In-House Financing

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Overview

When using In-House Financing, the enterprise covers the upfront costs itself. This usually occurs when the product is expensive, such as a solar home system or community power system. In some cases the social enterprise offers credit to customers, who pay back over time (similar to a bank loan and with interest). In other cases, the enterprise builds long-term fees into the product purchase, such as rentals, recharge fees, or maintenance from a central facility. This model works best when the enterprise has leverage over the customer’s willingness to pay, for example, the ability to cut power for non-paying customers.

Pros

Customers can’t afford the purchase price up-front and no financing partner is available. Also, if the product requires long-term maintenance, and ongoing fees create incentives for franchises and employees to provide maintenance.

Cons

Getting customers to repay loans can be challenging, especially when it is too expensive or politically problematic to remove a system once it is installed. Getting customers to pay rental fees can be expensive for the social enterprise, especially if the enterprise has to go to the renter to collect. Generally, this model requires a high-touch distribution system to maintain a long-term customer relationship. Because the enterprise finances purchases with its own resources, growth is constrained by how much internal capital exists.

Case Study

Zolair Energy

Zolair Energy leases zinc-air fuel cells which power off-grid homes and businesses in Southern Africa.

Because the fuel cell itself is well outside customers’ range of affordability, and because the fuel cells must be recharged, Zolair Energy developed a pay-as-you-go model. The fuel cell is installed for free, and customers purchase energy vouchers through local service stations or authorized sellers that they use to activate the fuel cells via SMS.  Once activated, the flow of electricity is unlocked, and the fuel cell can then be used to power just about any electronic device or appliance.  The service stations recharge the fuel cells, sell accessory products, and serve as educational and community centers with internet access and photocopying.

Enterprises