Beyond Access: The Role of Credit in Easing Solar Use for Rural Rwandan Households

A World Bank study in rural Rwanda found that offering a credit line for prepaid solar electricity significantly reduced consumers' transaction burdens without increasing overall electricity demand. The credit improved convenience and welfare, highlighting the high value rural consumers place on saving time.

A recent study from the World Bank’s Development Research Group, authored by economist Megan Lang and supported by the International Growth Centre (IGC), provides groundbreaking insights into how rural consumers in Rwanda interact with prepaid electricity systems. Through a large-scale randomized controlled trial (RCT) involving over 11,500 households using Pay-As-You-Go (PAYGo) solar systems, the study explores how two key market frictions, liquidity constraints and transaction costs, affect electricity consumption. The findings challenge some long-held economic assumptions and open new doors for policy innovations aimed at improving energy access across the developing world.

Prepaid Power: Convenient for Providers, Costly for Consumers

Prepaid electricity contracts, such as PAYGo solar, are widely praised for their ability to reduce default risk and enforcement costs for service providers. However, the model can be rigid and unforgiving for users, especially in low-income, rural areas. In Rwanda’s rural electrification strategy, nearly half of all off-grid households are expected to rely on PAYGo systems. These contracts allow customers to make a small initial payment for solar installation, after which they purchase access time in small increments, usually through mobile money platforms. Access time runs down continuously, and once it’s depleted, the system shuts off remotely. Customers must then prepay again to resume service.

This system imposes a double burden on consumers: they need to ensure cash is available exactly when electricity is needed, and also incur time-based transaction costs with every payment. The study found that the average consumer had to travel about 34 minutes one way to reach the nearest mobile money agent, and most made multiple such trips per month. These time investments, combined with liquidity pressures, significantly complicate the day-to-day management of electricity access.

A Line of Credit to Ease the Strain

To test whether more flexibility would improve consumer outcomes, the researchers offered a line of credit to 2,000 randomly selected PAYGo customers. This feature allowed users to borrow one to two weeks of solar access time by simply calling the solar company, with repayment due later at a flat fee. Crucially, this credit line eliminated the need for immediate cash payments or in-person visits to mobile money agents, offering a way to bypass the burdensome transaction process.

The design of the credit was also randomized along three dimensions: borrowing limits (7 or 14 days), fee levels (2% or 10%), and repayment time conditions (with or without time limits). This structure enabled the study to analyze consumer behavior under varied contract terms, providing a rich dataset to understand demand patterns, payment behaviors, and the true value consumers place on convenience.

Surprising Results: No Spike in Electricity Use

Despite the strong interest in the credit line about 20% of treated customers borrowed at least once there was no measurable increase in electricity demand. Consumers who used the credit did not consume more watt hours, did not increase their transaction sizes, and did not change their default rates. Their usage patterns remained consistent before and after gaining access to the credit.

What did change, however, was the frequency of in-person transactions. Treated consumers made significantly fewer trips to mobile money agents, indicating that the primary value of the credit was in reducing transaction costs rather than overcoming liquidity constraints. Even among those who had the highest electricity usage before the trial, the credit did not lead to increased demand it merely helped them smooth their purchase process and avoid time-consuming journeys.

The High Value of Time for Low-Income Consumers

Perhaps the most revealing aspect of the study was what it uncovered about how rural consumers value their time. By calculating the fees borrowers were willing to pay to avoid extra trips, the researchers estimated a lower bound on the value of time: the median came to RWF 266 per hour (about USD 0.30), with the average closer to USD 0.84. These are substantial figures in a country where the median daily per capita consumption is only around RWF 647. The implication is clear: rural consumers, often presumed to have low opportunity costs of time, are actually willing to spend a significant share of their limited resources to save time and reduce hassle.

Moreover, a notable portion of loan requests occurred after sunset or shortly before it, suggesting that last-minute needs for lighting or evening activities made the line of credit especially valuable during critical periods. This behavioral insight highlights the real-world benefits of flexibility in service delivery, benefits that may not immediately show up in consumption metrics but matter deeply to households managing tight daily schedules.

Rethinking Electrification Policies Through Flexibility

The study’s findings suggest several important takeaways for energy policy in low-income settings. First, policymakers and energy providers should not underestimate the burden of transaction costs in prepaid systems. Designing services that reduce the need for frequent, inconvenient payments can substantially increase consumer welfare even if electricity consumption doesn’t change. Second, expanding access to flexible payment systems, such as mobile money and short-term credit, can complement electrification efforts by making them more user-friendly and accessible. Third, the enforcement technology in PAYGo systems, specifically remote locking makes it possible to introduce more consumer-friendly credit features without increasing the risk of default or loss of revenue.

While the study is limited in scope to existing PAYGo customers and does not explore effects on non-adopters or long-term appliance upgrades, it presents compelling evidence that even small, low-cost innovations in contract design can lead to meaningful improvements in the lives of rural consumers. As global development institutions and governments pursue universal electrification, this research calls for a shift in focus not just on who gets access to electricity, but on how that access is structured, maintained, and made genuinely usable in daily life.