Fast Lessons: securing payment

Landis + Gyr's Cashpower system, developed entirely in South Africa and sold around the world, deftly solves the problem of delivering infrastructure services to the poor by allowing them to pay upfront. They list a vast number of advantages:

• Payment is up front
• No meter readers required
• No account posting or additional billing system required
• Elimination of bad debts
• Elimination of disconnection and reconnection fees
• Complete revenue management
• Fraud control
• Collection of monthly rates or standing charges
• No need to access the consumer's property
• Elimination of inaccurate meter readings

The most important lesson is this: get paid up front. More importantly, the poor expect it.

There are no credit risks where this happens. Electricity and water - basic utilities - are sold in this way. So can everything else. If you have to extend credit then trust relationships are crucial. The Grameen Bank model of only lending to trusted self-help groups becomes your only way of safely lending cash into the community.

Business consultants working on behalf of the Umsobomvu Youth Fund have an attrocious record for getting the business plans they produce funded. The overall rate is less than 15%. Banks have expressed the desire to fund aggregated bundles of loans provided by consultants - as long as they know whether or not the consultant can be trusted.

Trust has become one of the most important issues in lending to, and dealing with, the informal sector. With few links into the formal credit ratings market, reputation assessement is essential for creating products that lower costs by reducing default risks. Direct research by Whythawk Ratings

Fast lessons for securing payment:

• Get paid up front
• If you can't, find out if the person is a member of a stokvel and lend to them and ensure they are responsible for paying you back
• Build trust relationships with accurate and extensive risk ratings through derived or direct assessments