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Streamlining Capital toward the Last-Mile in the Paygo Sector: Challenges & Perspectives

This is the introductory piece to a series of articles on the potential of receivables financing and why it can be a good fit for the PAYGO/SHS sector, including insights from experts in the industry.

The off-grid solar market is a fast-evolving ecosystem, carrying the promise to transform the lives of millions. As it remains highly capital-intensive, manufacturers and distributors have had to find innovative ways to provide credit along the value chain and to the last-mile customer, where systems are typically sold on credit in the form of Pay-as-you-Go (PAYGO).

Hopes placed in the model are as great as the problem it’s committed to solve. In 2020, 733 million people were still living without access to electricity. That’s one in ten people. But the world had just been hit by the COVID-19 pandemic, which would turn out taxing for the industry. Concern on the financial sustainability of the model rose - and have not been silenced since.

Was it all a pipe dream?

From rising incomes to better-quality distribution networks, numerous market drivers would suggest otherwise. The potential of the OGS solar in terms of impact and commercial opportunities is solid. Yet, the Paygo industry is still young and challenging. It is iterating and discovering what works, and what does not. Doing so while being confronted with an enduring chicken and egg financing problem is not easy. Distributors need to demonstrate growth and stability to appeal to investors, but they need external resources in the first place to reach volumes of activity sufficient enough to prove product-market fit and potential for profitability.

By 2030, the sector will be $15.5bn short in funding of what is needed to reach SDG 7.