Insight, Energy Access & Finance
African off-grid solar has become an asset class by turning household repayments into collateral. The security is not the hardware. It is the ability to switch the light off. Water finance is now attempting the same move without that mechanism.
Africa's largest pay-as-you-go solar operators have stopped raising venture rounds and started issuing paper. d.light issued a green bond in the region of US$50m in June. Sun King has previously raised roughly US$286m through securitised debt, using streams of household repayments as collateral. Sector-tracker figures for 2025 show local currency reaching close to half of off-grid solar funding. All three numbers are as reported by the companies and industry trackers, and are used here to illustrate the direction of the shift rather than as audited totals.
That last number deserves more attention than it usually gets. Currency mismatch has killed more African energy companies than weak demand ever has: revenue in shillings or naira, debt in dollars, and a devaluation that wipes out a functioning business with satisfied customers. A sector that has moved almost half its funding into local currency has solved a problem that defeated the previous two decades of energy-access finance. Whatever else follows in this piece, that is a genuine achievement.
The securitisation itself is worth looking at more closely, because what makes it work is not what most descriptions of it suggest.
Consider what a lender actually holds if a household stops paying.
A 40-watt solar home system, installed on a roof, in a village that may be a long drive from a passable road. Repossession costs more than the unit is worth. The secondary market for used solar home systems is thin to non-existent. The physical asset has almost no recovery value, and everybody in the transaction knows it.
So the paper is not secured on solar equipment in any meaningful sense. It is secured on the predictability of a payment stream, and predictability has to come from somewhere.
It comes from the defining feature of the pay-as-you-go model. The system is remotely disabled when payment lapses and re-enabled when it resumes. The consequence of non-payment is immediate, visible, and arrives the same evening.
Stated plainly: the collateral is the ability to switch the light off.
This is not a criticism. It is a description of a mechanism that has electrified millions of households which no utility was ever going to reach, on terms that no conventional lender would have offered. It works. It works precisely because the enforcement is reliable, and the reliability of the enforcement is what an institutional investor is buying when they buy the bond.
But once that is said out loud, a second thing follows that the sector has been slower to examine.
In water and sanitation the second link is missing. Hardware value is similarly low, but disconnection is legally and morally constrained: shared standpipes serving many households, and jurisdictions that treat access to water as a right with statutory protections against disconnection. The chain breaks at the enforcement layer, and the gap is what first-loss capital is being asked to fill.
A 95% repayment rate is the headline number in every one of these transactions, and it is the number that converts a household into a bond.
It tells you that the enforcement mechanism works. It does not tell you what it cost the household to keep the enforcement from biting. This is the same failure of inference we set out in One Month Is Not a Trend: a number that is accurate, widely quoted, and asked to carry an interpretation it cannot support.
Household budgets under stress are not allocated by importance. They are allocated by the immediacy and visibility of the consequence. A payment whose default produces darkness tonight, in front of the family, gets made. A payment whose default produces a worse outcome in six months, quietly, does not. School fees, a clinic visit deferred, protein dropped from a meal, a small-business input not purchased: none of these produce a same-day signal, and all of them are candidates for the money that went to the solar payment instead.
This is not speculation about behaviour. It is the standard finding about how liquidity-constrained households prioritise, and it is the reason the repayment rate is a poor proxy for welfare. High repayment under a reliable lockout regime can mean the product is affordable and valued. It can also mean the payment has been made senior to everything else in the household's budget by design. Those two situations produce the same number.
The securitised structure then adds an incentive problem on top. Once the payment stream is sold to investors who require its stability, everybody in the chain has a reason to protect the repayment rate and nobody has a reason to ask what is being substituted away to sustain it. The metric is not falsified. It is simply the only one anybody collects.
Three things would settle this, none of them exotic.
Lockout days, not repayment rate. A household can reach the end of a 24-month contract with a 100% repayment record and have spent 90 nights in the dark along the way. The repayment rate records that the money eventually arrived. It says nothing about the service actually received, and lockout days are already in the operators' telemetry. They are simply not reported.
Expenditure substitution, measured directly. What did the household spend less on in the months when the payment was tight. This requires asking people, repeatedly, over time, which is the only method that produces the answer.
