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The need for substantial capital to address Africa’s energy deficit is immense. According to figures from the International Energy Agency (IEA), $25 billion must be dedicated annually to achieving universal energy access across the continent. This is a staggering challenge, given the inadequacy of traditional financing mechanisms, which often rely on government budgets or short-term private equity. 

A fundamental structural shift is required to unlock capital at the necessary scale. But, beneath the headlines of slowing private equity acquisitions, a more sophisticated tool is quietly gaining influence: securitisation. This financial mechanism, often misunderstood or feared due to associations with past crises, is emerging as a powerful lever for mobilising long-term, stable capital. Securitisation is poised to become a popular financing tool in Africa, particularly for meeting massive development needs in infrastructure, energy, and housing, which currently amount to billions of dollars in West Africa alone.

Simple Concept for Scaling Finance

At its core, securitisation is a process that transforms future, predictable income streams into immediate, tradable securities. It is crucial to distinguish it from simple receivable financing, which typically involves a business selling individual invoices to a third party (a factor) for quick cash flow. Securitisation is far more complex and involves a much greater scale.

Simply put, securitisation works as follows: (i) a company has many customers who owe regular payments – ‘receivables’ – over a long period. In the case of electrification, these might be monthly bills, or, in the case of new connections, instalment payments spread over many years; (ii) the company pools these many individual receivables into a single, large portfolio; (iii) this pool of assets is legally transferred to a ‘special purpose vehicle’ (an ‘SPV’), which is designed solely to manage these assets, thereby keeping the debt off the original company’s balance sheet; (iv) the SPV then sells bonds or securities backed by the receivables to institutional investors, such as banks, insurers, and pension funds; and (v) the capital raised from selling these securities provides immediate financing for new infrastructure or connections. The receivables, upon being paid by the households, are then used to pay the investors.

This process enables energy providers to access large amounts of capital today based on customers’ future payments they expect to receive. A hallmark of securitisation is the creation of ‘tranches’, which are portions of the transaction with different risk-return profiles. Cash flows are allocated via a ‘waterfall structure’, where the senior tranches receive payments first and are protected by subordinate mezzanine and equity (first-loss) tranches. This structuring allows senior tranches to achieve high credit ratings, even if the underlying assets are lower-rated.

Global Context

Although securitisation gained notoriety from the subprime mortgage crisis in 2008, it is a versatile tool used globally to finance a wide array of needs. Around the world, the tool has been applied to finance home-ownership in Brazil, electricity connections in India, and renewable energy projects in Europe.

African Pioneers

In Africa, the concept is moving rapidly from niche status to a foundational element of clean energy financing; pioneering transactions have successfully adapted this complex tool to off-grid consumer financing needs. Africa provides two distinct and highly illustrative examples of how securitisation addresses different segments of the energy access gap.

Côte d’Ivoire’s Electricity for All Programme (PEPT): Côte d’Ivoire launched an operation that demonstrates the full potential of securitisation for large-scale public initiatives. The operation focuses on the Electricity for All Programme (PEPT), a government mechanism designed to accelerate access, particularly in rural and peri-urban areas. 

The challenge was that households often remained unconnected because the connection cost (about 149,000 CFA francs) was too high. The PEPT allowed households to pay only 1,000 CFA francs upfront, spreading the remaining balance over a period of up to 10 years. The solution was a securitisation deal, structured around a Securitisation Fund (FCTC), that acquired these connection receivables. The overall program amounts to 120 billion CFA francs, split into two phases. 

The transaction attracted strong demand from regional institutional investors, with long-term horizons, structured into tranches with different maturities: a seven-year tranche A (7.5%), a 10-year tranche B (8%), and a 15-year tranche C (8.5%). Furthermore, the deal incorporated strong credit enhancement, including an over-collateralisation to the tune of 67 billion CFA francs in receivables backing 60 billion CFA francs in bonds issued.

