Microfinance Credit Rating System

35. Year 1 Year 2 Year 3 Year 4 Year 5
Request World
Bank Funds
Develop algorithm for
credit rating system
Launch sales in Tana
River & Taita-Taveta
counties
Incorporate best practices
and launch full scale sales
operation
Train sales team &
develop partnerships with
lending institutions (84%)
Monetization other data
sources for additional
revenue stream
Introduction Recommendation 1 Recommendation 2 Financials Implementation
Full Implementation
25% Market share
in target market

36. Story

37. Questions?

38. 6.
Appendices
Data.
Sources.

39. Sources
1. The World Bank, (July 5, 2017) Off-Grid Solar Access Project for Underserved Countries,
The World Bank (Report PAD2008, 2017) Retrieved from http://documents.worldbank.org
2. The World Bank (October 2003) Credit Scoring in Microfinance, The World Bank – Women’s
World Banking (Volume 1 No 2) Retrieved from https://www.microfinancegateway.org
3. Karlan, D. & Zinman, J. (November 2009) Expanding Credit Access: Using Randomized
Supply Decisions to Estimate the Impacts The Review of Financial Studies (Volume 23, Issue1)
Retrieved from https://academic.oup.com
4. Wikipedia (Oct. 2017) Microfinance in Kenya, Wikipedia Retrieved from:
https://en.wikipedia.org
5. Snyder D. (October 2008) The Potential for Credit Scoring for SME Lending in Kenya, FSD
Kenya Retrieved from https://www.agrifinfacility.org
6. Safety, Health, and Environmental Department- Kenya Power and Lighting Company.
(August 2014). Environmental and Social Management Framework for Kenya Power’s Last
Mile Connectivity Programme. Retrieved From http://kplc.co.ke
7. Bawakyillenuo, S., Osiolo, H., and Pueyo, A. (April 2016). Cost and Returns of Renewable
Energy in Sub-Saharan Africa: Comparison of Kenya & Ghana. Retrieved From
https://www.researchgate.net
8. Ghanbariamin, R. (February 2015). Estimating the Economic Opportunity Cost of Capital for
Kenya. Retrieved From http://i-rep.emu.edu

40. Tables

41. Tables

42. *Additional investment is negligible and we have prepared projected Income statement only for
the targeted region based on the above assumptions.
Considering economic opportunity cost of capital to be 12.77% [7] [8], NPV stands at $4.06Mn.
Tables

43. Targeted mini-grid sites in Kenya

44. Sensitivity Analysis
With Aid from World Bank (In million USD)
Market Share 5% 10% 15% 20% 25%
NPV $1.45 $2.23 $2.89 $3.91 $4.66
Expanding Product Segments $0.76 $1.52 $2.18 $3.18 $3.92
Credit Report Sales $0.69 $0.71 $0.72 $0.73 $0.74
Without Aid from World Bank (In million USD)
Market Share 5% 10% 15% 20% 25%
NPV $1.34 $2.18 $2.58 $3.44 $4.05
Expanding Product Segments $0.65 $1.48 $1.86 $2.71 $3.31
Credit Report Sales $0.69 $0.71 $0.72 $0.73 $0.74