a market led, evidence based, approach to rural...

A Market Led, Evidence Based, Approach to Rural Sanitation

February 2014

Presentation by Jithamithra Thathachari, Monitor Inclusive Markets

- 2 -

Published the first data-driven reports analyzing BoP-centric business models in India and Africa — covering over 700 inclusive businesses

Multiple white papers on different sectors and articles in journals like Harvard Business Review

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Mobilized a new low-income housing market in India — over 50,000 units sold and mortgage financing provided to previously unreached customers

Developing the market for safe drinking water on a pay-per-use basis in urban slums

Foundational work in potential new areas for market-building

– Rural sanitation

– Impact sourcing / rural BPOs

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3 Sanitation - Dissemination Presentation – Oct-2013

DISCUSSION DOCUMENT – NOT FOR CIRCULATION

© 2013 Deloitte Touche Tohmatsu Limited — Confidential

Context & Purpose of 3SI Project

1 The information is available online at http://bit.ly/1a6te7r

3SI is a 5-year project supported by the Bill & Melinda Gates Foundation to increase penetration by 10% (~ 460,000 toilets) in their 8 focus districts through improving the private sector provision of toilets

The findings presented here are from the first phase (~1 year) of the project, led by Monitor Inclusive Markets, which aimed to develop scalable private-sector business models for provision of toilets

Low Penetration of Toilets in Rural India

Lack of Progress Despite Significant

Efforts

Of all the people in the world who defecate in the open, a majority

(600Mn) live in India

– 116Mn (67%) of rural Indian households do not have access to

sanitation facilities

Significant government investments (~USD 2.3Bn) in India to drive

rural toilet penetration; however, limited success in on-ground

execution

Supporting Sustainable Sanitation

Improvements (3SI) Project




The Supporting Sustainable Sanitation Improvements (3SI) Project

Analytical Approach

Mapping the sanitation player ecosystem and product landscape

Customer1

ExecutorsInput Material

Suppliers

Financiers

Service Providers

Influencers

Assimilating lessons from other sustainable models

to target the BoP

Manufacturing DistributionSales &

MarketingProduct Design

Pre - PurchaseAggregation &

PurchaseCapture Storage

Purchase and Usage

Transportation Treatment Disposal

Post Usage

aspirational, accessible,and affordable design

converting by-product into manufacturing input

concentrating distribution responsibility in single government agency

seamless demand generation and fulfillment

multilevel distribution, leveraging umbrella

branding

making a market work for the BoP

streamlined offering with cross-subsidized

pricing

end-to-end sanitation solution

Developing segmented understanding of customer behavior

SEC (New) A / B / C / D 1 E1 E2 E3

Prior Use No Yes Yes No Yes No

Family Type Nuclear Joint

Flood Propensity

Distance from District Centre (km)

Low

45+

0 to 45

Medium

0 to 20

20+

High

0 to 45

45+

A

B

C D

F

E

G

H

I

J

Understanding entire value chain and key

players

Formulating market-based business models for sanitation

A

B

C

D E

Started with an initial 4 week1 exploratory phase -

conversations with households, value chain players, and sector

experts, to develop an early understanding of the context

and key issues

Field Research

9

70

146

148

858

3

30

non-Bihar intervention field visits

qualitative customer interviews

expert interactions across the globe

qualitative value chain participant interviews

quantitative customer interviews

districts

blocks

1 2-3 weeks in the field including an induction by a 3SI WASH partner working locally

Executors

Financiers

Input Material Suppliers

“Market Maker”

Cement Retailer

Sanitary H/W Retailer

Brick Kiln / Retailer

Cement Ring Manufacturer

Customer aggregates products and services, and pays for them

Mason Unskilled Laborers

Available at local level in most villages

Mason may also be involved in marketing

Will deliver and install cement rings

Customer

NGO

Performs demand generation, using product catalogs / model toilets (3 options)