Function at year four. Securitised paper matures. Batteries degrade. The interesting question for anyone claiming durable electrification is what proportion of systems are still working two years after the final payment, when there is no longer any commercial relationship and no lockout to enforce anything.
The point is not that these numbers will look bad. Some operators would probably do well on all three, and would benefit from being able to prove it. The point is that nobody currently knows, and the financing structure has removed the incentive to find out.
On 13 August, Aqua for All opened a call for impact-oriented fund managers working in water, sanitation, energy and climate in emerging markets. The call, as announced, offers commitments in the €1–5m range into private funds using equity or first-loss equity, alongside modest technical-assistance grants, with the explicit purpose of making water and sanitation investments investable for private capital.
The intent is the same as the solar story: convert a grant-dependent sector into a financeable one. The obstacle is that water does not have the mechanism that made solar work.
You cannot remotely disable a shared standpipe serving 40 households because eight of them are behind. Prepaid water metering exists and functions, but disconnection from water is a different legal and moral object from disconnection from light. Several jurisdictions treat access to water as a right with statutory protections against disconnection, and a financing model whose collateral is the interruption of that supply is going to meet resistance that a solar lockout never encountered. It should.
That leaves two honest paths, and it is worth being clear about which one is being taken.
The first is that concessional capital carries the residual risk permanently. First-loss capital is described as a bridge: it absorbs early losses until a track record exists and commercial capital takes over. In sectors with a working enforcement mechanism, that story has been shown to hold. In a sector without one, the first-loss layer may not be a bridge at all. It may be the permanent price of the risk that nobody else will take, in which case it should be planned, budgeted and defended as a permanent subsidy rather than presented as a temporary one. That is a perfectly respectable position. It is just a different position.
The second is that the sector reaches for a disciplining mechanism anyway. Prepaid meters, service restriction, community-level enforcement through water-user committees, or repayment obligations that fall on a group rather than an individual. Each of these makes the revenue more predictable. Each of them also relocates the enforcement into a social relationship, which is exactly where the consequences become hard to see and easy to underestimate. Group liability in particular has a long documented history in microfinance of producing excellent repayment statistics and considerable social cost.
Anyone designing a water fund is choosing between these whether or not the choice is made explicitly. Our water transparency work in Nairobi starts from the position that how a service is governed determines whether it survives, and this is the same question arriving through the finance department.
One line in the reporting deserves separate attention. Smaller operators without years of repayment data may still struggle to access these structures.
Securitisation requires history. An operator with four years of clean repayment data can issue. An operator with eighteen months cannot, regardless of whether their customers are better served or their unit economics are stronger. The financing structure therefore functions as a competitive barrier that has nothing to do with the quality of the business, and it will consolidate the sector around whoever got there first.
That may be efficient. It is worth noticing that it is happening, because it is the same pattern we described in platform-anchored charging networks: a financing innovation that solves a real problem, and in solving it concentrates the market around the party that controls the mechanism.
The solar securitisation story is a success and should be treated as one. The correct response to a success is to understand precisely what made it work, so that the parts which do not transfer are identified before they are assumed.
What transfers: local-currency discipline, portfolio-level underwriting, patient-capital structures, the willingness to treat distributed household service as infrastructure.
What does not transfer: the enforcement mechanism, and therefore the collateral.
The measurement question sits in the same place for both. If a financing structure depends on a payment stream from low-income households, somebody independent of the operator and the investor should be establishing what sustaining that stream costs the household, and should be doing it while the portfolio is performing rather than after it stops. That is ordinary field research and impact measurement, and it is considerably cheaper than the alternative, which is finding out during a repayment crisis with a bond outstanding.
The Lab works on this in energy access, water and sanitation and financial inclusion.
If you are underwriting a receivables-backed portfolio and want the household side measured by someone with no position in the paper, tell us what you need to know.
This is an independent insight piece by Transitions Lab. For the Lab's applied work, see Energy Access & Off-Grid Systems, Water & Sanitation, and Financial Inclusion & Payment Systems. See also A Warm House Is Not a Cheaper One on the same net-cost logic inside a European retrofit programme, Equity Is the Wrong Money for a Warehouse on matching the instrument to the shape of the cash flow at a shorter tenor, and When the Agent Pays on enforcement mechanisms hidden inside a payments framework. To discuss a study, see Contact.