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
Regular conference addresses across U.S., Europe and Asia; significant media coverage in India and abroad
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
Monitor Inclusive Markets – Focus on Market-based solutions to improve the lives of low income households
A recognized thought-leader in the global field of MBS
Working on the ground to mobilize markets
Action Research
Working across India and Africa in Agribusiness, Health, Drinking Water, Education, Housing, Financial Services, …
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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
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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)
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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
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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
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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
8 Sanitation - Dissemination Presentation – Oct-2013
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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
9 Sanitation - Dissemination Presentation – Oct-2013
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© 2013 Deloitte Touche Tohmatsu Limited — Confidential
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
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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
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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
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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
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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)
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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