Incubates and supports CRMs, trains and monitors masons, coordinates value chain

May also guide customers in obtaining subsidy

Product Catalog

All input materials available at Panchayat / block level

MFI / SHG

NBA (PHED)

Can play a range of roles, from providing customer financing (incl. bridge financing for subsidy), to full-fledged market-maker role (similar to NGO)

Provides subsidy directly to customer, after verification

The project was a 5 month effort by an 8 member team (~140 man-weeks of effort)




The Opportunity | Demand for Toilets Exists

33

84

100

52

16

Have researched

product options

Do not want a toilet

Desire a toilet

Do not consider due

to space / money issues

Rural Households

without toilets

1 Safety from animals, assault, etc., especially for children and female members of households; 2 Nos. in brackets denote % of respondents who mentioned the given reason for desiring a toilet, during quantitative research in Bihar as part of 3SI landscaping Source: Primary Research, Monitor Deloitte Analysis

Demand for Toilets in Rural Areas (%)

High stated demand

‘Proven’ demand, where households

research and seriously consider purchase, before

deciding not to buy due to affordability

/ space issues

Why do Customers Want a Toilet?

Only 1% indicated health as an important motivator

Safety1 (49%2), especially of women and children

Convenience (45%), especially in rainy season, and during odd hours / illnesses

Privacy (24%) / modesty of women

Findings in Bihar resonate with feedback from experts and organizations working in other parts of India

~84% of households indicate that they want a toilet; 33% have actually researched potential product options before deciding not to purchase due to affordability issues




The Opportunity | Lack of Affordable, Quality Products

100 200 300 400 500 600 700 Pri

ce

(USD

)

Private Toilet (Leach Pit) Cost: USD 80-160 (INR 4,000-8,000)

3 feet deep leach pit, rural pan, half/full superstructure

Not very prevalent

Rectangular Leach Pit Toilet Cost: USD 400-700 (INR 20,000-35,000)

6ft*5ft pits, depth of 5ft-10ft, urban pan, full permanent superstructure

Septic Tank Toilet Cost: USD 700-1200 (INR 35,000-60,000)

Septic tank, urban pan, full permanent superstructure

Cost: USD 160-400 (INR 8,000-20,000)

No Observed Toilets

TSC / NBA Toilet (CSO) Cost: USD 40-60 (INR 2,000-3,000)

3 feet deep leach pit, rural pan, 3 feet “half” brick superstructure

Note: Conversion rate used in this document is 1 USD = 50 INR Source: Primary Research, Monitor Deloitte Analysis

However, quality toilets being constructed are rectangular leach pit / septic tank options costing more than USD 400 (INR 20,000) – which are unaffordable for most customers




The Opportunity | A Potential Product Solution

1 Design choices can be customized based on local context – e.g. in Trichy, many households desire a small window in the superstructure, for better ventilation; 2 Rural pans have deeper inclines than urban pans, and require less water to clean after use. However, despite this utility, they aren’t preferred due to inferior aesthetics vis-à-vis urban pans. A modified rural pan, with a similar deep incline, but with integrated footrests and better quality, finish, could be acceptable Source: Primary Research, Monitor Deloitte Analysis

Research indicates that it should be possible to construct quality toilets in an affordable USD 140-200 (INR 7K-10K) price range – which quite a few customers could afford

Key Design Elements1

Parameter Customer Need Design Choice

Type of Pit

Prefer expensive septic

tank-like options

Open to more affordable

circular leach pits

Circular leach pit, given

relative affordability

Less prone to caving in

from soil pressure than

rectangular pits

Depth of Pit

Desire pit depth of at

least 8-10ft; however,

open to spreading this

depth over multiple pits

Two-pit model, with

maximum depth of 5ft

Customers can postpone

digging of second pit

Material of Pit

Used to brick-lined pits;

however, open to cement

ring-based pits

Cement rings; easier to

standardize and monitor

quality

Helps in de-skilling pit

digging process

Pan

Prefer urban pans over

rural pans, due to better

aesthetics

Urban pans, given strong

customer preference2

Do not add significantly to

toilet cost

Super-structure

Desire permanent ‘pucca’

brick superstructure

6ft brick superstructure,

with tin door, roof

Potential Toilet Option

Full brick superstructure (tin door, roof); urban pan; circular cement ring leach pit (5 feet)

