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No Penalty for Poverty: A Conversation with Hugh Whalan

October 7, 2015

Hugh Whalan has started three businesses in Africa focused on innovative financing of solar power to some of the poorest consumers on the planet. His first company pioneered crowdfunding for energy loans to the developing world. His next company, a solar distribution and asset financing operation in Ghana, was acquired by a U.S. private equity firm in an industry first. He is currently running PEG, which is using pay-as-you-go technology to provide financing for solar to 500,000 customers in West Africa by 2018.

Allan Chochinov: Hugh, I’ve read in your bio that you traveled to 31 countries by the time you had turned 25 years of age. That’s some youth. What did your parents do, and did your exposure to multiple cultures stimulate your interest in your current work around … well, empowerment?

Hugh Whalan: My parents were civil servants. Mum was the first person in her family to go to university, and Dad left home at fifteen to join the Navy. In their own way, they were both risk takers, and had benefited greatly from the calculated risks they had taken. They worked hard, and sacrificed a lot to give me opportunities like spending a term at a boarding school in Japan and going on a school hiking trip to India and Nepal. The experiences I had when I was young instilled in me a sense of adventure and my parents certainly encouraged me to take smart risks. After high school, I spent time with landmine removal teams in Cambodia, taught English and geography in a Ugandan school, and worked in a refugee camp in Northern Kenya. That sense of adventure led me to the kinds of opportunities that I am now involved with.


My parents also encouraged my passion for business. When I was twelve, I remember them helping me plan a fruit stand at a weekend flea market. By fourteen, I was trading on the stock market. By eighteen, I had purchased my first property. I always had an interest in running a company, and mum and dad fostered within me a belief that I could do it if I was persistent enough.

“There is a prevailing view that poor people ‘need help’, and that the best way to provide that help is through charity. I think this is the wrong way to frame the problem.”

AC: Maybe we can dig down to some of the root causes of world challenges in your opinion, and how your current work around renewable energy and microfinance aim to — well, ARE — making a difference. Do you think our greatest challenges are political, economic, and/or religious? And how did you come to work on the kinds of infrastructure problems that occupy your time right now?

HW: Poverty has got to be one of the most significant challenges facing the world, and I believe that the biggest barrier to the eradication of poverty is way the West views the impoverished. There is a prevailing view that poor people ‘need help’, and that the best way to provide that help is through charity. While well-intentioned, this is the wrong way to frame the problem, and spending money this way doesn’t address the root causes of poverty.  


The most disadvantaged people in the world already pay for most goods and services (in other words, they are already consumers). But what most people don’t realize is that poor consumers routinely pay a lot more for products and services than anyone else. This is something known as the “poverty penalty.”

The poverty penalty means that urban slum dwellers in India without access to municipal water pay anywhere from four to 100 times as much for drinking water as do middle and upper class families in the same country. In Lima, Peru, a poor family pays 20 times what the middle class pays. Yet another example is that the cost of credit in Africa can be 100 times more for poor families who do not have access to formal financial institutions, because loan sharks with usurious terms become the only viable option for borrowed funds.

“The failure of governments to provide energy infrastructure to their people actually presents the biggest opportunity to leapfrog fossil fuels in these countries.”

So, we need to change the conversation from “these people need free stuff” — a.k.a. charity — to figuring out better ways of encouraging companies to compete for the wallet of poor consumers. Don’t get me wrong — charity is certainly effective in certain situations — and it has a big role to play in situations like humanitarian crises. However, when poor consumers are already paying for a service or product, and there is already a market established, charity is not the solution. Charity at its worst is a handout that encourages laziness and stymies initiative. Ingrid Munro has an interesting perspective on this. She founded Jamii Bora, a successful microfinance institution in Kenya which focused on providing the poorest and most disenfranchised with access to credit and housing services. Jamii Bora’s core clients were, in Ingrid’s own words, “beggars, prostitutes, and thieves.” Ingrid chose to give her clients a hand up rather than a hand out. She explained her approach in a 2008 interview:

“[The poor] don’t need charity… If we keep saying, ‘I feel very sorry for you because you can’t manage this yourself,’ the poor start thinking to themselves ‘I should feel sorry for myself because I can’t manage on my own.’ But if we say, ‘You can make it. You have talents … And [if] you see that some of your friends who were begging beside you on the same street now walk around in nice dresses, and that their children are in school, they eat three meals a day, and they live in a better house—then you also dare to dream that that is possible for [you too].’

We need companies to realise that poor consumers, while often very poor, do have disposable income, and that it is possible to make a profit while serving these customers. Once companies start realising this, it will begin to drive down prices, improve after-sales service, and give the poorest people a real voice.

The belief that the best way to respect a poor consumer is to fight for their dollar, is something that I have been doing for the last four years with my last two companies.

“There is a sim card embedded inside the device which pings real-time data on the product’s performance to us. We therefore understand exactly what customers are doing with our products.”

