NextBillion - A WDI Publication

Pay-As-You-Go (PAYGo) solar has done something remarkable. It brought light and power to millions of rural households that the grid never reached, and it showed that these customers will use the installment payment model to purchase assets that improve their lives. But it’s now confronting a challenge that puts this accomplishment — and the financial health and viability of both PAYGo businesses and their customers — at risk.

I have worked in this sector for most of its history, as an entrepreneur and later as an adviser. I believe PAYGo faces a credit problem that affects customers, and holds back companies and funders. The good news is that the problem has a clear root cause, and that cause can be fixed.

What PAYGo achieved, and what went wrong

The idea behind PAYGo is simple. A customer gets a solar home system and pays for it in small installments. If payments stop, the system switches off, like prepaid energy. Off-grid solar has grown fast. According to the 2025 market report from GOGLA, the global association for the off-grid solar energy industry, “GOGLA affiliate companies are now serving over 148 million people with solar energy kits.” Though most of these are small solar lanterns purchased with cash, PAYGo has made larger solar home systems affordable for many rural households.

But a solar home system sold on credit only produces impact when the customer can pay for it and ends up owning it. And on this point, the numbers are sobering. 

MAF Lab, an advisory firm focused on PAYGo credit that I co-founded and led until 2025, tracks the performance of PAYGo loans across the sector. According to a paper by MAF Lab and Acumen, customers in sub-Saharan Africa had repaid on average 71% of what they owed at one and a half times the loan term, and only 51% had fully repaid their loan by then. More recent MAF Lab data show that even at twice the loan term, only about two in three customers had become owners.

GOGLA’s own data point the same way: Across 17 country operations of seven major PAYGo companies, customers had repaid on average 72% of the contract at twice the loan term. For comparison, according to the same paper, microfinance institutions (MFIs) making loans of a similar size typically see repayment rates of 95% to 99%.

Why it went wrong: one company, two jobs

So what accounts for these lower repayment rates? The problem boils down to a sector-wide misalignment in solar companies’ core business activities, as PAYGo essentially turned every distributor into a lender. That is a lot to ask. A distributor already has to buy stock, run logistics, sell and install solar home systems, and provide after-sales service. Lending well is a different job, requiring different core capabilities. It depends on careful credit checks, clear explanations to customers and patient follow-up.

The two jobs pull in opposite directions. Sales teams have targets for this month. The cost of a bad credit decision shows up months later, somewhere else in the company. Growth also hides problems: New loans dominate the portfolio, while trouble in older loans takes time to appear.

The way the sector was funded made this worse. For years, many funders and donors counted every sale as impact, so the companies that grew fastest raised the most money. And companies that could not raise funding had to sell more, since sales at least brought in cash from down payments and potentially from end-user subsidy schemes. Credit checks became very short. Of the more than 40 distributors MAF Lab supported, most left the credit decision largely to the field agent. A call centre then did a quick Know Your Customer check, usually aiming for 5 to 10 minutes per customer.

One case from my own experience shows how fast this can happen. Since 2021, I had supported a PAYGo company in East Africa that had greatly improved its credit management. It had built a proper credit team that checked whether customers could repay, to prevent over-financing. Then a results-based financing (RBF) scheme started. Sales grew by more than 250%, while the credit team stayed the same size. The average credit assessment dropped to about six minutes. No one decided to lower credit quality. But sales went through the roof, and repayment looked good at first, because most loans were still new. The thinking was that lower prices had made the product more affordable, so credit checks could be lighter.

In response to this issue, at MAF Lab, we helped these distributors improve their credit management. In a previous NextBillion article, Dan Murphy and I pleaded for the sector to embrace this priority, integrating responsible credit management and cash flow discipline into a financially sustainable model we termed “PAYGo 2.0.” And as our research shows,  better credit management can increase repayment rates by around 7 percentage points. But when we came back to those distributors just months after the end of our nine-month long interventions to embed better credit management into their business models, many of those credit improvements had been rolled back. The pressure to sell kept winning.

Who pays the price

Meanwhile, the consequences of this ongoing issue are exacting a price from every stakeholder across the sector.

Customers pay first: A customer who cannot pay loses the product, and with it the money already paid. But many customers do not realise they are taking a loan. They see their payments as buying “energy tokens,” like topping up their minutes in a prepaid phone. So when they stop paying, they don’t expect to lose the product, or the money they have already paid for it. And customers who do pay carry the cost of those who don’t: The World Bank’s ESMAP Off-grid Solar Market Trends report 2024 estimates that bad debt makes up around 24% of the retail price of an average PAYGo system.

Companies pay next: A weak portfolio means less cash coming in, constant stock-outs and stalled growth. This is not only a PAYGo problem. In a 2025 MAF Lab survey of 27 last-mile distributors, selling solar systems but also clean cooking, phones, motorbikes and irrigation equipment, two thirds offered credit in-house, with most of them claiming they were doing it because they had no other option. The survey also showed that 78% of distributors agreed that PAYGo companies struggle to assess and manage credit risk effectively, and that 70% agreed that customers often misunderstand their PAYGo contracts. As one of them told us, they were not good at pretending to be a bank. 

Funders pay last: Many have lost confidence in PAYGo loan books. Funding is now concentrated in a handful of large companies. The smaller, locally owned distributors, often closest to rural customers, find it hardest to raise money.

Why subsidies can make it worse

Results-based financing pays companies a subsidy for each qualifying sale, so they can lower prices for poorer households. The intention is good. But when every new sale brings in extra money, the pressure to sell grows too, and results in more overfinancing of customers.

