Financing everyday essentials for everyone, with Mayur Patel
We Finance Progress... when you visit www.m-kopa.com you're met with this brief but powerful message that, I think, captures the dual business and social impacts of their connected financing platform. In today's episode, I speak to Mayur Patel, Chief Commercial Officer at M-KOPA, about financing life-changing assets collateralized by the service those assets provide. And we talk about a lot more. M-KOPA was founded in 2010 to combine the power of digital micropayments with GSM connectivity to make life-enhancing assets more accessible and has since deployed $1 billion in products and credit to the financially excluded.
"For the majority of our customers - over three-quarters of our customers today - this is the first time they are owning a 4G handset. Those individuals are living under 4G wireless spectrum that's above their heads, but it's really been the affordability of the handset, which is the gateway into that. We've been able to build a strong credit profile for them. That’s unique. We're building a consumer FinTech business here, where the first step with our customers is to help them get access to a productive asset, and then use that as a way to bring them into a much broader financial relationship."
M-Kopa is at https://m-kopa.com/ (and on LinkedIn at https://www.linkedin.com/company/m-kopa/)
Mayur Patel is on LinkedIn at https://www.linkedin.com/in/mayur-h-patel/
You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Regards, Brendan
The full written transcript, with timestamps, is below:
Mayur Patel 0:00
For the majority of our customers - over three quarters of our customers today - this is the first time they are owning a 4G handset. Those individuals are living under 4G wireless spectrum that's above their heads, but it's really been the affordability of the handset, which is the gateway into that.
We've been able to build a strong credit profile for them.
And then also, once a customer has paid off their first product with us, we've now got an incredibly rich data profile on them. That's unique. We're building a consumer FinTech business here, where the first step with our customers is to help them get access to a productive asset, and then use that as a way to bring them into a much broader financial relationship.
Brendan Le Grange 0:52
The standard model for electrifying homes is for the government to borrow a huge sum of money, to then build a huge central power station and to pipe that power to every house within range, billing us every month for decades until that initial investment has been recouped. But if you were, say, to find yourself in an unconnected community, you don't have much choice but to petition your local representatives and wait... and wait... and wait.
You couldn't build your own power plant and electricity is expensive to transport, so sometimes the economics just didn't make sense, especially in developing markets where government budgets are already stretched tight and infrastructure often needs to be built from the ground up. This is why solar power has so much appeal. All of a sudden you can bring the power production to your village, or even to your house.
But though the scale of the whole operation has shrunk. The problem of a relatively high initial upfront investment persists for the individual - and they can't issue bonds or print currency. That's the problem M-KOPA first addressed with pay as you go solar, distributed power supply meets distributed asset-backed financing, and now they're doing the same with smartphones.
Welcome to How to Lend Money to Strangers with Brendan le Grange.
Mayur Patel, Chief Commercial Officer at M-KOPA, welcome to the show.
Mayur Patel 2:29
Thank you Brendon.
Brendan Le Grange 2:30
You're also the Advisory Board Chair at Infinite Foods, Africa's largest go to market platform for plant based meat and dairy alternatives; a board member at Ubongo, which provides millions of families across Africa with fun localised multi-platform educational content; and an advisory council member at NYU Stern Centre for Business and Human Rights - so a career that's rich in entrepreneurship, but particularly in social entrepreneurship and where those two meet.
So Mayur, let's start with that: what did your career look like, your education look like, before you came to M-KOPA?
Mayur Patel 3:05
I'm Zimbabwe, I was born and raised in Zimbabwe. And most of my experiences have really been driven by a passion for digital media and financial services.
When I left university, I moved to the US and had the chance to work for a foundation that was investing, both on the grant making side and on the mission driven investing side, in the digital media space. And it was right at the time when there were major concerns about the future of journalism and disruptions that were happening to those business models. And I loved it.
