NextBillion - A WDI Publication

Serving a market of more than 600 million Africans without access to grid power, Acumen’s KawiSafi Ventures invests in energy access companies across the continent. In our work with the fund, we have invested in a portfolio of companies that are leveraging a model that customers have readily embraced: designing and distributing small residential solar home systems, made more accessible and affordable through PAYGo finance.

But one obstacle remains: how to front the capital required to meet a tsunami of demand.

It’s an all-too-common problem. Across Africa, founders are tackling some of the world’s most difficult development challenges with cleantech solutions that require significant capital expenditure. Nearly two-thirds of people in Africa work in agriculture, yet yields lag global averages — challenges that can be addressed by biodigesters and cold-storage units that boost productivity for farmers and small businesses. Rapid urbanization means 1.4 billion people will need clean, resilient and reliable transportation by 2050 — and in response, electric motorbike fleets now operate across the “boda-belt” (the East African motorcycle-taxi corridor). And carbon-removal technologies are crucial to slowing global warming, which is expected to hit African economies the hardest — a reality that has led to the proliferation of carbon-removal projects in the Rift Valley.

These ventures are critical commercial investments that are helping secure the future prosperity of Africa.

But though the continent’s emerging businesses are gaining traction in these and other sectors, with subsidies scarce, these companies must still show commercial viability. Many already do: Electric two-wheelers offer lower lifetime costs than petrol alternatives; solar irrigation can cut farmers’ energy bills by up to 80%; and Kenya’s geothermal baseload positions it as a promising future site for energy-hungry industries such as direct-air carbon capture, data centers and green-ammonia production.

Access to consumer finance has widened markets further. For instance, AI-enabled underwriting and mobile money platforms have put previously unobtainable products within reach of cash-poor households with no formal credit history. Lease-to-own solar kits, PAYGo pumps and per-use battery swaps — often with embedded financing built in — also generate the predictable, recurring revenues that attract venture investors.

Yet beneath this wave of innovation lies a capital architecture that is still too shallow to enable the scale these firms now require.

The capital challenge for cleantech ventures in Africa

Cleantech ventures are capital-hungry. Rolling out electric vehicle (EV) charging stations, distributing solar pumps or building biochar plants requires large upfront investment and substantial working capital. Equity can back early pilots, but it becomes painfully expensive as companies scale.

In asset-financed models like PAYGo solar, venture investors — sitting at the riskiest tier of the capital stack — absorb the brunt of demand volatility, currency devaluations and default risk. But the risk of default for products across the asset-based finance sector varies widely. Top-quartile PAYGo appliance operators post loss rates of around 11% at 48 months, compared with 27% among weaker players (according to our internal analysis at KawiSafi Ventures) — a gap shaped by market conditions, product mix and repayment cultures.

This spread raises perceived risk, making equity scarce. And even where equity is available, many funders cautiously price it for the weakest performers, making it expensive even for founders operating fundamentally sound businesses. As a result, equity funding for African cleantech deals has been drying up since 2022, especially at the seed stages of financing. Total funding fell 35%, from $296 million to $192 million between 2023 and 2024.

Debt has rushed to fill this gap. In 2025, cleantech attracted $627 million of debt financing, representing 38% of the continent’s overall debt funding and a 226% year-over-year increase from 2024. While the movement toward debt capital is a positive signal for the ecosystem and suggests a maturation in the size and types of deals getting financed, it remains highly concentrated within a few, large deals. And despite conventionally being a cheaper source of capital, it is being priced for equity-like returns. Debt deals between $250,000 and $1 million fell from 90 to 21 between 2022 and 2025, and where debt capital does exist, rates run from 10% to 27%, despite well-managed operators posting single-digit default rates.

Africa’s capital market is therefore not broken for everyone — but for the majority of cleantech ventures that have not reached scale, founders must choose between heavy dilution and expensive liabilities, stalling businesses at exactly the moment they need to grow.

The case for Off-Balance Sheet Special Purpose Vehicles

If equity and conventional debt fall short, what remains? Increasingly, African cleantech firms are turning to off-balance-sheet financing via special-purpose vehicles (SPVs) as an alternative means of securing upfront liquidity to finance growth.

In this model, receivables or usage-based revenues — typically the stream of small, regular installments customers pay for their devices (see below for full categorization) — are sold to a separately incorporated legal entity, the SPV. Since it’s a separate entity, it is legally isolated from the parent company’s balance sheet and shielded from its creditors in the event of insolvency. External investors then lend to the SPV against those ring-fenced customer cash flows, and the proceeds pass back to the parent company as upfront capital. The parent company continues to collect customer payments as before, but now it directs them to the SPV, and investors underwrite only those cash flows and not the parent company’s broader balance sheet.

The appeal to this financing structure is clear. Off-balance-sheet structures protect founders from dilution, improve leverage ratios and free up working capital. For investors, they provide short-duration (one to five years), diversified, asset-backed cashflows. For businesses, they mobilize private capital into climate-resilient solutions that would otherwise struggle to secure affordable financing.

However, not all SPVs are created equal. The success and underlying structure of an SPV depends on the predictability of future cashflows and the intended use of the funds.

