Catherine Wolfram, University of California-Berkeley

A large existing literature finds households in developing countries have insufficient access to credit and savings technologies. The proliferation of mobile phones and mobile banking systems, paired with energy-using devices, have the potential to transform the credit market. For example, pay-as-you-go (PAYGO) contracts have emerged as the leading financing arrangement for the sale of solar home systems in the developing world. The typical PAYGO contract requires the customer to make a nominal down payment to take possession of the product followed by frequent small payments, often made via mobile money, that unlock the product for some amount of time or usage. The PAYGO system relies on embedded “lockout” technology, which allows the seller to cheaply and temporarily make the product unusable. In this project, we will show how the proliferation of PAYGO solar home systems have facilitated an innovative financial contract that utilizes a new form of collateral. We will then explore the extent to which this collateral can be “re-used” to provide poor households with affordable and recurrent access to credit markets.