The part of the work that I did that I found the most interesting though, was what was happening on mobile phones, and the new kinds of innovations that were happening around crowdsource journalism. And a lot of that was happening in emerging markets and in particular in Africa. And so I decided I really wanted to go back to the region that was home for me and work at the heart of that.
I had the chance to move to join a telecommunications company called Econet that was based out of Johannesburg, and worked very closely with the CEO and founder there in incubating a number of businesses. On the financial services side, on the education and ecommerce side. The company then took the decision to build a media organisation within the telecommunications group. And I led the building of a mobile video streaming company, getting the opportunity to build a company from the ground up and really caught the bug of being part of a startup and wanted that experience again.
And it was around that time that I caught up again with one of the co-founders of M-KOPA, Jesse Moore, who was someone I had known from university, and when I got to see what M-KOPA was doing and the potential of the asset financing platform they had built in terms of digital and financial inclusion, I was blown away.
Brendan Le Grange 4:46
Yeah, well, I want to get into the nuts and bolts quite early because M-KOPA is a leading connected asset financing platform. So maybe we can talk a little bit about what that means, but also talk about the sort of problems that it was created to solve.
So reading on M-KOPA.com, I see that the journey started about a dozen years ago and about a billion dollars in lending ago, with the first pay as you go solar sale in Kenya, how were the foundations laid for this? What was the market gap? And what does asset financing in that market segment actually look like? What does it involve?
Mayur Patel 5:25
If you go back to the origins of the M-KOPA business, it's worth noting that a lot of the founding team were part of the original group that built the innovations at the core of mobile money, they were some of the members that were involved in the creation of M-PESA, which was a mobile money service that was created in Kenya.
And that team realised quickly, early on, that if you could combine the power of this new form of digital payments and connect that to a device that had a SIM card in it, and a battery, you could actually turn on and off that device and allow someone to pay for that with a digital payment channel.
They were really creating at a time what became known as a category called pay as you go.
Brendan Le Grange 6:09
And also, it sounds a bit like the Internet of Things, to my uneducated ear of what the Internet of Things really means, but really is creating smart devices in a in a way of speaking,
Mayur Patel 6:20
Exactly.
Having the ability to connect an estate of devices on the IoT front and allow a consumer to pay for that over time with instalments via mobile money. That was really the creation of the asset financing platform.
85% of households in Africa earn less than five and a half dollars a day. And so if someone's going to be able to afford a productive asset - a solar lighting system or fridge, access to a smartphone device - most of those devices cost over $100. And that would be more than 60% of someone's average household income. And so a lot of these things that would help people transform their lives, make progress, enable them to power their businesses, just out of the reach of so many individuals.
And that was really the advent of thinking about connected assets, and financing those assets as a way to make something accessible to everyone.
Brendan Le Grange 7:19
But suddenly people can have power to the house, water to the house, all these things connected on a way that makes sense that doesn't require years of salary outlay but can be pay as you go - I mean, it's a phenomenal opportunity to get past a world where infrastructure held everyone down and free up that innovation.
And obviously, you said some of the founding team where there right at the early days, you were there pretty much in the early days, what was that wave of fintech like, because it did immediately charge up so much innovation in that East Africa hub? And what's it like now?
Mayur Patel 7:48
It's an incredibly exciting opportunity and time to be building businesses in Africa.
It feels completely different to what it was like even five years ago, the big transformation was the one you alluded to, which was the creation, not just of a communications infrastructure, which was the first mobile telephony revolution but the next revolution, which was on the creation of a digital payments, infrastructure, mobile money that really opened up the door to what we're now starting to see more and more, which is really the deepening of a whole set of financial services that are designed to address consumers really across the broad.
If you just think about the scale of where we're now at. I mean, last year, Kenya alone attracted more than a billion dollars of venture capital financing into the startup technology ecosystems. That's three times what it was three years ago.