MAF Lab data from one RBF programme shows how that can happen. In the six months before the programme target, two companies sold about 43,000 loans, roughly five times their usual pace. Those loans did clearly worse than loans sold in the six months before and after:

• In the first company, the share of customers who repaid the loan and became owners of their solar home system fell from about 61% to 47%. Repayment dropped from 83% to 76%.
• At the second company, defaults rose from 15–21% to 27%. Repayment dropped from 85–88% to 79%.

Neither company used the subsidy to lower the daily payment they required from customers. One used it to cut the deposit by about a third. In other words, the subsidy made it easier to get a product, but not easier to pay for it.

I am not against subsidies. But for the poorest households, a subsidised cash sale is often better than a loan. In contrast, subsidies that reward sales volume, without customer protection standards, can harm the customers and companies they are meant to support.

The fix: separate sales from credit

We have seen this challenge before in the development sector. In microfinance, a lot of investor capital chasing growth opportunities led lenders to give customers more debt than they could carry. In 2010, this led to the microfinance crisis in India, where over-indebtedness caused some borrowers to take their own lives. India’s central bank responded with clear rules on how much a borrower may owe and how many lenders they may have. Regulators in many other countries followed with their own customer protection rules. While the sector did not initially want to be regulated, this customer protection regulation in fact helped it to become more stable and sustainable, and attract new funding.

PAYGo needs to adopt the same principle: Whoever lends to low-income households must check that the customer can repay, and must be held accountable for their decision to offer credit. That decision should not depend on good intentions, or on how much time there happens to be for credit checks that month.

This does not mean every distributor has to become a regulated lender. The better solution is to split the two jobs: The distributor sells, installs and services the product, while a specialised, regulated asset finance company assesses the customer, sets the loan terms, finances the loan and manages repayment. This is how it works in most mature markets: The shop sells the refrigerator, and a finance company provides the credit.

Separating these two jobs has four benefits:

• Better for customers: Credit decisions are made independently, not affected by sales targets and cash flow needs, and customer protection is covered as the lender is a regulated financial institution.
• Better for distributors: They are paid soon after the sale. Their working capital cycle shrinks from 12–24 months to one to three months, so cash goes back into stock instead of loan books.
• More efficient: One credit team and system can serve many distributors.
• Easier to finance: Funders can back one large, transparent loan portfolio instead of many small ones. Over time, that should lower the cost of capital.

Why not leave it to MFIs?

MFIs already know how to lend responsibly, so why not let them do it? Many distributors have tried. But in MAF Lab interviews with 15 banks and MFIs in four African countries, most partnerships between financial institutions and PAYGo distributors turned out to be referral arrangements reaching only a few hundred customers per lender.

The reasons are understandable. Branch networks and field visits are expensive, and for a $150 loan to a farmer far from a branch, the costs exceed the income. That is why most MFIs are focussing on urban customers with higher and more stable incomes, located close to the MFI branches.

So a gap remains. Distributors reach rural customers but struggle to lend well. MFIs lend well but struggle to reach rural customers. What is missing is a lender built for exactly this gap.

Putting a new model to the test in Uganda

With a team from MAF Lab, we set up in24 to test this model in practice. in24 is a licensed asset finance company in Uganda, owned by a non-profit foundation that guards its mission. We have signed service level agreements with two Ugandan solar distributors: Brightlife and Greenbay.

The process is simple. The distributor’s sales agent submits the customer’s loan application online. in24’s loan officers check the credit reference bureau, assess the application and decide within 24 hours whether to approve it, without a physical visit. The distributor has no say in the credit decision. Once the loan is approved and the down payment is received, in24 pays the distributor, and then manages repayment directly with the customer. As part of the agreement, the distributor does not switch off systems when customers fall behind. Switching off can hurt the customer’s cash flow, for example when the system powers a small business. It also sends the wrong message: that paying is optional, like buying prepaid energy. Instead, in24 treats PAYGo finance as what it is, a loan. Customers who repay well can get a next loan from in24, often a larger one. in24 also reports to Uganda’s credit reference bureau, so customers build a credit history that other lenders can see. In the end, this is about giving rural customers a fair chance at lasting access to formal credit.

Our two partners use the model in different ways. Brightlife has run PAYGo for years. Handing its credit to in24 means it needs to tie up far less working capital in customer loans. Greenbay, active in Kenya and Uganda, did not offer credit at all in Uganda. Now it can, and it expects to sell much more at the last mile as a result.

The first results are encouraging. With around 400 loans so far, repayment stands at 98%. The portfolio is still young, and the coming months will show how loans perform over their full term. A pilot in Mozambique will test whether the model works in other markets too.

What the sector can do now

Separating sales from credit is not a magic fix, and it will not suit every customer or every company. But it tackles the root cause rather than the symptoms. Everyone in the sector can help this solution gain traction across the industry:

• Funders can measure impact by how many customers end up owning their product, not by how many products are sold.
• RBF designers can link subsidies to repayment and ownership, not to sales.
• Regulators can bring PAYGo credit under the same customer protection rules as other lending.
• Distributors can ask themselves whether credit really needs to stay in-house.

PAYGo proved that rural customers want clean energy and will pay for it. The next step is to make sure that the credit we give them helps them, and helps the companies that serve them grow in a sustainable way.

Willem Nolens is co-founder and MD of in24, which has commercial partnerships with Brightlife and Greenbay. He used to lead MAF Lab till the end of 2025, and in that role co-authored three of the reports cited in this article.

Photo credit: somchaij