Sun King’s PAYGo Solar Securitisation in Kenya: Another landmark example in Africa is Sun King’s $156 million securitisation, announced in Kenya in July 2025, which bundled millions of small consumer loans generated by the Pay-As-You-Go (PAYGo) model. This deal was majority-financed by commercial banks (including Citi and Stanbic Bank Kenya) alongside Development Finance Institutions (DFIs) like British International Investment (BII) and Norfund. This structure transforms the millions of future customer repayments from PAYGo solar assets into tradable securities. The capital raised will finance 1.4 million solar home systems, enabling low-income households to purchase products via daily mobile money payments. 

The success of this deal signals growing confidence among African banks in the viability of PAYGo solar models, demonstrating how bundling consumer loans can de-risk the sector and attract local commercial capital at a scale that DFIs alone cannot match.

Addressing the Challenges and Mitigating Risk

Securitisation transactions often rely on a portfolio mix, consisting of existing receivables and future receivables to be generated by new connections. Relying heavily on future receivables can be perceived as risky. To mitigate these risks and secure investor confidence, deals must incorporate strong control mechanisms, some of which are discussed as follows:

Overcollateralisation: This is a main credit enhancement mechanism. For instance, in Côte d’Ivoire’s 60 billion CFA franc bond issuance, approximately 67 billion CFA francs in receivables were used as backing. This surplus acts as a cushion against late payments or customer defaults.

Credible Operators: Using established operators, such as the Ivorian electricity operator CIE (with its strong track record), to directly collect payments further secures the cash flows for investors.

Demonstrated Capacity: Relying on operators with proven capacity to execute connections is key. For example, CIE can handle 550,000 connections a year, well above the 400,000 targeted in the securitisation phase.

Complexity and Cost Barriers: Securitisation requires significant legal and financial structuring involving multiple parties, including originators, sponsors, issuers (SPVs), collateral managers, arrangers, and rating agencies. This complexity generates material costs, including legal, rating, and arranger fees, which must be weighed against the potential strategic and operational benefits. If the objective is simply to improve access to capital, securitisation must prove more cost-effective than other options.

Investors seeking to tap into the growth of energy access payment securitisation in Africa should adopt strategies that skillfully leverage the benefits while mitigating the identified risks.

Investors must understand that these structures are inherently long-term and focus on the different tranches offered. The availability of 7-year, 10-year, and 15-year maturities allows different investor types – from banks to pension funds – to find a risk-return profile that matches their horizon. The tranching structure provides investors with flexibility to match their risk appetite, allowing institutional investors to focus on the safer, highly-rated senior tranches. 

Investors should also prioritise deals that are anchored by strong local partnerships. The success of energy access securitisations hinges on reliable cash flow collection. Investors should look for deals where established, reputable local operators (like CIE in Côte d’Ivoire) are responsible for collecting payments, which further secures the cash flows backing the securities. Also, the Sun King deal’s success was underpinned by the inclusion of central Kenyan commercial banks alongside DFIs, signalling local confidence and expertise in the underlying asset class (PAYGo solar).

Conclusion

The scale of Africa’s energy transition demands financial solutions that are modern, secure, and scalable. Securitisation, through its quiet influence, is proving to be precisely that instrument. By effectively bundling fragmented consumer payments or utility receivables into large, tradable securities, it unlocks capital without adding to sovereign debt, providing a way to finance tangible, high-impact projects.

The potential is immense. With an estimated need of $200 billion annually by 2030 to meet energy and climate objectives, financial architectures such as securitisation are critical for raising the required volume of local and international capital. If the success of deals like Sun King’s and Côte d’Ivoire’s PEPT continue to expand, this model promises not just to bridge the energy access gap for the millions of households still unconnected but also to power a broader economic transformation. Indeed, securitisation as an evolving financial architecture may determine the pace of Africa’s renewable energy transition, potentially enabling the creation of up to 14 million jobs by 2030. 

Abdulwasiu Esuola is a Legal Manager at the Distributed Renewable Energy Enhancement Facility.