And you're now starting to see new kinds of legend financing businesses, new kinds of digital savings, businesses, new near bank starting to emerge. And all of them thinking disruptively about how to address real pain points in terms of how people get brought into the financial ecosystem. And that's not just only a an East Africa story, although East Africa is a major for a lot of innovation. It's something that's happening across the board in the region.
Brendan Le Grange 9:18
Let's talk a bit about the region because the M-KOPA story is one of expansion. I mean, very quickly, you grew from Kenya to Uganda to Nigeria and Ghana, you gained your first million customers in, it looked like, about 10 years, your next million in two years and your third million in just one year - so rapid acceleration within what is already an expanding and fast growing FinTech story.
Mayur Patel 9:40
A lot of that growth is built on the three foundations of our business: acquire, finance, and retain.
On the acquisition side, the thing that has really powered so much of the growth in our business has been the real development of a direct sales force. And so today we have closed to 15,000 monthly active agents who are out there selling in the field. And so today, if you wanted to be able to get a smartphone on a finance basis, we are selling that through our direct field force, you know, in their villages, in markets, and really outside of the kind of normal retail infrastructure.
And on the financing side, the way we've built our credit management and support systems, it allows a customer to put down, you know, a very small deposit anywhere from $20/$30. And then they can pay for the device in instalments, you know, 30 cents a day and above over time - often customers are financing a product over 12 months. And on the back of that credit system, we've been able to support over 3 million customers. And the early journey for M-KOPA was in the solar space, solar powered TVs, solar powered fridges, but the company innovated and moved into smartphone device financing.
And then the final third pillar of the business that we think about is how to retain our customers and, and how we can offer them a whole suite of financial services once we have acquired them as a customer. And so that now looks like providing plus non business cash loans to our customers health insurance, and really finding a way to kind of meet their needs now that we've been able to build a strong credit profile for them.
Brendan Le Grange 11:18
And I guess that's a key difference in this wave of innovation, where in the old days, you would have been out there with a product that got sold as cheaply as possible, it's now about understanding and elevating the needs of these consumers, far more about building up people it sounds like than it used to be.
Mayur Patel 11:35
Our goal in M-KOPA is really to build a long term financial relationship with our customers over time, whereby we understand their needs better, having helped finance their first asset with us, and then helping them to become more financially resilient.
Brendan Le Grange 11:35
And Mayur, one thing I saw is that you also have the upgrade available to consumers but right from upfront so people can see this path to what's possible if they repay the loans or when they finish repaying the loans, creating visibility to consumers. In the past, we may have had your upsell strategies in the back end, or we may have policies there that said once a consumer has been on our books for X amount of months and done this and that we can offer them a credit limit increase or a new product. But it wasn't always visible to consumers. And sometimes our best customers wouldn't know what was available to them wouldn't know what their options were. And so I love it when these sort of journeys are signposted more and say like, look, we trust you, we're telling you how this works.
Mayur Patel 12:36
And the way that looks in our businesses: as customers come on board with us, we very quickly develop a unique set of insights about those customers based on their instalment and repayment history with us, and are very able very quickly able to then offer them additional services that they can add to their daily instalments. So for example, right now, after the first 90 days, customers then become eligible to get personal or business cash loans with us, and they can then add that to their daily billing amount, our best customers well can then get additional health insurance and hospital protection cover for their families, which we then finance for them, then we also allow customers when they've come to the end of their first asset with us, they can either upgrade to another smartphone or an additional handset, we often find that you know our best customers who've had a great experience with us.
They're taking those smartphones that they first financed with us and then passing them on to the grandmother that's in the village or, you know, the younger sister that's about to go off to university and they then finance anything with us. And it's really all in the spirit of we're building a consumer FinTech business here, where the first step with our customers is to help them get access to a productive asset, and then use that as a way to bring them into a much broader financial relationship whereby they're now digitally connected, and they now have access to a much broader array of financial services than they otherwise would have.
