In Spite of Missteps, PAYGO is Here to Stay

April 20, 2022
Published by: Chris Aidun, Eva Stolz

On April 7 Bloomberg published an article about the failures of the off grid solar industry. The article, entitled “Tesla Backed Startup Made Cheap Power a Debt Burden for the World’s Poorest” was written by David Kocieniewski and Gavin Finch. The article catalogs a series of missteps and seemingly predatory practices in the off grid solar industry in Africa that the authors claim harmed the World’s poorest.

The thesis of the article is that PAYGO companies – PAYGO (Pay As You GO) being the general term referring to companies that sell small solar home systems and products on credit – have pursued customers that the companies knew or should have known had no ability to pay.  The practice allegedly had the dire consequence of burdening the poorest consumers with debt they could not afford.

The article concludes that there are systemic problems in the PAYGO sector.  This is not our experience. But, even if the article is identifying mistakes, or worse, it is important to also recognize the evidence of impact made by an industry with many players. In a world where more than 700 million people still live without electricity,1 the off-grid solar sector has, according to industry trade association GOGLA, reached 25-30 million people in less than a decade.  This outreach has been the single most effective effort to relieve energy poverty ever undertaken. And it was done through the combined effort of entrepreneurs, philanthropists, venture capitalists, government agencies and development banks.

When the PAYGO sector began over a decade ago, it operated on assumptions about consumer behavior.  Those of us who engineered the sector were aware that many of those suffering from energy poverty also had never had access to credit.  We were aware that these consumers paid, on average, about $10 a month for kerosene, candles or batteries for light.  We posited that, at $10 a month, these poorest of the energy poor could afford to buy a small solar home system with light and mobile phone charging on credit.  The solar home system would serve as collateral for the loan. If the monthly payment wasn’t made, the solar home system would be automatically locked so it couldn’t be used until the customer made the monthly payment.  If the customer couldn’t pay anymore, they would have to return the system, but there was no other adverse consequence.

This innovation – the ability to lock a solar home system remotely – revolutionized energy access.  Mobile money payment systems were also a key ingredient in revolutionizing payment.  These developments created the opportunity for millions of consumers to have access to clean, safe energy at the cost of their kerosene bills!  Building a business based on millions of customers paying small amounts was, we believed, possible.  Profitable PAYGO businesses would attract international capital, fueling growth and enabling these businesses to reach more and more customers.  This would be a virtuous cycle.

A decade into the dream, it is clear that, for all its success in reaching millions of energy poor, the PAYGO sector is still in the formative years of its development.  Several PAYGO businesses have struggled and some have failed.  There have no doubt also been instances of undue pressure, sales transactions to customers who couldn’t afford products, as well as misunderstandings of consumer behavior.  After all, no one had ever extended credit to the World’s poorest consumers on a mass scale.2  It was a grand experiment undertaken with the boldest of good intentions.


PAYGO is Here to Stay – a Look at Altech 

Looking past bad actions that may have occurred in the past, what, if anything, is in the future for PAYGO as a business model to spread clean, off-grid energy across Africa?

If you want to look at the future of providing energy access to the World’s poorest, look at Altech.3  Altech sells solar lanterns and solar home systems on a PAYGO basis.  Its home is the Democratic Republic of the Congo (DRC), one of the poorest countries in the World, where 85% of the population has no access to energy.  Despite the high rate of poverty in the country, since 2013 Altech has sold over 260,000 solar products.  It has operations in 22 of 26 Provinces of the DRC.  Moreover, the company is profitable.

Why is Altech successful while some well-known larger companies are not?  There are many reasons.  First, it was founded and run by two Congolese entrepreneurs who understand their country, its people, their own staff and how to run a successful business in a sustainable way. In its early years, Altech had no access to external capital. This undoubtedly hindered the company’s growth, but it necessitated an unyielding prudence and focus on efficiency and profitability from day one. The level of overhead in Altech is a fraction of the overhead that failed PAYGO companies ran.  Second, contrary to the high default rates that David Kocieniewski and Gavin Finch describe in their article, Altech’s default rates are less than 3%. Third, Altech is supported by sophisticated early-stage investors and venture builders (La Difference and Persistent) that have helped the company, among other things, raise the patient capital it has needed to grow.

