NextBillion - A WDI Publication

As of 2024, over 560 million people in sub-Saharan Africa were still living without electricity, around 86% of the global access deficit. The grid alone will not close that gap, because the households furthest from it are the costliest to reach. Off-grid solar and other decentralized solutions already provided 55% of the region’s new connections between 2020 and 2022, and the World Bank and GOGLA estimate that off-grid solar is the most cost-effective route to electricity for 41% of those projected to still lack access in 2030.

The workhorse of this market is the entry-level solar energy kit, a category that accounts for more than 80% of the industry’s affiliated sales: a panel, a battery, and a charge controller that powers lights and charges phones, which ESMAP’s widely used Multi-Tier Framework for energy access classifies as Tier 1 access. Because few off-grid households can pay cash upfront, companies sell these systems through pay-as-you-go (PAYGo) financing. The household gradually pays off the asset through small payments made on fixed schedules, but the model is deliberately forgiving: A customer who runs short of cash loses service until the next top-up rather than losing the asset. Sector analysts have identified this repayment flexibility as a core feature of PAYGo.

Yet even with these financing alternatives, affordability remains an issue. World Bank research finds that only 22% of unelectrified households can afford the monthly payment for a Tier 1 solar kit purchased via PAYGo.

The energy access conversation in Africa is usually framed around deployment. Flagship efforts such as Mission 300, the World Bank and African Development Bank initiative to connect 300 million people by 2030, are defined by connection targets, cost reduction and rural reach. These are necessary goals. But they address a logistics problem, and logistics is not where the model strains.

For companies working at the last mile, the binding constraint is the time it takes for a household to repay an asset. PAYGo may remove the affordability barrier for customers, but for solar businesses, it introduces a new challenge: the problem of time. A solar home system a household cannot buy for cash can instead be paid off over 18, 24 or 36 months. The price for the consumer is spread out, but the cost of waiting is added to the provider’s balance sheet — and from there it spreads to the company’s investors.

In my years leading at Izili Group, a last-mile energy access business operating in markets from Nigeria and Senegal to Madagascar, I watched this time transfer shape everything: company performance, investor conversations and the quiet pressure that builds between the two. Much of the capital that supports energy access presents itself as patient, willing to wait for these PAYGo assets to be repaid. But in practice, it often behaves otherwise.

Understanding the Mismatched Timelines in PAYGo Solar

The industry’s performance data tells a story of steady maturation. Benchmarks from GOGLA’s PAYGo PERFORM initiative show that customers repay an average of 72% of the financed solar system’s value at 2x the contract term. That is not a lender losing 28 cents on every dollar: Contracts are priced with partial repayment in mind, and GOGLA’s monitor shows leading firms strengthening their unit economics at exactly these levels. What the benchmark reveals is pace: The industry measures recovery at twice the contract term because that is how long the cash takes to come back.

These numbers describe a model that works, but slowly. PAYGo portfolios mature over time, shaped by irregular incomes and lumpy household expenses — e.g., the harvest that comes in late and the school fees due each term — each of which pulls cash away from their PAYGo installments for weeks at a stretch. GOGLA’s latest cohort analysis found that “time itself is a risk factor,” as longer repayment horizons expose companies and customers alike to greater uncertainty.

But though value in this business accrues over years, not quarters, the capital that’s financing PAYGo solar companies rarely exhibits similar flexibility. Loans to PAYGo operators typically come with fixed repayment deadlines and fixed interest, often in dollars or euros, while revenues arrive in naira, shillings or other local currencies. That currency gap carries real risk: When a local currency weakens, the company’s debt grows overnight because the money it’s bringing in from customers is worth less, even if collections stay perfectly on schedule. And when a portfolio’s repayment curve stretches after a poor harvest, the debt schedule does not stretch alongside it. The mismatch is structural: capital with fixed demands, financing a business with flexible cash flows.

This mismatch is dangerous because of how the model consumes cash. A PAYGo company pays for hardware today and recovers the money over years, so every new customer widens the gap between cash going out and cash coming in. GOGLA’s monitor shows that the median firm still operates at a loss, with financing costs rising. For these companies, continuous access to capital is not fuel for growth. It is an operating requirement, like diesel for a generator.

The Impacts of Short-Term Capital on a Long-Term Business Model

That is why the recent pullback in funding to the sector has been so damaging. Total investment in off-grid solar companies fell 30% from 2023 to 2024, to roughly $300 million, and although funding stabilized at $315 million in 2025, the number of companies receiving any investment fell 41%, from 97 to 57. GOGLA’s own analysis draws the causal line explicitly: It attributes companies’ exits from the market directly to the funding contraction, and mentions that other surviving firms are experiencing financial distress that may require them to restructure before they can raise funding again. Meanwhile, some key players have pursued consolidation, including Ignite’s acquisition of ENGIE Energy Access, one of the sector’s largest operators, and Izili Group’s acquisition of Qotto. And all of this unfolded while recent customer cohorts were showing improving repayment performance, according to the same GOGLA monitor. When the capital stopped, companies with strengthening fundamentals did not simply slow down. They disappeared or were absorbed.

