African-led Climate Finance Innovation: The Power of PAYGO Solar Securitization

As the international community debates how to cooperate and turn its climate commitments to the developing world into coordinated action, domestic instruments like solar payment securitization are already mobilizing capital at scale. The recent official release of the 'Baku to Belém Roadmap' ahead of COP30 offers renewed promise. It outlines how developed countries intend to contribute to the new collective climate finance goal of at least 1.3 trillion dollars per year by 2035. More than a statement of intent, the roadmap sketches a structure for aligning national plans, development banks, and private investors behind a shared investment pathway. Still, several essential details remain unclear, including how private capital will be mobilized, how funds will be scheduled and disbursed, and what accountability or enforceability mechanisms will apply. These gaps do not diminish the importance of the roadmap. Rather, they highlight the urgency of solutions capable of advancing even as global climate finance negotiations evolve. In East Africa, one such solution is already taking shape through PAYGO solar securitization, which is quietly expanding energy access, lowering household costs, and unlocking local currency capital for clean energy firms.

PAYGO, or pay-as-you-go, is a financing model that allows customers to access off-grid systems, typically solar home systems, through technology-enabled, embedded consumer financing (ESMAP, GOGLA, Dalberg, 2024). It enables a lease-to-own model in which a customer makes a small initial payment and then pays in regular installments for six months to three years, often through mobile money (Baker, 2025). Other payment methods include airtime, scratch cards, and cash. This structure reduces the burden of high upfront costs and makes solar energy accessible to households that would otherwise not qualify for formal credit (Bilotta and Colantoni, 2018). It spreads the cost of clean energy over time and provides flexible repayment options for households with irregular incomes. It also gives off-grid solar companies a viable business model by expanding their customer base and building long-term service relationships. By enabling low-income users to acquire systems they could not afford in cash, PAYGO has played a central role in the growth of the off-grid solar sector in Sub-Saharan Africa and is widely recognized for advancing energy access in contexts where traditional finance does not reach (Baker, 2023).

On the supply side, PAYGO generates a steady stream of small digital repayments, and those cash flows can be bundled and sold to investors. This is the securitization of receivables. Early experiments showed its potential. In 2015, BBOXX issued asset-backed notes in Kenya secured by 2,500 installment contracts tied to solar home systems already in use. Investors purchased the notes with the expectation that future customer repayments would produce returns. Securitization helps companies refinance their portfolios and unlock new capital without relying on expensive debt (Bilotta and Colantoni, 2018). It also creates marketable assets that appeal to investors seeking exposure to clean energy in emerging markets (Baker, 2023).

A recent transaction in Kenya demonstrates how this approach has matured. Sun King closed a Kenyan shilling dominated securitization worth 156 million dollars, one of the largest transactions of its kind in Sub-Saharan Africa outside of South Africa. The structure pools thousands of PAYGO receivables from Kenyan households and sells them to a special purpose vehicle that issues notes to investors. Five commercial banks invested in the senior notes and development finance institutions provided mezzanine support. This blend of domestic and international finance created a stable capital base in local currency. The proceeds will help provide about 1.4 million solar products and smartphones to new customers. The deal builds on a similar transaction from 2023, and together they will support more than 3.7 million products. It also demonstrates growing confidence: Kenyan banks are now willing to hold long-term exposure to the off-grid solar sector. This signals a deepening market that can increasingly draw on local capital rather than rely solely on concessional funding.

PAYGO securitization is transformational because it aligns financial innovation with the structural realities of Sub-Saharan Africa. The model emerged in Kenya’s context of widespread mobile money use and a regulatory environment that encouraged digital payments. It addresses the challenge of irregular household income by spreading costs over time. It also avoids the limitations of weak grid infrastructure because solar home systems do not depend on transmission or distribution networks. The model reduces reliance on foreign grants, which once accounted for four out of every five off-grid solar investments in East Africa. It replaces that dependency with a structure that draws on domestic banks and institutional investors.

Recent academic work strengthens the case for this shift. The cost of capital for green investments has declined relative to carbon-intensive assets, and financial markets are rewarding firms that direct investment toward climate-positive activities (Gormsen et al., 2024). Off-grid operators now benefit from these market signals. A securitized portfolio of PAYGO receivables fits squarely within the category of green assets that markets treat more favorably. This reduces financing costs for developers and creates a feedback loop in which clean energy expansion becomes more attractive to both companies and investors. The Deep Transitions framework reinforces this perspective by showing how niche innovations can evolve into system-level shifts by challenging entrenched rules and reshaping markets and actors, which is exactly what is emerging in the off-grid solar sector (Schot et al., 2022). PAYGO securitization therefore becomes more than a financing mechanism. It is a meaningful lever in the wider transformation of how energy is produced, financed, and accessed.

The model still faces real challenges. PAYGO portfolios depend on consistent customer repayments, which can fall during economic shocks. Companies must manage default risk while keeping repayment terms affordable for low-income households. There are concerns about over-indebtedness and the possibility of disconnection, and these issues require strong consumer protection frameworks. Securitization demands reliable data, strong receivables management, and stable repayment patterns. It also requires regulatory support for special purpose vehicles and structured finance, which remain underdeveloped in many markets. Some early credit enhancement from development finance institutions may still be needed until more commercial investors build confidence. These challenges align with what the literature identifies as the fragile early stages of niche development, where experimentation is essential but the risk of reversal is high (Schot et al., 2022). Even with these limitations, PAYGO securitization shows that African-led financial structures can move forward while global climate finance commitments work through their details. The broader goal of universal energy access will still require public and concessional capital, but instruments like PAYGO securitization demonstrate that domestic financial innovation can meaningfully expand what is possible.

PAYGO securitization shows what becomes possible when financial innovation emerges from the conditions of the communities it serves. It transforms small daily payments for solar energy into a scalable source of clean power and local currency financing. It demonstrates how African firms and financial institutions can shape their own energy transitions even as global structures continue to evolve. The model is not flawless, yet it advances progress while negotiations unfold. Its strength lies in its ability to expand access, deepen markets, and direct investment toward climate-positive assets. In a landscape defined by uncertainty, it stands out as a practical pathway for accelerating clean energy in the communities that need it most.

Works Cited:

Baker, L. (2023). New frontiers of electricity capital: Energy access in sub-Saharan Africa. New Political Economy, 28(2), 206–222. https://doi.org/10.1080/13563467.2022.2084524 

Bilotta, N., & Colantoni, L. (2018). Financing Energy Access in Sub-Saharan Africa. Istituto Affari Internazionali (IAI). https://www.jstor.org/stable/resrep19690 

Gormsen, N. J., Huber, K., & Oh, S. S. (2024). Climate Capitalists. 

Schot, J., Keesman, S., & Steinmuller, E. (2022). TRANSFORMATIVE INVESTMENT IN SUSTAINABILITY.