In practice, three main models for generating future cashflows dominate: fixed-installment leases, usage-based assets and carbon-credits linked-cashflows. Each has its own mix of predictability, liquidity needs and foreign exchange exposure.

Source: Author interviews with founders.

Several African pioneers have already shown how powerful these structures can be. D.light, to take one example, has raised five SPV-based receivables facilities since 2020, totaling about $840 million — an inconceivable figure in the absence of off-balance sheet structures. This financing is expected to extend pay-as-you-go solar to roughly 10 million people across East Africa within two years.

Sun King has structured two SPVs to house landmark local-currency securitizations in Kenya, the latest a KES 20.1 billion ($156 million) issuance backed largely by commercial banks. The deal is expected to finance approximately 1.4 million solar products and smartphones in Kenya.

Elsewhere, Sistema.bio (a KawiSafi investee) reached a $53 million first close on FarmCarbon in March of this year, backed by BNP Paribas Asset Management Alts, British International Investment and Shell Foundation. The vehicle uses forward carbon-credit purchase agreements to pre-finance biodigester deployment, channeling capital directly to smallholder farmers. FarmCarbon aims to mobilize more than $1 billion over the next decade and finance over 90,000 Sistema.bio digesters across Africa, Asia and Latin America.

Towards deeper capital markets

While SPVs have enabled venture capital investors (VCs) to back firms with credible unit economics and proven demand, the foundations for this financial innovation remain fragile. Currency volatility, uneven repayment behavior, illiquid capital markets and a thin voluntary carbon market all pose systemic risks. SPVs can help, but only as part of a broader shift towards deeper capital markets.

For now, most SPVs remain costly, specialized and hard to scale. Arrangement fees — paid by capital-hungry companies to investment banks — can run into the millions. And unfamiliarity forces investors to demand heavy over-collateralization — i.e., more receivables sold into the facility than the value of securities issued — as well as additional credit enhancements such as cash reserves and first-loss tranches. Demands for consistent, auditable and standardized data on the underlying receivables performance adds further burden. Together, these frictions make receivables financing prohibitively expensive for all but the largest originators, and the broader movement risks stalling.

Yet these early efforts point toward a much bigger prize: country-level receivables utilities — pooled facilities organized by asset type — that buy standardized portfolios from multiple originators and issue asset-backed securities at scale. Designed prudently, such platforms promise economies of scale, genuine diversification and access to domestic institutional capital through well-structured asset-backed securities, ideally denominated in local currency.

The demand for this sort of platform is there, and Mozambique’s Rooftop Solar Financing Facility, announced in early 2025, points to how this can evolve: The facility is a $20 million vehicle purchasing PAYGo receivables from several different solar distributors, and recycling its amortized capital into working capital for firms too small to tap bank loans themselves.

History warns investors against bespoke complexity. Social impact bonds have not yet scaled to their potential due to high transaction costs, while the sub-prime mortgage crisis in 2008 showed how opacity, adverse portfolio selection and inconsistent reporting can destabilize markets and destroy trust. Receivables financing needs to avoid both traps. Standardized contracts and liability agreements, robust credit risk management,  pre-qualified debt servicers and standardized rules for how cashflows flow to investors could help cut due diligence costs and turn one-off structures into a repeatable asset class. Additionally, shared data schemas  — i.e., common templates for how project and performance data is recorded and reported — could ensure that investors, companies and rating agencies are all working from the same information in the same format, rather than conducting bespoke data collection for each deal. Initiatives such as PAYGo PERFORM are beginning to build the comparability required for investors to approach these portfolios with confidence.

But even then, risks persist. “Diversified” pools can still move together during currency shocks, global supply chain disruptions or elections. Foreign exchange exposure remains even with local-currency issuance, when supply chains touch the dollar or renminbi. Stricter know-your-customer (KYC) requirements may sideline informal customers, and divergent securitization laws limit cross-border pooling.

The path to deeper capital markets therefore lies in the plumbing: transparent data, enforceable legal frameworks, and predictable and consistent debt servicing. With these foundations, receivables financing could move from a niche innovation to a scalable asset class able to attract international and domestic sources of institutional capital.

The case for cautious optimism

Assuming continued growth, receivables financing is unlikely to close Africa’s $277 billion annual climate-finance gap on its own. This asset class could scale to low multi-digit billions annually from an estimated $708 million in 2023 — modest at the macro level, but potentially transformative for off-grid solar, EV charging and productive-use assets.

The longer-term goal is the shift from VC-funded pilots to commercial, infrastructure-like growth. To realize this growth, domestic pension capital will need to be mobilized. These pools remain heavily weighted towards government bonds, and they are largely absent from private-sector risk today. Repeated issuance, proven performance histories and consistent transparency, granularity and discipline could gradually draw these pools of capital in. Done well, off-balance-sheet financing could become a cornerstone of Africa’s cleantech transition.

Julia Lawson-Johns is an MBA candidate at Harvard Business School, focused on the intersection of climate innovation, financial inclusion and the energy transition; Amar Inamdar is an investor, scientist and entrepreneur, and the Managing Director of KawiSafi Ventures.

Photo credit: arthon meekodong