Leading the way in customer protection for off-grid solar

An industry on the up

The off-grid solar industry is a fast-evolving market, with many relatively new entrants and providers. Powered by the pay-as-you-go (PAYGo) financing model, the growing sales of solar home systems is one of the most promising trends in energy access with the potential to deliver positive social impact.

The PAYGo solar business model is inherently focused on providing affordable access to energy to low-income customers by allowing them to pay for solar home systems over time. Providers selling low-cost lanterns or larger systems are therefore able to reach the more vulnerable, remote and least served customers who cannot afford the grid or more expensive alternatives. By reaching these customers, providers are able to increase national energy access footprints and empower low-income households to improve their quality of life.

As the industry continues to grow, and more and more people are reached, the scale of the impact on households is accelerating – this is according to the Global Off-Grid Lighting Association. But offering these new products to more vulnerable, first-time, customers can create risks that must be managed by the industry as a whole. The issue raises several questions: How do we ensure that customers understand the financing contract they are entering into? That upfront costs, fees and terms are reasonable and affordable? That products are high-quality and include service warranties that are honoured? How do we safeguard the customer data that is gathered by providers? As we witnessed during the microfinance crises during 2008-2010, these are not hypothetical risks. Fortunately, we have not seen such a crisis in the off-grid solar  sector – yet.

CDC and the off-grid solar industry

As an investor in the sector, we have taken a proactive stance to encouraging strong customer protection. These protections are all the more important in the hybrid PAYGo business model that combines digital financial services and physical solar products, creating a broader set of potential customer risks than traditional microfinance lending. Most off-grid solar providers to date have been actively developing techniques and processes to enhance and improve their approach to customer protection. Some even have active organisational cultures around keeping customers at the forefront of their business strategies. However, ongoing innovation around product development, sales and distribution, as well as the nascent state of industry, leaves room for improvement.

We have a dual role to play in the industry: at the sector level, supporting the establishment of consistent standards and, at the company level, proactively working with our portfolio companies to achieve good practice. As formal industry regulation is likely to increase in the future, embedding strong practices now, through the development and implementation of a common set of principles, will help protect customers and maintain the sector’s license to operate.

With this dual role in mind, we have focused our attention on developing customer protection in the industry. We have developed our own toolkit to help our companies assess potential areas of risk to customers and we have created action plans to address any shortcomings. Importantly, we have partnered with two other funders (DOEN Foundation and FMO) to provide financial and technical support to the Global Off-Grid Lighting Association (GOGLA, the off-grid solar industry body). With funding from CDC Plus – our grant facility – they have engaged with stakeholders to develop and establish a common set of customer protection principles; driven by the industry itself and based on inputs from both companies and investors. It will result in an agreed set of principles, indicators and a self-assessment tool that will enable companies to put the principles into action and sustainably establish good practices.

As a core supporter of the initiative, we are pleased to announce our public endorsement of the principles, and our commitment to encouraging the uptake of good practice and supporting continuous improvement. In the longer term, we anticipate further development of tools and supporting materials to strengthen the industry’s ability to incorporate the principles into everyday operations. We encourage the sector to continue to learn, innovate and strive to achieve consistent and high-quality standards in customer protection.

This blog was written by Geoff Manley and Machal Karim.

CDC is becoming British International Investment