Similar products already being built in various parts of India; materials and skills required are

also available locally, in most rural areas




The Opportunity | Driving Conversion – Affordability Distribution

Hard to Convert

Easy to Convert

$ $

Can afford a toilet $ May need financing

to purchase toilet May need part-subsidy (NBA5) to purchase toilet

6-8%1 10-12%2 40-45%3 35-40%4

Note: Percentages on arrow denote proportion of households across rural areas of 3SI’s 8 chosen districts in Bihar, that fall in each affordability group; pensketches of customers in each affordability group are illustrative 1 Relatively affluent households, owning at least one asset from among TV, fridge, PC / laptop, 2 / 4 wheeler / tractor; 2 Other households in affluent SECs (A/B/C/D), or households in SEC E1 with relatively regular incomes (e.g. salaried, traders, shopkeepers, skilled workers); 3 Households that own at least one asset from among mobile phone, ceiling fan, landholding > 1 bigha ; 4 All other households; 5 The NBA subsidy amounts to INR 4,600 (and INR 5,500 for ultra-poor); under the new guidelines, this will be transferred directly to the beneficiary household, after toilet construction; 6 Under the new guidelines, NREGA (National Rural Employment Guarantee Act) subsidy of INR 4,500 may also be available to subsidize labor cost of constructing toilets; however, implementation protocol not clear yet Source: Primary Research, Monitor Deloitte Analysis

Ram Prasad, Samastipur

50 years old, and owns a ceiling

fan, a TV, and two bighas of

farmland

His brother lives in Patna city

Sees value in a toilet, but would

not pay USD 1,000 (INR 50,000)

for it – would rather buy a 2-

wheeler if he saved that much

money

Manoj Ravidas, Patna

$

30 years old; works as a skilled

worker in Ludhiana; also owns

some farmland in his village

Strong exposure to toilets and

their benefits, in Ludhiana

Can’t afford to pay a lump-sum

at present; would purchase a

toilet if he could access a loan

Satyendra Rai, Patna

$

21 years old; helper in a local

shop

Wants a toilet, as his mother

faces privacy issues in open

defecation (OD)

If provided part-subsidy, would

be willing to borrow and invest

USD 60-100 (INR 3K-5K) to

ensure quality

Uday Kumar, East Champaran

50 years old; he and his sons

are unskilled laborers

Cannot find sufficient jobs every

month – barely able to cover

living expenses

Feels concerned for privacy of

his wife, daughter-in-law, in OD

but cannot afford to spend on a

toilet

6-8% of households would be able to purchase a toilet outright at USD 140-200; an additional 10-12% would need financing, and 40-45% would require part-subsidy in addition to financing

May need full subsidy (NBA + NREGA6) to purchase toilet




The Opportunity | Driving Conversion Through Financing

Hard to Convert

Easy to Convert

$ $

Can afford a toilet $ May need financing

to purchase toilet May need part-subsidy (NBA) to purchase toilet

6-8%1 10-12%2 40-45%3 35-40%4

Note: Percentages on arrow denote proportion of households across rural areas of 3SI’s 8 chosen districts in Bihar, that fall in each affordability group 1 Relatively affluent households, owning at least one asset from among TV, fridge, PC / laptop, 2 / 4 wheeler / tractor; 2 Other households in affluent SECs (A/B/C/D), or households in SEC E1 with relatively regular incomes (e.g. salaried, traders, shopkeepers, skilled workers); 3 Households that own at least one asset from among mobile phone, ceiling fan, landholding > 1 bigha ; 4 All other households; 5 Assuming an LTV ratio of 70% on toilets costing USD 140-200 (INR 7,000-10,000), for an 18-24 month repayment cycle at 24% interest; 6 Based on current 90-day delinquency rate; has varied in 95%-97% range over last few months; 7Based on conversations with these MFIs; not exhaustive Source: Primary Research, Monitor Deloitte Analysis

