“The Solar Home Systems (SHS) space in Kenya is often perceived to be crowded. However, given the scale of electrification and the lack of market penetration by the incumbent players, we do not believe there yet exists a strong competitive dynamic in the space.”
Such is the reason given by Maurice Parets, chief executive officer (CEO) of Kenyan startup Pawame, for his company going up against more established competitors like M-KOPA Solar in the off-grid space in East Africa.
Launched in 2016, Pawame is an off-grid home solar company. With its pay-as-you-go (PAYG) Solar Home System, customers can benefit from clean and affordable electricity, whilst also building a credit history that can unlock access to other products and services, such as TVs, solar water pumps, and school loans.
“There are eight million off-grid households in Kenya and since their inception, incumbents have only captured perhaps 10 per cent of the market. The opportunity and challenge is what we relish and is what prompted us to launch Pawame,” Parets said.
He believes Pawame sets itself apart via better quality products, comprehensive after-sales services, and longer and more flexible repayment plans to the SHS market.
“We do, however, relish competition, and strongly believe that the off-grid space in Kenya today is characterised by a relatively collaborative approach, driven by common challenges faced by members of the off-grid community,” he said.
“We believe that Kenya offers many opportunities for growth in the near term, particularly given Pawame’s relative emphasis on frontier counties where competition is still scarce.”
The startup, which claims its “sweet spot” is at the bottom of the low income – US$2-US$10 per day – segment, has so far raised US$1.8 million in equity funding through mainly Gulf-based investors. It is also accessing significant quantities of debt funding to finance inventory and working capital, including US$150,000 from TRINE, a Sweden-based provider of structured crowdfunded debt.
Uptake has been encouraging.
“We can proudly say that we have already connected 4,000 homes to solar power in Kenya, touching the lives of more than 20,000 people. By spreading the high costs of solar energy over time and allowing payments via mobiles, the benefits we offer have been well-received and demand has been strong and should remain so,” said Parets.
“We do know that there is a lot more ground and the potential is infinite. This is why we are confident that we will hit our goal of 155,000 households well before schedule.”
Pawame is active in 10 counties in the south and west of Kenya, including Turkana, and Parets said the aim for 2018 is to capitalise on the startup’s initial success and reach 20,000 new households by deepening its existing presence, expanding into more counties in Kenya, and entering one or two new countries outside Kenya.
Pawame distributes and finances solar home systems and related appliances, making a margin on both.
“During the course of the repayment, we gather information that feeds a proprietary credit scoring methodology,” Parets said.
“Once the solar home system is paid off, we aim to extend the customer relationship with a portfolio of other life-enhancing products, which we can offer to customers on attractive credit terms they cannot access anywhere else.”
Accessing adequate financing is the startup’s biggest challenge.
“Ours is a working capital-intensive business, and so having access to an adequate supply of low-cost capital is critical. We have been fortunate to date to attract supportive, visionary equity investors and we have for the first time started to access significant quantities of debt for working capital financing,” said Parets.
“There are, of course, also the challenges one would expect with building out and scaling a distribution business in rural Africa, but these are largely within our control and the more we learn the more we are confident we are of being able to master these.”