Sumitomo invests US$36.5 million in Kenyan fintech firm M-KOPA

Kenya-headquartered African fintech M-KOPA, which provides digital financial services to the unbanked, has secured US$250m in debt and equity financing. Japanese conglomerate Sumitomo Corporation contributed US$36.5m to the US$55m equity segment of the funding round, augmenting its initial 2018 investment in M-KOPA. Standard Bank Group, the International Finance Corporation, British International Investment, and Lightrock were among the other prominent participants in the fundraising round.

Established in 2010, M-KOPA uses the digital platform to offer products to individuals with limited financial identities and conventional collateral. The company started out by providing pay-as-you-go (PAYG) solar energy systems to rural households in Kenya. These kits – comprising a solar panel, LED lights, a USB phone charger, and a portable solar radio – are made available to customers against a deposit. The balance is then paid in small instalments via the mobile money platform, M-Pesa. GSM sensors in the equipment allows M-KOPA to regulate usage based on payments received: if a customer stops paying and runs out of credit, the system ceases to function.

Over time, M-KOPA widened its offering to include products such as smartphones and health insurance. The company has also expanded into Uganda, Nigeria, and Ghana, selling over 3 million financial products and providing more than US$1bn in cumulative credit since its inception.

Sumitomo Corporation has bolstered its interests in Africa's technology and digital sectors. In 2020, it entered a strategic alliance with the UK-based Vodafone and, as part of a global consortium, they secured a new telecoms licence in Ethiopia. This partnership led to the introduction of Safaricom Ethiopia in 2022, making it the  first foreign telecom operator to be given license to operate in the country. M-KOPA plans to harness Sumitomo's strategic partnerships to boost its customer growth and reach new markets, including regions where Vodafone operates. Moreover, Sumitomo's broad business networks are anticipated to support M-KOPA in the development of new products and services, such as electric motorbikes and various digital services.

The African market for IoT-enabled PAYG household solar systems has ballooned in recent years. Total solar home system (11-50 W) users on the continent grew from 165,000 in 2012 to over 11.6m by 2021, with PAYG currently accounting for about half of sales of these and related products in sub-Saharan Africa. 

Among the variety of other companies engaged in this sector is Sun King, previously known as Greenlight Planet, which operates in several African countries. Last year, the company garnered an additional US$70m investment, supplementing its initial US$260m Series D round. This extension was led by LeapFrog Investments, a private equity firm in which Singapore's state-backed investor, Temasek, holds a minority stake. Other notable competitors within this field include Bboxx, Zola Electric, Lumos, and Engie.

The PAYG technology, initially applied to finance solar energy kits, is now being used across a variety of electronic devices. It is not only enabling consumer finance for products such as smartphones and electric motorbikes, but also underpinning the provision of digital financial services. Moreover, companies are using their PAYG data on customer payments and energy usage to 'cross-sell' new products and services. Many, like M-KOPA, started with one product and progressively added more. For example, Sun King has recently included clean cooking solutions to its product portfolio through the acquisition of Nairobi-based PayGo Energy. The company’s technology uses a PAYG system tied to a smart meter on a liquefied petroleum gas (LPG) cylinder, allowing customers to buy LPG in affordable instalments. When the customer's credit depletes, the gas supply stops until the next payment.

References

‘East Africa: Rural, off-grid consumers can now watch TV’, How we made it in Africa, 19 February 2016

‘Temasek commits $500m to impact investing specialist LeapFrog’, Financial Times, 9 March 2021

‘Off-grid solar market trends report 2022: State of the sector’,  World Bank Group, October 2022

‘Sun King expands its Series D to $330M with additional investment of $70M led by LeapFrog Investments’, Sun King, 15 December 2022

‘Off-grid renewable energy statistics 2022,’ International Renewable Energy Agency, 2022

‘Capital increase for M-KOPA, a digital financial services company in sub-Saharan Africa’, Sumitomo Corporation, 15 May 2023

‘M-KOPA snaps up $250M+ debt, equity for its asset financing platform’, TechCrunch, 15 May 2023