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Nick Hughes SEMBA2001 is a man who lives to solve problems. Intractable, socially significant, complex conundrums. “What interests and excites me is change,” he says. “How we find ways to change what is clearly broken.”
Early in the era of environmental awareness, Hughes was combating climate change and global warming, developing carbon-trading models. As the UN targeted global poverty, Hughes enabled ﬁnancial inclusion for millions of Africans, creating the highly innovative M-Pesa mobile payments system.
So successful has he been in ﬁnding sustainable solutions to those problems that he was awarded an OBE in 2017 for services to innovation in Africa (although, in keeping with a man who lists humility as an important value, you are unlikely to hear it from him).
Now, as Co-founder and Chief Product Oﬃcer at M-KOPA, Hughes is not just providing aﬀordable, clean energy, but brightening the lives of millions of people in emerging markets by empowering them with access to ﬁnancial credit as a means to fulﬁl their potential. He is also an Executive Fellow at London Business School’s Wheeler Institute for Business and Development, leading on its Digital for Development initiative.
He has always had an innovation-driven, entrepreneurial spirit. A PhD scientist, he was focusing on some of society’s biggest challenges at an early stage of his career: “At BP the problem was how to get engineers to see that something perceived as an environmental issue was actually an economic issue. Once they realised that they could save or make money for their business units by trading carbon, suddenly all these amazing carbon-related solutions began to emerge.”
He joined Vodafone as head of social innovation and created a multi-million pound social innovation fund focusing on mobile applications. Soon, he initiated a project to create digital micro-credit. This became M-Pesa, (M stands for mobile; “pesa” means “money” in Kiswahili, Kenya’s official language). With initial seed funding from a Department for International Development (DFID) Challenge Fund, his team at Vodafone worked with Kenya’s network operator Safaricom to design and build a mobile money platform that is used today by more than 30 million people.
M-Pesa allows anyone who has a phone to pay bills, buy and sell goods and transfer funds using a mobile wallet. They don’t need a bank account – they simply load cash into a digital ‘wallet’. “Again, it was all about ﬁnding a solution to a problem,” Hughes says. “How to move money safely and securely in an environment where banking has only reached a small proportion of the population and where the only infrastructure available was the mobile network.”
"That’s the really powerful part of the story – giving someone a chance to show that they can buy some collateral and then refinance it"
He and his team noticed during an early test phase that people were putting more money into their digital wallets than they needed to pay their loans and instead were using the extra digital cash to make transactions to friends and family, so the team quickly pivoted to a simple, person-to-person, SMS-driven, no-bank-account required, mobile payment platform. M-Pesa launched in 2007. Today it’s used by around 70% of Kenyans and its transactions make up some 45% of national GDP.
By 2009, as M-Pesa was attracting widespread praise in global media, Hughes had moved on to the next challenge: “I was already starting to think that a payment itself eventually becomes a commodity. Make the assumption that anybody can do a transaction at low cost and send money between two points, no matter how far away they are, then what else can you do with that?”
The answer was M-KOPA (“kopa” is Kiswahili for “borrowed”). Hughes noticed that M-Pesa customers spent regular small amounts on fuel, such as kerosene and charcoal. He also knew the economics of solar energy were changing quickly, with photovoltaic panels and lithium batteries becoming aﬀordable.
Never a hostage to established business models, he and his team re-imagined the outcome for millions of Africans who were using kerosene lamps for daily lighting and cooking: “If someone has connectivity and can do a small transaction, why don’t I try to solve the problem where that person is spending 50 cents a day on kerosene and use that small daily payment instead to access clean energy and acquire an asset at the same time?” he thought. “With smart technology and digital payments, there is absolutely no need for them to keep using kerosene.”
It’s a simple business model. M-KOPA works by embedding mobile connectivity into the solar energy equipment so it can be remotely controlled and turned on and oﬀ according to the balance of payments received. This allows customers to pay a small deposit for their home energy systems, then buy credit in instalments using mobile money. Eventually (usually within a year), the customer owns the solar home system outright and their basic energy needs are met, so they can use the 50 cents a day for other household costs.
The stats are impressive. Launched oﬃcially in 2010, M-KOPA has already connected more than 700,000 families and impacted over three million people, with a positive credit record above 90%.
But for Hughes, M-KOPA is about much more than solar lighting. He has a far bigger vision. He is out to challenge the orthodox notion of a bank, using smart digital technology to ﬁnance other assets. Already M-KOPA has sold over 200,000 TVs and is extending the same model to solar-powered fridges: “When someone pays for a solar home system, they have built up collateral that we know they’ve been able to buy from us. We can then advance them credit to buy other productive assets, whether it’s a water tank, fertiliser, or a loan to pay school fees. We reset the credit on their home power system, send cash to their M-Pesa wallet, and they can keep paying 50 cents a day.”
In eﬀect, Hughes and his team have created a ﬂexible mortgage, secured against a solar power generator that, as a last resort, they can turn oﬀ in the event of repayment problems: “It’s a win-win,” he says. “We can make it work at scale and we’re solving a massive problem – kicking out kerosene, a fuel that causes problems, and then in the next phase oﬀering credit to consumers on the back of them having built a credit history. That’s the really powerful part of the story – giving someone a chance to show that they can buy some collateral and then reﬁnance it.
“Take that to any budding entrepreneur in an emerging market that can’t aﬀord the equipment, that then becomes his or her productive asset, it is revenue generation, employment and an opportunity to use clean technology to drive that forward.”
As a co-founder and board member still having a steer on M-KOPA’s strategy, Hughes is happiest working on the longer-term product roadmap.
“I believe strongly in the need for continuous innovation,” he says, “but that itself is a challenging process in a fast-moving sector, especially as a young company with limited resources and an absolute need to deliver the core business results.
“To help with this, I created M-KOPA Labs, a dedicated team who can raise separate funds to push on with the next phase of the business model and test out early-stage opportunities that embody device connectivity, digital payments and new technologies that can underpin scalable solutions. I am very optimistic about the power of digital technology to help address development issues. It’s a new tool and we are only just ﬁguring out how to use it.”
Here, as elsewhere, Hughes creates a nurturing environment for his colleagues: “It’s all about teamwork for me. I really enjoy working with people who have bought into the vision and are equally relentless in looking for solutions to problems. I’m not a micro-manager, looking over people’s shoulders and task- managing people. Trust is important; I rely a lot on other people. Change is hard, so I don’t come down heavily on people if they try something that hasn’t worked, as long as we all learn from the experience.”
It is an approach that is paying oﬀ. Having restructured the core business in 2017, M-KOPA was EBITDA-positive in the second half of 2018, with growth up 30% year-on-year. The plan now is to make a considered foray into new African markets and explore the possibility of entry into Asia.
Hughes commits to a small number of advisory roles and helping other entrepreneurs in the digital sector, but when he isn’t doing this or working on M-KOPA’s growth opportunities, he tries hard to ﬁnd ways to switch oﬀ . “I struggle to not think about work,” he admits.
“Change is a constant and it is always on my mind, but I’m fortunate to live on the edge of the South Downs, a beautiful part of the world. It’s perfect for my wife and me to head out on long walks with our energetic Hungarian Viszla, who has an innate ability to ﬁnd a good pub. Or I take my mountain bike out and that forces me to think no more than three seconds ahead. These breaks are important to me. Switching oﬀ does signiﬁcantly help clear space in my brain.”
For the billions of people who could beneﬁt from the solutions that spring from Hughes’ inventive mind, one can only hope that his mountain bike gets plenty of use and his dog ﬁnds many more pubs.