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This paper was written by MAF Lab (previously PAYGo Lab).
Executive Summary
This paper explores viable and scalable solutions for rural asset finance to support struggling PAYGo companies and other Last Mile Distributors (LMDs). PAYGo companies and other LMDs providing asset financing solutions to their customers are struggling to sustain operations under a broken business model. The pressure to hit short-term sales targets weakens loan repayment quality and undermines investor confidence.
Rural asset finance to low-income households is key to promoting asset ownership (which has strong developmental impact), but faces systemic challenges. Asset finance refers to loans or leases that allow borrowers to utilize physical assets while they pay for those assets over time. Rural asset finance faces distinct challenges contributing to high credit risk: (1) the client base is informal, dispersed, and suffers from income volatility and external shocks; and (2) the assets that are financed have low value, depreciate quickly and are expensive to repossess.
This study takes a practical, field-based approach to designing workable solutions to financing rural assets, examining current practices, perspectives from LMDs and financial service providers, and proposing design principles for an Asset Finance Intermediary.
Research supported by:
