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Micro-Energy Alliance: South Africa, micro-franchise laboratory
Launched by PlaNet Finance and the Citi Foundation, the Micro-Energy initiative is aimed at designing solutions to combat energy poverty in South African semi-urban areas. Among the experimental approaches used, priority is being given to micro-franchise and solar power.
Their goal is to design commercial offers combining eco-efficient products with micro-financing. To distribute them, PlaNet Finance is also trying out an innovative micro-franchise system based on a network of franchised entrepreneurs, to facilitate large-scale deployment.
On paper, micro-franchise presents many advantages, but the problem is to find the right mix (product, price, training and maintenance). This is a real challenge, which if it is to be met requires time and a true innovative approach.
Regions that are representative of energy poverty in Africa
Boland, a semi-rural area in the south, in Cape Province, and a suburban area further north, in the Pretoria region – as Mehdi Dutheil from PlaNet Finance explains, both places chosen are representative of semi-urban areas where population increases will be concentrated over the next 20 to 30 years.
Most of the inhabitants live in detached houses that are not connected to the electricity network. As a result, for heating (in July, the night-time temperature is 5°C in this part of the southern hemisphere), cooking and lighting, most people use energy sources that cause pollution or are running out: mainly kerosene and wood.
The alternative solutions, such as solar water heaters and improved cooking ovens, that the Micro-Energy Alliance is proposing are as yet not very widespread.
Identifying the obstacles
There are indeed numerous obstacles. Some residents have unauthorised connections and therefore are used to getting free electricity. Others consider, rightly or wrongly, that they have a right to free access to energy and hot water… In fact, certain candidates promised this in the spring 2011 local elections.
In this context, for Mehdi Dutheil of PlaNet Finance, the key to success is showing the example. “As long as they haven’t seen someone operating a specific solar-powered system, they remain extremely cautious.” Another key to success: a well-thought out marketing approach.
Choice of target audience and product: BoP Marketing
Mehdi Dutheil, 35 years old, is a graduate of the HEC Business School and a specialist in BoP Marketing, a market creation model that aims at meeting the essential needs (water, food, energy, health care and education) of the poorest – what Professor C.K. Prahalad called “bottom of the pyramid” (BoP).
Mehdi and his team learned to identify target audiences for their pilot schemes and to distinguish the BoP “segments”, in other words the homogenous groups of potential customers. They are people who live in unplanned housing developments (without housing permits), with monthly incomes of between 100 and 200 euros. And what’s their activity? Split between blue collar workers, self-employed, those not working, retired and domestic workers. Also, they correspond for the most part to those targeted by partner MFIs.
From the solar-powered water heater to the “Wonderbag”
Meetings between residents and MFIs also helped define priority products: solar-powered water heaters that also recharge telephones, and clean cooking ovens, but also “Wonderbags” that have convinced more than one unbeliever. These insulating bags allow pots of food to continue to boil off the stove, saving precious fuel. 150,000 are already being used across South Africa…
Multiply R&D with microfinance
After the exploratory stages, Micro-Energy Alliance designed several tests with its partners, before introducing micro-franchise. With Wizzit, for example, “energy savings accounts” were tested. This system consists of saving on a bank account associated with a mobile phone – saving is mandatory in order to be able to make a purchase. Once the customer has saved enough for the price of a cooking oven or water heater, he or she can become its owner.
With Kuyasa Fund, an MFI that specialises in home loans in the Cape Region, solar-powered water-heaters are propose with microloans. Demonstrators have been installed in an MFI agency built in a container with a corrugated iron roof, just like in the homes of neighbouring residents.
However, Mehdi Dutheil and his team are focusing their energy on the micro-franchise solution, being tested since spring 2011. After the first six months of being introduced, “the model is now clearer” and several positive signs have been noted, in particular the fact that the franchises buy a considerable amount of buffer stock. “They are starting to believe in the system and they have a smile on their faces!” Mehdi Dutheil is pleased to say.
Is microfranchise the future of microfinance?
At the end of 2011, some twenty agents franchised by the Micro-Energy Alliance were proposing the chosen range of products. They have in common a brand, a catalogue, training and sales procedures. Each one has a bank account on a mobile phone through a partnership with Wizzit. The pilot scheme will continue in 2012 with the goal of supplying 1,000 households through 100 franchises.
On a long-term basis, the franchise system could be copied and deployed on a larger scale. The franchised agencies could be ideally situated for supplying other essential items (water, medicine, etc.).
In line with this, the MFIs’ role would become greater than their current one: they would fund packages, sorts of “businesses in a box”, marketed by their franchised agent. These agents would gradually be able to attain the quality of life of the South African middle classes, while end-customers would have greater comfort on essential needs.