In sub-Saharan Africa, a fast-growing solar home system (SHS) market is expanding electricity access to thousands of rural households without grid connections. Many SHS units are bought on credit, with payments made via mobile money, which both unlocks electricity and pays down the SHS cost. However, rural households often incur high transaction costs traveling long distances to reach the nearest mobile money agents to make these frequent payments.
This project examines how transaction costs create a key friction that suppresses demand for SHS in Togo, potentially contributing to persistently low electrification rates. By combining data from Togo’s largest SHS provider, the location and rollout timing of all mobile money agents nationwide, and travel cost information we collected, we analyse the effects of two government-led policies: (1) a demand-side SHS subsidy and (2) the rural expansion of mobile money agents.
Our results reveal that transaction costs— in our setting, the cost of traveling to mobile money agents to pre-pay for electricity—are a significant barrier to rural electrification, accounting for 28% of solar-related expenditures and up to 43% in remote areas. The SHS subsidy, which reduced prices by up to 44%, more than doubled adoption rates. However, this effect was 37 percentage points higher in villages with direct access to mobile money agents, highlighting the complementarity between financial access and price subsidies. Importantly, the subsidy enabled households to shift from frequent, costly payments to bulk purchases, highlighting a strong preference for transaction cost avoidance. In parallel, the expansion of mobile money agents led to an adoption effect on par with the subsidy itself, further emphasising the significant constraints that transaction costs place on rural electrification.
The study’s potential policy impact is twofold. First, it suggests that price subsidies alone may be insufficient to stimulate electricity demand in rural settings. Instead, it points to the need to reduce transaction costs—through financial infrastructure and inclusion—to unlock the full potential of subsidy programs. Second, our findings support integrated policy design: pairing targeted subsidies with complementary investments in mobile money networks can yield higher welfare gains by addressing both liquidity and transaction frictions. These insights are directly relevant for policymakers and development institutions seeking cost-effective strategies to expand energy access and essential services across low-income regions.