Altech is an impressive company started by two men who grew up in a refugee camp in Tanzania. Finishing university in Tanzania on scholarships, they came back to their home to build a company that would help their fellow Congolese. They have shown how PAYGO can work in a sustainable way.

Washikala Malango, the co-CEO of Altech has observed “We have lifted hundreds of thousands of Congolese out of energy poverty through PAYGO. PAYGO is not the problem.  The problem is high overhead costs, lack of leadership on the ground and poor product offerings that do not meet the customers’ expectations. We tested products of many solar companies and found them poorly configured for African households.”


…and SolarWorks!

In Malawi, another of the poorest countries in the World, SolarWorks!4 is using the PAYGO model to reach the energy poor.  SolarWorks! began operations in Malawi only a few years ago (2019) with a focus on slightly larger systems that go beyond only lighting and phone charging. The company has recently demonstrated that it can serve its customers profitably, despite going through national election turmoil and a pandemic that kept the sales team at home for months. The reality is that demand is outstripping supply right now, with supply chain disruptions and access to working capital being the principal constraints on reaching an energy hungry population.

Says SolarWorks! co-founder and CEO Arnoud de Vroomen: “We would love to give a transparent tour through Malawi or Mozambique [where SolarWorks! also has operations] to the Bloomberg journalists so they can see the unprecedented impact on lives the PAYGO model has, and will have, for years to come if we all do what needs to be done.”


Holding PAYGO Back

Indeed, one of the key things that constrains Altech, SolarWorks! and the PAYGO sector’s other heroes is the general sense that the PAYGO industry has failed.  The unique partnership of entrepreneurs with philanthropists, venture capitalists, government agencies and development banks has come undone, as those institutions have developed a belief that the PAYGO model doesn’t work.


…Well, They Are Wrong.

Yet companies like Altech and SolarWorks!, as well as others like Zonful, upOwa and Oolu, endure in challenging markets in Zimbabwe, Cameroon, Senegal, Mali and Burkina Faso. As de Vroomen says, “These companies show the same persistence that any successful entrepreneur will recognize. If things don’t go as expected you pivot and adapt towards what works, because you believe in what drives the demand: that of making energy affordable to those that do not have this access now.” These companies are carrying forward the PAYGO model, recognizing that it will play a vital role in ending energy poverty. They will survive, but they will not thrive without continuing the collaboration that brought energy access to 30 million people over the last several years.

The World’s energy poor are not a monolith, of course.  There are degrees of poverty and the article correctly points out that there are many that are too poor to afford even a simple solar lantern or a solar home system with lights and mobile phone charging.  These unfortunate people are everywhere, including in refugee camps.  And the PAYGO sector has learned this – although sometimes at the painful expense of customers who lost their products in repossession.

Yet, one thing is clear: PAYGO companies have built distribution networks to reach these energy poor even in the remotest locations, but the smallest products sold to the poorest people cannot always be sold sustainably. With partial subsidies, however, this can work. And that is the model emerging to reach the poorest of the energy poor. companies like SolarWorks! are leading the way here, using their service and distribution apparatus, together with subsidies, to reach the poorest of the energy poor with access to energy.

Let’s not abandon the good works and sound business models that have evolved over the last ten years because of a small group of failures. Let’s all of us: entrepreneurs, philanthropists, venture capitalists, government agencies and development banks, learn and make it better. After all, it is the most effective engine to relieve energy poverty ever attempted.





1 Source:  International Energy Agency
2 The microfinance sector led the way on business loans to individuals and small businesses but PAYGO was the first attempt to provide financing for consumer goods and services.
3 Persistent is an investor in and venture builder to Altech.
4 Persistent is also an investor in and venture builder to SolarWorks!