Tinashe Mukogo & Musekiwa Samuriwo
BIMA’s subscribers are far from millionaires but focusing on the millions of underserved consumers, BIMA is now valued at over $100 Million.
One of the commonly discussed drawbacks about building a business in Africa is that most African consumers are low income, a fact that cannot be denied. The average annual income in Sub Saharan Africa is $2,041, thirteen times lower than that in the European Union at $27,555. As a result, companies tend to focus their efforts only higher income individuals in Africa or, more commonly, disregard Africa entirely and continue to focus on wealthier developed markets. The result of this is that Africa has many more ‘underserved markets’ relative to the developed world.
Whilst underserved markets usually are an entrepreneurs dream, in Africa, these markets are rarely seen as attractive because they are comprised of low-income consumers, and ‘conventional’ wisdom states that these consumers are not profitable because they simply cannot afford to buy the relevant goods or services. We would like to challenge that thinking. We believe that where a clear value proposition exists, low-income consumers are not only able to afford, but actually willing to pay a premium higher than wealthier consumers in developed markets. This idea is not new, many similar insights can be gleaned from C. K. Prahalad’s teachings in his book, The Fortune at the Bottom of the Pyramid, but to take our own advice, our starting point is an insight gained from directly observing the African market.
The Premium Paying Poor
In Zimbabwe, there is an unusual but thriving business, whereby entrepreneurs install the popular messaging service WhatsApp on cheap imitation phones that cannot access the official Google Play Store. The usual customers are low-income individuals who rarely have an email account or access to Wi-Fi. Interestingly, the charge for installing WhatsApp is US$3, though officially WhatsApp is free and at its peak cost only US$1.This means the low-income consumer is willing to pay 300% more for WhatsApp than the company has ever charged users. Why? The value of affordable communication, especially with people far away in the city or rural areas, is so high that low-income consumers are willing to pay a premium without blinking. Interestingly, if WhatsApp were to raise the price of the app from free to US$3 in the United States, there would likely be some significant consumer backlash, hence why WhatsApp is always quick to dismiss rumours of WhatsApp starting to charge a fee.
Another example is M-Kopa, which supplies and finances solar systems for low-income households in Kenya. When one compares the difference between the cash price vs. instalment price for the M-Kopa 400 solar system the effective interest rate paid by the low-income consumer is 33%. In the formal Kenyan banking sector where loans are granted to higher income consumers, the bank with the highest interest rate for its personal loans is K-Rep Bank at 25.7%. On Lending Club, the popular peer to peer lending company based in San Francisco, the top lenders achieve an interest return of 5.7%. In both cases, lower-income consumers are paying a premium. In addition, the premium cannot merely be default risk, as in principle there is less default risk with lower income consumers owing to the small but frequent repayments and diversification i.e. 10,000 people repaying $1 per day rather than 1 person repaying $10,000 at the end of the year.
A final example would be BIMA, the microinsurance company started in Ghana. BIMA focuses on low-income consumers — 93% of BIMA’s customers live on less than 10 USD per day and 80–95% have never had access to insurance. Whilst many insurance companies have struggled to grow, BIMA, by focusing on lower-income consumers, has grown in 6 years to 27 Million subscribers in 16 countries whilst charging a premium as low as $0.20 per month. BIMA’s subscribers are far from millionaires but focusing on the millions of underserved consumers, BIMA is now valued at over $100 Million.
What does this all mean?
As tech entrepreneurs in Africa rather than discount or ignore lower-income consumers we should focus on developing solutions specifically for this customer base more than any other. After all, this is the biggest market by far with 400 Million Africans living on less than $2 dollars per day. This approach requires a mindset shift because the majority of global tech superstars and cult icons (think Apple, Tesla, Facebook, Uber) tend to create products and services that are focused on individuals with higher incomes. So as a tech entrepreneur in Africa your flagship product launch may not take place in a glamourous spaceship looking HQ like Apple, but rather in a taxi rank in a high-density suburb, surrounded by street vendors. This is where your advantage will be.
That said, the average African consumer will not always be low-income, the tide is soon to change over the next generation with the rise of the African labour force. More of this is the next and final article in this series.