AC: I think that it’s very important to know what motivates entrepreneurs, and certainly I imagine that you agree that design is a political act. So let’s get to some specifics. Tell us some details about your current companies, and perhaps a couple of the business challenges you are facing.

HW: The company I currently run, PEG, aims to provide productive assets to underserved communities in an affordable way. We have 80 full-time staff, about 150 sales people, and operate in seven of the 10 regions of Ghana. The company is focused on providing financing for solar home systems to consumers who earn $1-$10 a day in peri-urban and rural areas of Ghana. A 12-month financing plan allows these customers to afford a $236 solar system, which they wouldn’t be able to afford to purchase upfront.


Importantly, the financing is matched to their existing expenditure on kerosene, candles and batteries, so the customer doesn’t have to change their spending patterns. In fact, after a year, the customer owns the system, and we expect them to save up to $1000 over the useful life of the system. That’s a pretty good deal for someone earning less than $10 per day.

Our biggest issues relate to isolation of our customers. Many of our customers live hours from the nearest town, outside of cell network coverage, and have unreliable or seasonal incomes. This poses a raft of challenges for us in collecting repayments.

AC: I did some work related to the Selco Initiative based in India a few years ago, inspired by a case study written up by the Yale School of Management. Some of the anecdotes doing the research really stuck with me — the idea of gluing a crucifix to battery boxes so that they wouldn’t be stolen (brilliant) and appealing to the patriarch of the village when trial periods were over so that he (always a “he”) could appear magnanimous electing to keep the lighting equipment and infrastructure. What are a few of your favorite stories from the past few years of work?

HW: One of the big ones is that customers don’t really track what they spend on things like energy because their spending patterns are ‘lumpy.’ For example, they might spend 50 cents today, $1 tomorrow, and $5 two weeks from now. When we first started out, we thought it would be a good idea to give customers a financing plan for solar for a fixed amount per month, equal to what they used to spend. Our customers were spending around $14 per month, so that is the fixed price we communicated.

Customers were generally outraged, and felt we were trying to rip them off—they felt that $14 was an absurd amount for energy. The more we tried to convince them that this was a better deal for them—because they spent the same amount AND were paying off a solar system which they would eventually own outright—the more the customers felt we were tricking them. It was kind of a disaster.


That’s the beauty of pay-as-you-go solar financing. It allows customers to pay as much or as little as they want at any point in time. Customers buy credits, and each credit lasts 24 hours, and is a payment towards the loan amount. Customers can buy one credit, or hundreds of credits depending on their preference. If they run out of credits while they are paying off the device, the system locks and is unusable until the customer starts paying again. In this way, the PAYG approach can exactly mimic the spending patterns of poor consumers.

AC: Any other behavioral economics insights?

HW: Another design feature of the PAYG system, which is quite unique, is the use of machine to machine technology. There is a sim card embedded inside the device which pings real-time data on the product’s performance to us. We therefore understand exactly what customers are doing with our products. This is very important because it allows us to solve problems for customers over the phone … and our customers are often many hours from the nearest town. So being able to solve problems instantly through our 24-hour call center in Ghana — versus having to send someone out to fix the problem in person (which would take way longer and cost 10 to 100 times more) — is incredibly important.

AC: It seems to me that energy and economics are the two primary forces with which we must engage right now. Perhaps they always were. If we’re going to last much longer here, we’ve got to come to grips with peak energy — or work toward a paradigm shift — and we need to reimagine commerce, learning from informal economies and somehow finding appealing alternatives to global runaway consumerism. I guess what I want to ask is: Are things getting better? Or are they getting worse? And can you tell us why?


HW: There are virtually no landlines in Africa. They were leapfrogged by mobile phones.  Similarly, because there are roughly half a billion people in Africa without access to modern energy (electricity etc), there is enormous scope for renewables to fill the gap. PAYG solar is one of the things that is looking quite promising. So, funnily enough, the failure of governments to provide energy infrastructure to their people actually presents the biggest opportunity to leapfrog fossil fuels in these countries.

This has nothing to do with altruism, or the wish of customers to emit less greenhouse gases. It is entirely because renewables (mostly solar) are extremely price-competitive, and in many situations, are far cheaper than the status quo consumption of fossil fuels for off-grid customers. We need companies to realize that poor consumers, while often very poor, do have disposable income, and that it is possible to make a profit while serving these customers. Once companies start realizing this, it will begin to drive down prices, improve after-sales service, and give the poorest people a real voice.

I am generally quite bullish that things will improve for the world’s poorest. PAYG solar will likely reach millions of poor customers over the next 5 years and it is only one (of many) exciting social enterprise business models that is growing rapidly. The ability of social enterprise to attract profit seeking capital AND have a positive impact on consumers is something that is going to drive a huge amount of positive change in the future.

All images courtesy of Hugh Whalan.

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