The deeper problem is one of matching the investor to the product. Energy access in Africa has largely been financed like venture capital; GOGLA notes that the sector’s startup funding moves with wider African venture capital trends. But the business behaves like infrastructure: It resembles water systems, rural roads or telecom towers far more than software. The assets are tangible. Revenues are modest but durable. Social returns arrive immediately, while financial returns build slowly over years. Nobody expects a toll road investment to achieve an exit in five years, yet solar portfolios serving the same populations are routinely held to that timeline.

When capital built for quick returns meets a business built for long-term engagement, the business adjusts in ways that damage both its economics and its mission. Companies tighten credit approval prematurely, shrinking the customer base that installment financing exists to serve. They cut field service teams to reduce costs, even though service quality is what keeps customers paying. They withdraw from harder markets first, writing off distribution networks and customer relationships that took years and real money to build, and forfeiting the scale on which the model’s economics depend. Each decision is rational in the short term. Yet each undermines the company’s fundamentals because, in this model, installments drive demand, service drives repayment, and scale drives average cost down.

Capital that understands time

Better-aligned capital already exists, and it is instructive to look at how it is structured. Results-based financing pays companies for verified connections rather than promised growth, and it has moved from pilot to policy: More than $900 million has been committed to the off-grid solar sector, over half of it in the past few years. The largest single example is the $300 million off-grid solar component of Nigeria’s World Bank-backed DARES program. In procurement, All On’s Demand Aggregation for Renewable Technology program pools equipment orders and provides working-capital finance for distributors, reducing equipment costs significantly due to its concessionary financing solution and bulk pricing negotiations with suppliers. CLASP’s Productive Use Financing Facility uses targeted subsidies and grants to make income-generating appliances such as solar water pumps and refrigerators affordable, helping to align the amounts a customer repays with the earnings the asset produces.

However, these programs, valuable as they are, mostly restructure international and donor money. The more consequential shift is in who is providing the capital. GOGLA’s 2025 investment data shows local currency transactions reaching a record 47% of sector investment, with domestic commercial banks in Nigeria, Tanzania and Madagascar financing off-grid solar for the first time.

In Nigeria, InfraCredit’s local currency guarantees have mobilized domestic pension funds and insurers into off-grid energy bonds: By the company’s account, roughly ₦12 billion has been deployed across five local developers, reaching more than 28,000 beneficiaries. The logic of these investors is structural, not sentimental. A Nigerian pension fund holds decades of obligations in naira, so it can hold a multi-year naira asset to maturity without being forced to sell or refinance at a fixed date. A dollar-denominated fund holding naira-based obligations lacks this flexibility, because it earns its return in dollars while its portfolio companies earn theirs in naira. So if the naira loses value, this inflates the debt these companies hold, as the very currency their customers pay in no longer holds enough value to cover these obligations, even when collections continue on schedule. Additionally, portfolio companies in dollar-denominated funds must exit on a set schedule, too often precisely when capital has dried up and refinancing is hardest — which is exactly what happened across the sector during the funding contraction in 2024. African institutional capital is not inherently more patient or more generous. But it is structurally matched to the PAYGo business model: It lends in the currency customers pay in, on timelines its own liabilities can hold to term.

A growing investor class calibrated to PAYGo solar’s time horizons does not lower the bar for operators. Energy access companies must keep earning trust with customers and investors through service quality, transparent reporting and customer protection. The sector has built its own discipline mechanism for this: The PAYGo PERFORM standards, developed by GOGLA, CGAP and the World Bank Group’s Lighting Global program, give companies and investors shared definitions for measuring repayment and customer ownership, so that a portfolio in Dakar can be compared credibly with one in Antananarivo. But accountability runs both ways. For companies to build trust in difficult markets, the capital behind them must continue to flow for long enough that their efforts translate into repayment, ownership and sustainable operations.

The lesson from my years in this sector is not that it lacks “patient capital.” It is that much of the capital that is labelled as “patient” is actually not — a gap that is now visible in funding data, in company failures, and in markets quietly abandoned. The next phase of energy access will be financed by capital designed for the timelines the PAYGo model demands: blended structures that absorb early volatility, results-based funding that rewards verified outcomes over promised speed, and domestic institutions whose liabilities match the sector’s horizons. Electricity access in Africa is a public good delivered through private enterprise. If we want it to endure, the capital behind it must be built to wait.

Kolawole Osinowo is a Senior Research Fellow at the FATE Institute and a Public Voices Fellow Tackling Poverty, a partnership of Acumen and The OpEd Project.

Photo credit: Yuliia Kaveshnikova