Irregular rural incomes make upfront investment of

USD 140-200 (INR 7,000-10,000) difficult; even if

households can afford this investment, not a priority

– In such cases, affordable financing (with EMIs of

USD 5-10/INR 250-5005) can help drive conversion

The experience of Guardian, a WASH-focused MFI in

Tamil Nadu, indicates that financing can drive

conversion even for households that can afford a

toilet without financing

Guardian has demonstrated the impact of financing –

given nearly 25,000 toilet loans since 2007, with a

repayment rate of ~96%6

Grameen Koota, a Karnataka-based MFI, has

disbursed ~50,000 toilet loans with repayment rate of

99.9%; current run rate of ~1,000 loans per week

5-6 other MFIs in India7 have also seen strong

consumer interest and introduced toilet loans in their

portfolios

Financing – The Hidden Lever Sanitation Financing in Action

Providing financing (with part-subsidy) could help target ~60% of the market – a USD 10-14Bn opportunity

May need full subsidy (NBA + NREGA) to purchase toilet

Financing key to driving adoption of toilets in rural areas; along with part-subsidy, can help target ~60% of the market – a USD 10-14Bn (INR 500-700Bn) opportunity




The Solution | Potential Business Models

There are two potential delivery models for constructing affordable rural toilets; need a “market-maker” for both models, given that players are likely to be local entrepreneurs

1 Approximate costs for a quality toilet at ~INR 7,500, based on field research in Bihar; may vary across locations; 2 Includes costs of bricks, cement, cement rings, toilet pan, door, roof, pipes, etc.; 3 Includes costs of skilled mason, mason apprentice and laborers; 4 Supervisor to oversee toilet construction by TSP; 5 Additional marketing costs borne by TSP (in DIY model, NGO / MFI does marketing); Source: Primary Research and Analysis

Key players in both models likely to be local entrepreneurs

– In the DIY model, customers will aggregate materials and

labor locally

– Given low margins available to TSPs, they are also likely

to be local entrepreneurs and not large players

Need for a “market maker” to create an enabling

environment; could perform various activities such as

incubating key value chain players, providing high-quality

toilet designs, supporting demand generation activities, etc.

In the Turnkey Solution Provider (TSP)

model, the TSP procures material and

labor, and provides end-to end delivery

(including marketing, demand generation)

In the Do It Yourself (DIY) model, the

household manages construction,

sourcing input materials and labor to

build a toilet

Do It Yourself (DIY) Model

Turnkey Solution Provider (TSP)

Model

8,000-8,500 (USD 160-170)

5,435 (~USD 110)

1,588 (~USD 32) 80 (~USD 2)

455 (~USD 9)

DIY

400–1,000 (USD 8-20)

7,540 (~USD 150)

5,953 (~USD 120)

1,588 (~USD 32)

TSP

Input Materials2

Labor3

Supervisor4

Marketing5

TSP Margin

Cost Comparison – DIY vs. TSP (INR)1




Implementing Business Models | Need for a Market Maker

NGOs

Why enter sanitation? Role

Add-on activity in existing

locations, with significant

potential for social impact

Already have strong local

presence, relevant skills

New area for MFIs, adding

to product portfolio and

helping them extend and

deepen relationships with

existing customers

Helps position them as

creating social impact

Already well-penetrated in

rural areas; sanitation an

additional growth area

Opportunity for brand

building; can also be a part

of CSR activities

Demand generation and

awareness creation

Periodic mason training,

monitoring toilet construction

Development of product designs

Can play a “light-touch” role,

providing customer financing and

suggesting toilet designs

Can also choose more intensive

role, participating in demand

generation, mason training,

quality control, etc.

