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PICTURE this: a world where affordable solar panels and smartphones become accessible to those who need them most, even in the most remote corners of Africa.
It’s not a far-fetched dream any more, thanks to M-Kopa’s latest funding round that would allow it to acquire up to 100,000 new customers a month and expand its product portfolio across the continent.
Its target markets include South Africa, which has been plagued by pesky power cuts even as it runs pilot projects to finance electric motorbikes to the capital on the growing demand for e-mobility on the continent.
The Nairobi-based company recently commenced operations in Ghana after its foray into the Nigerian market in 2021 showed demand for its service offering.
M-Kopa, founded in 2011 by former executives of Vodafone’s mobile money service M-Pesa, has sold more than 1.5 million solar home systems and 1 million smartphones to low-income households without electricity and formal banking services.
As of March 2022, it had reached 2 million customers across four African markets, with the latest funding haul setting it on course to become the dominant player in that space, possibly a unicorn.
Only a handful of African startups have achieved unicorn status — a valuation of more than US$1 billion — so far, including Flutterwave and Interswitch, two Nigerian payment companies; Jumia, an e-commerce platform; Fawry, an Egyptian digital payments provider; and OPay, a Chinese-backed super app.
M-Kopa has often declined to disclose its current valuation, but recent development shows it is not far off from becoming Kenya’s first unicorn.
Its high growth prospects and backing by high-profile investors could also bolster its projected revenue growth, profitability potential and market capture.
Last year, Jesse Moore, M-Kopa CEO and Co-founder said the firm would expand to more markets across Africa and scale to over 10 million customers in the next few years.
In the new fundraising deal, Standard Bank is providing $100 million of the $202 million debt financing for M-Kopa, with funds accessible as the company acquires new clientele.
Additional lenders include the International Finance Corporation, contributing $65 million; Lion Head’s Group, an investment bank focusing on frontier markets; and British International Investment, the UK’s institution for development financing.
Having initially invested US$5 million in 2018, Sumitomo Corporation is now injecting an extra $36.5 million, constituting the largest portion of the US$55 million equity segment within the comprehensive fundraising effort.
However, despite its expansion push, M-Kopa faces significant challenges and risks top, being the high default rate of its customers, which is about 10%, according to Moore.
This rate is high by banks’ standards but low enough to run the business at or near profit.
But, it also reflects the vulnerability of M-Kopa’s customer base, mainly of low-income households exposed to shocks such as droughts, pandemics and currency devaluations.
These shocks could affect their ability or willingness to repay their loans, jeopardising M-Kopa’s cash flow and reputation.
“We’re clearly in a tough time right now. We’ve got high levels of inflation. And then you’ve got currency devaluation.” Still, he added, credit quality had improved over the past 15 months,” he said.
“In this current environment, it is no longer a growth-at-all-cost mentality,” he said. “It is important to investors to see a clear path to profitability and profitable growth, which we are very much on the pathway towards.”
Despite challenges, M-Kopa remains optimistic about its prospects and ambitions. The company aims to reach 10 million customers by 2025 and become Africa’s leading provider of digital finance solutions. The company also hopes to contribute to Africa’s energy transition and climate resilience by replacing kerosene fuel with solar power and empowering women with smartphones.
