FinDev Blog

Demystifying PAYGo Solar Accounting

Greater transparency and harmonization of accounting practices can help the industry advance
Engineer adjusting a lamp from a solar kit, Mali.

Pay-as-you-go (PAYGo) solar companies combine multiple business models into one. They are hard to classify – being part modern electric utility providing clean energy, part retailer selling durable goods through diverse distribution channels, and part financial institution providing financing to make valuable assets affordable for low-income customers. This wide range of activities makes it a challenge for PAYGo solar companies to decide which accounting policies to use to manage their businesses and present them to the outside world. Investors in turn can find it difficult to understand what accounting standards a PAYGo company is using and how this affects their financial position or compares to their competitors.

A PAYGo Accounting Brief to shed light on industry practices

In 2020, MFR, a global rating agency specializing in inclusive and sustainable finance, worked with eight PAYGo companies to pilot the PAYGo PERFORM KPIs, which are a standardized and transparent set of indicators designed to help companies track, benchmark and improve performance while presenting a more accessible profile to investors. The aim was to test the practicality of collecting and analyzing the data needed to produce the KPIs.

However, the diversity of accounting approaches encountered during the pilot posed a major challenge. Depending on the accounting standard adopted, the revenues, costs, outstanding receivables and credit loss provisions for a company differed, in some cases substantially. This in turn affects the calculation of the PAYGo PERFORM KPIs on Portfolio Quality, Financial, Company and Operational Performance.

For instance, the same transaction can generate between $80 and $250 of revenue in a given period, depending on the accounting standard used. This simplified example, in the table below, illustrates how four different accounting standards produce four completely different results for the revenue recognized in year 1 of a unit sold on a 2-year PAYGo contract with a total value of $250.

Table showing 4 different revenue results using 4 different accounting standards

To improve cross-comparison of the PAYGo PERFORM KPIs, IFC Lighting Global and GOGLA, with technical input from CGAP, commissioned MFR to produce an Accounting Brief dedicated to the PAYGo sector. For this brief, a group of PAYGo companies devoted valuable time to share their practices, demonstrating transparency and commitment to the improvement of the sector. The publication sheds light on the variety of accounting standards used by PAYGo firms and accompanies the other resources of the PAYGo PERFORM KPIs toolkit.

The importance of transparency and harmonization beyond the PAYGo PERFORM KPIs

Stakeholders working in the industry can benefit significantly from further disclosure and harmonization of accounting standards. For funders, harmonized accounting practices would make it easier to review companies’ financial statements. At a minimum, transparent disclosure of the accounting policies would help funders better evaluate a companies’ financial position, risk profile and performance.

For the PAYGo companies, adopting transparent financial reporting in line with internationally recognized standards and good practices can enable board members and managers to better understand their company’s financial health, assist them in strategic decision-making and enable benchmarking with peers. It may also enhance their ability to obtain financing from non-specialized investors by reducing the effort needed for the appraisal and due diligence processes. Finally, it reduces the compliance risk arising from the perception that PAYGo companies are financial institutions, which can lead to regulatory over-reaction (e.g. interest rate caps in several emerging markets).

Opportunities for the future

Given the importance for strategic decision-making, company investment and growth, it is paramount for PAYGo firms, investors and other interested parties to be aware of and communicate the different financial reporting standards used. The goal of the Accounting Brief is to facilitate this task in the short term.

In the future, more work in this area should be considered. As with the PERFORM KPIs, industry consultations could be undertaken to harmonize, to the extent possible, the accounting standards and the financial reporting disclosure practices of PAYGo companies. This would make the industry more transparent and attractive for a wider range of investors.

This is likely to be a journey, of which the Accounting Brief is only a first step, but the benefits for the industry are clear. Please join us for a webinar on 16 Nov 2021, where we will present the findings from the Accounting Brief and help move this conversation forward.

PAYGo PERFORM is a set of metrics and reporting standards that can serve as a “common language” to evaluate PAYGo companies and provide more transparency to the sector. They were developed with feedback from investors, PAYGo companies, technical experts and other relevant stakeholders. Learn more about PAYGo PERFORM and the KPI framework.

The PAYGo PERFORM KPIs were developed by CGAP, GOGLA, and IFC Lighting Global in consultation with some 600 investors, PAYGo executives and experts in energy and financial inclusion around the world. CGAP would like to thank their members, particularly FCDO and Credit Suisse, for their guidance and support. IFC Lighting Global would like to recognize the Government of Italy, the IKEA Foundation and the Government of the Netherlands. GOGLA would like to thank FMO and CDC (through CDC Plus, funded by UKAID) for their financial support.


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George Aremu , SierraLeone and Liberia
20 November 2021

We can't Isolate PAYGO from the rest of the global businesses with the prevailing revenue recognition of IFRS 15. In my opinion, it is ideal because it matches the COGS with Revenue and separates the financing elements.
Further questions are :
1. Can we PV Finance income or not?
2. What should be the ideal discounting factor? Also,
3. Is it ideal to record it above the EBITDA or below the EBITDA?

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