As we look back on our time in Kenya, there are three key lessons that emerge from our time here:
- Meet your customers where they are. In East Africa, this also usually includes an aspect of education as a means of empowerment.
- In a developing economy, beware the narrow solution. If you want to solve one problem, you are going to have to solve many other problems along the way.
- In a low-income country, most of your customers are going to be low-income. While many companies around the world profess social missions, companies in East Africa must consider social impact and customer empowerment to access their consumer base and support long-term growth.
Lesson #1: Meet your customers where they are. In East Africa, this also usually includes an aspect of education as a means of empowerment.
Our first company visit was with Equity Bank, which professes to be “the most financially inclusive bank in the world.” When Equity Bank first started in the 1980s, 96% of Kenyans were unbanked. Now, less than 20% of Kenyans are unbanked, meaning that most Kenyans have access to the benefits of a formal banking system, such as the ability to build credit, take out loans, and start businesses.
But transitioning 10 million people from “under the mattress” savings to bank utilization was no easy task, particularly given the cultural norms and prohibitive financial policies that provided barriers to Kenyans entering the banking system. The CEO of Equity Bank, James Mwangi, shared with us, “We had to change the way banks “look” to customers. We had to give people pride and honor when they walk into a bank. They had to believe that they could do it.”
For Equity Bank, meeting their customers looked like:
- Removing financial barriers to banking, such as a) introducing a no-minimum balance policy, b) allowing for limited documentation to open an account (ID only), c) creating an affordable system with no maintenance or account fees, and d) increasing the liquidity of cash for customers by removing restrictions on withdrawals.
- Building a shared prosperity model by empowering customers to build small businesses as local “agents” of Equity Bank. Forty thousand Equity Bank customers serve as agents for the bank, serving as one-person branches for deposits, money transfers, and withdrawals. A full 17% of Equity Bank is actually owned by customers.
In his departing words, Mwangi said, “Equity Bank doesn’t have a commercial purpose, but a social purpose. We don’t have customers, but rather members of a social movement. Our customers say, ‘I am a member of a movement that is making Africa better.”
Lesson #2: In a developing economy, beware the narrow solution. If you want to solve one problem, you are going to have to solve many other problems along the way.
On Tuesday, we attended a start-up panel focused on financial inclusion in the region. We heard from Hillary Miller-Wise, CEO/founder of Tulaa, and Hillary Sang, Project Manager at Pula. Tulaa provides smallholder farmers with quality agricultural inputs on credit and brokers the sale of their crops at harvest time. Pula is an early-stage company based in Kenya that offers agriculture insurance to smallholder farmers.
Both panelists shared that in order for companies to be successful in East Africa, business leaders must be willing to solve multiple problems at once. For example, Hillary Miller-Wise originally thought Tulaa would just be a broker for farmers and crops, but the banks in the region still run on a paper-based system. Loans would take 3-4 weeks to be processed, and by that time farmers would miss the whole season. Miller-Wise quickly realized that Tulaa would have to underwrite the loans themselves.
Hillary Sang faced a similar learning curve. In 2017, Pula began incorporating some more advanced voice technology to collect data from farmers. The farmers would receive an automated call and speak their responses into the phone. But the farmers weren’t speaking—the calls were from an international number, and most farmers had never received an international call in their life! The technology was too advanced for the current stage of the customer.
Miller-Wise left us with one of the best quotes of the day. “Silicon Valley investors,” she said, “will tell you that you have to solve for one problem in one market. That doesn’t work here. When I hear that, I say ‘Thank you very much’ and walk away. Here, when you try to solve one problem, there are five other problems you need to solve for at the same time. As a business leader in East Africa, you need to find investors who actually understand what it means to operate in this market.”
Lesson #3: In a low-income country, most of your customers are going to be low-income. While many companies around the world profess social missions, companies in East Africa must consider social impact and customer empowerment to access their consumer base and support long-term growth.
At M-KOPA, we met with Betsy Riley, Chief of Staff, at the company’s Nairobi headquarters. M-KOPA is the leading pay-as-you-go solar solution in Kenya. It sells and finances solar panels to customers who lack energy access across East Africa. It ensures repayment by including a SIM card in its systems, through which it could turn the system on and off as customers make mobile payments via M-PESA. As of January 2018, M-KOPA has connected over 600,000 homes to affordable solar power with 500 new homes being added every day. Current customers will make projected savings of $450M over the next four years, and M-KOPA customers will enjoy 75 million hours of kerosene-free lighting per month.
Here are three ways that M-KOPA considers its role as a double-bottom-line company:
- Customers pay 50 cents/day for energy, but if they can’t pay (or don’t need power for that day), they don’t have to and are not penalized. This approach makes the energy affordable to East Africans, who generally operate with a daily cash flow (vs. weekly/biweekly) and allows the customers the flexibility to prioritize or deprioritize energy with the rest of their needs.
- After one year, customers with good credit can upgrade to other M-KOPA products. A very popular product is a television, which Riley asserts comes with a strong social power. “We think of TV as a lifestyle product,” she said, “but it’s really transformative for our customers. It provides access to news and information.”
- M-KOPA’s R&D department is grant funded and looks to understand what customers will need and want in the future. Riley shares that there is sometimes a difference between what a customer will say they will pay for and what they will actually pay for—which is why market testing is key. One failed product, for example, was a fridge; customers only used half of the fridge space, but they didn’t want a half-fridge—they wanted it to look like a real fridge.”
Lindy Gould ’19 is an MBA candidate at Columbia Business School.