Brendan Le Grange 14:07
You're working across multi geographies, that's always complicated, serving consumers that generally have been left behind or have been hard to serve for the big, the big names in the industry. So what are you doing differently that makes that lending possible that enables you to look at a consumer and say, yes, we can make this inclusive, flexible and fair loan to you to get that smartphone in your hand.
Mayur Patel 14:30
You know, unlike a lot of lending businesses in more mature markets, the bulk of our customers that we serve today have very limited credit histories.
They really are underbanked.
They don't have salaried incomes.
They work in the informal sector running micro small enterprises are the shops or hairdressers or they run a food stall in the market.
And so they don't have the ability to demonstrate the kind of credit history profile that traditional lenders would want to see. And so that's made it often very hard for them to unlock access to credit and access to capital. And in particular, they also don't have necessarily always the means to be able to save up for the kind of assets that would really transform their lives.
Maybe even just take a smartphone device financing smartphones, in our region, they're not a luxury. They're an absolute lifeline. It's the primary method by which people are connected to the internet is the primary method by which they run their businesses. And so if you can get a handset into someone's life, it really has had a transformative impact. And for the majority of our customers - over three quarters of our customers today - this is the first time they are owning a 4G handset. And you know, that story of digital inclusion is one that we hope we can accelerate.
The reality today across Africa is they are still half a billion adults who are not connected to the internet. That's not because there's no internet penetration in those areas, those individuals are living under a 4G wireless spectrum that's just above their heads, but it's really been the affordability of the handset which is the gateway into that. And so that was really our focus.
In terms of what we actually do on the credit front, the way we think about on the inclusivity front, is anyone can get access to our product. We do a very simple KYC check, and as long as the customer pays the deposit, we aren't asking them for bank statements, or guarantors, we don't do an in depth credit scoring on the customers.
And the second was to think about how you can be a bit more innovative around servicing these customers, which is we think about the product, really as the collateral. Because of the investments we've made on the IoT front, we have the ability to turn that on and off as people make their micro instalments.
And then I think the last thing is, how do you create a fair and responsible mechanism of lending in this part of the population. And one of the things that I'm really proud of that we have done is that we enable customers at any point in their journey with us, if for some reason they enter into financial difficulties, or there isn't a personal emergency, and they can't find a way to continue to pay for the product, they can return a smartphone to us, we will refund them the deposit. And as long as the phone is in working order the future obligations to us are relinquished.
Brendan Le Grange 17:32
But I guess there's still a challenge, you've got to convince your investors to understand that that this is funding a tool, a necessary part of life, not a luxury. But still, obviously, the risk just feels much worse if somebody has a phone in their hand, that's something that's very small and easy to lose or have taken away and the lender, the sort of traditional lender starts waiting and in the old model would just say no, it's not worth the risk. Whereas you've built this model to enable that you've invested in technology to turn the assets you're providing into the collateral rather than requiring you the people to put down some of their own existing assets, which is how we do auto lending in the developed world, we use the car we're giving you as the collateral, but it's taking their time to create the technology and buy the technology to do that. So that somebody can get the tool in their hands so that they can lift themselves up.
I think that's refreshing to hear that with a business model, you can mitigate a lot of the credit risk, so that - I've worked for 20 years building and implementing risk models, I should be telling everybody listening to be careful, make sure you've got very complicated credit scores to protect yourself from risk - but actually, if we can create a good product and a match between us and our customers, I think it is possible. And I think you are an example of that, to lend to consumers without needing all these checks and balances that we sometimes put in the way when we're nervous.
Mayur Patel 18:57
The paradigm of 'let's collect as much information on a customer ahead of time, try and score them, and then provide them with an unsecured product'. We just don't think that works as well as putting an asset in someone's hands, asking them to pay a small deposit. And knowing that once they have access to that smartphone device, it's actually going to improve their ability to make a living. It helps them power the hairdressing salon and helps them advertise their business on WhatsApp, you're actually improving their ability to earn a living and also then to pay back the instalments just a much more compelling and sustainable model for working in the markets where we want to have an impact.