Creation of design standards

Demand generation, mason

training, etc. through local

distributors

Incubation of cement ring

manufacturers /entrepreneurs

Cement Producers

MFIs

Different entities can play a market-maker role in implementing the proposed business models, overseeing demand generation activities, and ensuring quality toilet delivery

Issues / Concerns

Would need

additional donor /

gov’t funding, as

intervention will not

generate revenues

Need to develop an

understanding of

sanitation and train

staff accordingly

Obtaining funding a

challenge (for both

lending and market-

making activities)

Need to develop

understanding of

sanitation space

May remain a small

part of overall

cement volumes




The NGO Led Model | PSI as a Market Maker

PSI is performing a market maker’s role in the 3SI project, piloting both the TSP and DIY models; performs product design and oversees the value chain in its target locations

Overview

PSI is performing the role of a market maker in the 3SI project

Currently piloting both the TSP and DIY models – aims to construct ~11,000 toilets

in its first year (Year 2 of 3SI project) as it refines the two models, before scaling up

to achieve total volumes of ~460,000 toilets by Year 5 of the project

Product Design

Product design a key responsibility – working with other organizations to design

appropriate product portfolio with clear value-quality tradeoff, accounting for

customer preferences, government approval and ensuring scalability

Overseeing Value Chain

PSI is also overseeing the value chain in its target locations

– Identifying and recruiting key players (e.g. TSPs, CRMs1, local NGOs / MFIs),

and helping them build the necessary capabilities to deliver quality toilets

– Training TSPs, CRMs, masons to meet defined quality standards, with rigorous

monitoring in initial months

– Working with MFIs, SHG federations to raise availability of customer financing

– Also offers financial support (especially in marketing) to value chain players, to

ensure smooth functioning during scale up period

1 Cement Ring Manufacturers




The MFI Led Model | Grameen Koota

Overview

Grameen Koota is a Karnataka-based MFI with 350,000

active borrowers and a gross loan portfolio of USD 100M

(INR 5B)1; major focus is on provision of income-generating

loans (IGLs, ~85% of portfolio)

Aims to add value to its customers in areas of need (e.g.

cookstoves); started sanitation financing in 2009-10, to

address need for toilets among its customers and extend its

relationships; aims to ensure that all its rural customers

have toilets within the next 5 years

– Also helps position GK as having social impact; toilet

loans often received with more gratitude than IGLs

Offers USD 200 (INR 10K) sanitation loans using JLG model,

at 22% interest, 2 year tenure, to pre-existing IGL customers

– Disbursed ~34,000 rural toilet loans (~50,000 toilet loans

in total), with high repayment (99.9%)

Grameen Koota conducts demand generation activities (e.g.,

street plays, product brochures) through its sister NGO called

Navya Disha (ND) in ~22 of its ~160 branch areas annually

Grameen Koota has disbursed ~50,000 toilet loans to date, including ~34,000 rural toilet loans, with a repayment rate of 99.9%

1 As of 2012 Source: Grameen Koota, Mix Market, Primary Research

3 4

11

16

2

7

8

FY14* (till Sep

28, 2013)

24

FY12 FY13

18

5 1

FY11

6

FY10

0 0 0

Number of Rural WatSan Loans Disbursed by Grameen Koota (‘000)

Rural Toilet Loans (’000)

Rural Water Loans (’000)




Invitation to join Open Conference Calls and Additional Information

Remaining open conference calls to discuss our findings:

– February 12, 10am IST

– February 25, 10am IST

– March 5, 9:30am IST

– March 13, 9:30pm IST

RSVP to [email protected] for us to

send you dial-in information & the

presentation / agenda for the call

Additional resources available at www.inclusive-markets.org/sanitation1:

– 3SI Project Landscaping Outputs

– 3SI Project Landscaping Approach Document (and Appendices)

– Case Studies on select organizations working in rural sanitation

PSI Contact: Satya Prakash Chaubey – [email protected]

Katharine McHugh – [email protected]

Water.org Contact:

1 All resources are open source

[email protected]

mailto:[email protected]

http://www.inclusive-markets.org/sanitation






Email: [email protected] Phone: 022 6658 2000

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