I mean, behind this there is a very sophisticated predictive credit model and we make adjustments all the time to pricing and instalment plans, and we have a lot of investment on the connected estate IoT side. And our loan book actually has been remarkably consistent. And particularly when it looked over the last three years, despite massive disruptions, and it's also been resilient in the face of high inflation.
And we think this is a model that can really continue to scale.
Brendan Le Grange 20:13
Yeah, and I think one of the things that we can sometimes forget when we do credit modelling that these are all tools to help us select consumers, they don't fundamentally change anybody's risk. It's just a selection tool, a different seive that you you're putting through. So I would say that there's some good lessons in here as well, for lenders in other markets where there may be segments of the market that are being underserved. And there may be a way to serve them by product design or by alternative data implementations that don't necessarily require somebody to have you in two years of data on a credit bureau.
So it's very inspiring for me to see that and to also hear what's become of the smartphone ecosystem, because as you say, the roots are in mobile money, which was quite simple and hard to export.
From there, it was really about working around bad infrastructure. As soon as we're embracing smartphone solutions, we're really talking about solving solutions that happen everywhere, or can be happening everywhere in the world. And so when I look around, I imagine the future waves of FinTech coming out of Africa, from these billion dollars of VC investment, is no longer necessarily going to be about how do I solve lack of access to power or to water or to finance, but something that might be just as useful for somebody in London or somebody in Boston. So yeah, really, a story worth keeping an eye on for all of us.
And already one of Financial Times fastest growing companies are two years in a row, you yourselves have also just got a big new shot of investment money, a big shot of confidence to power your growth through the continent. Or maybe you can talk to me more about where that growth is going to be happening.
Mayur Patel 21:51
We were very excited to announce earlier this year that we had raised $250 million in debt and equity. And that makes it one of the largest combined debt and equity rounds by a technology business in Africa. And it was support that we've received from some of our long standing partners, including Sumitomo, which is a Japanese investment company, and Standard Bank, which is one of the largest commercial banks in Africa.
And the reason we raised that additional capital was to fuel sort of the next phase of our growth, we've today reached over 3 million customers with our financing solutions.
And over the next couple of years, we really want that to become more than 10 million. And the places that we want to go deeper on the market expansion side.
The company was originally founded in Kenya, as we've talked about, and expanded to Uganda. And then over the last couple of years, we opened up in West Africa, beginning with Nigeria and Ghana. And we want to now see the entire business go into new markets. And so towards the end of this year, we will be launching in South Africa.
And then we're also deepening further on the product side, focusing more and more about how we can add additional financial services to our customers that we've already acquired on an asset financing basis. Because once a customer has paid off their first product with us, we've now got, you know, an incredibly rich data profile on them. That's unique.
And then the final bit as well as starting to think about what new asset categories and we will enter into one of those beyond smartphone financing is going to be on the E mobility side and really supporting the next wave of innovation that's coming to electric motorbikes into the markets that we saw.
Brendan Le Grange 23:35
Yeah, and Mayur, it's such an interesting story to follow it just for everybody listening to hear positive news of innovation and new business models coming to life in Africa that maybe don't always make the headlines, I'm sure a lot of people are going to be wanting to follow along maybe learn a little bit more about M-Kopa and what it's doing. So if they did want to do that, if they wanted to read some of the case studies on your website, see what their product looks like, where's a good place for them to go to learn more and to follow what's happening?
Mayur Patel 24:06
The best place would be to visit our website, which is m-kopa.com
And then also on LinkedIn as well, https://www.linkedin.com/company/m-kopa/
Brendan Le Grange 24:17
It really is a full ecosystem of financial products that are now available and you guys are at the heart of it. So it's been great hearing what, what happened there and how it came to life.
Mayur Patel 24:27
Thank you, Brendan, for having me on the show.
Brendan Le Grange 24:29
And thank you all for listening.
Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.
This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.
Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.