from blueprint to scale - case for philanthropy in impact investing

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Produced by Monitor GrouP in collaboration with acuMen Fund

created with FundinG FroM the bill & Melinda Gates Foundation

Monitor

The Case for PhilanThroPyin imPaCT invesTing

by Harvey Koh, Ashish Karamchandani and Robert Katz ap 2012

Scale

From

Bluepinto



How we Arrived Here

This report springs rom a point o view shared by Monitor and Acumen

Fund — that philanthropy is the essential but oten overlooked catalyst that

unlocks the impact potential o inclusive business and impact investing. The re-

port has been created with unding rom the Bill & Melinda Gates Foundation.

The key themes discussed here are based on the sum o Monitor’s extensive

research into more than 700 inclusive businesses in Arica and India, and

Acumen Fund’s decade o experience as a pioneering impact investor. They

also draw together the experiences and observations o dozens o impact

investors, grant unders, academics and other experts who were generous

enough to share their thoughts with us.

In addition, a Monitor team conducted a three-month study o companies

in the Acumen Fund portolio whose development had been signifcantly

aected by grant subsidies, to urther develop our insights and provide

helpul illustrations. Four company case studies are contained in the main

report, and two urther case studies can be ound as an appendix.

Finally, a thoughtul, diverse and generous group o external expert review-

ers helped us to fne-tune the report and its recommendations or clarity

and impact.

This report has ocused on developing an in-depth, demand-side under-

standing o the needs and challenges acing inclusive businesses, ratherthan on studying the drivers and constraints o grantmakers and investors.

However, we acknowledge that the latter is a valuable area or urther study

and action going orward.

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© 2012 Monitor Group



1. The RealiTy of inclusive Business • 2

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fuRTheR case sTudies • 54

GlossaRy of TeRMs • 58

RecoMMended ReadinG • 60acknowledGeMenTs • 62

The Case for PhilanThroPy in imPaCT invesTing

by Harvey Koh, Ashish Karamchandani and Robert Katz

with the assistance of Ravi Swarup, Nidhi Hegde,

Swati Chaudhary and Sahil Shah

Scale

From

to

Bluepin



“Creativity is not thefinding of a thing,but the making

something out of itafter it is found.”

JaMes Russell lowell



ItrctiTimes of great crisis can be times of great opportunity.

At the beginning o 2012, there is no end in sight or the economic malaise

and scal crisis that is gripping many parts o the developed world. Global

growth is slowing, even in emerging economic powerhouses like India,

billions o people remain trapped in poverty. As politicians debate the best

way to reorm the nancial system to prevent uture collapses, protestorsaround the world are questioning the moral oundations o the capitalist

system itsel.

Despite the crisis, shiting attitudes, new technologies and the promise

shown by the micronance revolution have led to new opportunities or

market-based innovations to serve the global poor. These are being pio-

neered by ambitious entrepreneurs who are taking great risks or little

potential nancial reward, but or tremendous potential social value. Such

ideas have elicited a rush to the new eld o ‘impact investing’. Hundreds o unds have been set up in just a ew years and billions o dollars are to be

invested in the next year alone.

But the eld is young and doubts are creeping in as many investors report

that they are struggling to nd good opportunities in which to invest or

impact. Why is that? A ca ipac iss ak h pis ‘h

icfac i’ a h a ia sca?

These are important questions, not just or these new investors but or the

private philanthropists and aid donors who have been working on these

issues or decades. I market-based solutions hold real promise or impact,

how should unders in development engage to catalyze its ull potential?

I ipac isi capia is h k scai hs sis, ha is h

phiahp?

FroM BluePrint to ScAle 1



t s ms xm a ab ‘mpa

vsg’ sv bssss a bf p b

gagg m as sms a spps.

Impact investment is being hailed as an emerging asset class with the

exciting prospect o achieving market-rate returns and social good at the

same time. In November 2010, a new report1 by J.P. Morgan, Rockeeller

Foundation and the Global Impact Investing Network (GIIN) made waves

simultaneously in the worlds o social change and investment. The report

estimated that potential prot or impact investors across just ve sub-

sectors2 o inclusive business could range rom between $183 billion and

$667 billion over the next ten years, with invested capital ranging rom

between $400 billion and $1 trillion.

Attracted by this potential or prot and impact, capital is fowing into

this space. The Aspen Network o Development Entrepreneurs (ANDE)

recently counted no ewer than 199 impact investing unds.3 A survey

by J.P. Morgan and the GIIN in late 2011 ound that the 52 impact inves-tors surveyed intended to deploy $3.8 billion o capital collectively in

the next 12 months.4

In 2011, the Overseas Private Investment Corporation (OPIC) — the US

Government’s development nance institution — attracted more than

80 applicants when they issued a call or impact investment proposals.

1 O’Donohoe, N., Leijonhufvud, C., Saltuk, Y., Bugg-Levine, A. and Brandenburg, M. (2010) Impact Invest-

ments, An Emerging Asset Class, J. P. Morgan Global Research, Rockefeller Foundation and GIIN.

2 The sub-sectors studied were: affordable urban housing; primary education; maternal healthcare; clean

water for rural communities; and microfinance.3 Impact Report, (2010) Aspen Network of Development Entrepreneurs.

4 Saltuk, Y., Bouri, A. and Leung, G. (2011) Insight into the Impact Investment Market, J. P. Morgan and GIIN.

1T Rlit fIcli Bi

Potential profit for impact

investors could range

from between $183 billion

and $667 billion over the

next ten years.

Monitor GrouP2



OPIC committed $285 million to the rst six equity unds, with the aim o mobiliz-

ing up to $875 million or investment. In November 2011, the Indian Government

announced a $1 billion India Inclusive Innovation Fund; more than 80 percent o

the capital or this is expected to be raised rom the private sector. And in December

2011, the Group o 20 (G20) and International Finance Corporation (IFC) launched

the Challenge or Inclusive Business to nd innovative, scalable and commercially

viable inclusive businesses to be showcased at the G20 summit o world leaders in

Mexico City in June 2012.

We believe there are good reasons or this excitement. Inclusive businesses promise

eective models or generating social benets that can become sustainable without

relying on donations, and are scalable through the investment o return-seeking capital.

• For pia phiahpiss a ai s,5 this oers the hope o drawing vastsums o private capital into their eorts to solve entrenched social problems, and

o achieving lasting solutions that do not rely on charitable donations.

• For iss, this oers the prospect o targeting a level o social impact along-

side private nancial return, and o doing this much more actively than the

negative screen approach that is already well established or ethical (or socially

responsible) investing.

• Meanwhile, s recognize this as an additional way o addressing

pressing problems like poverty and inequality in their own countries that har-nesses the power o the private sector at a time when economic uncertainty and

scal pressure are constraining the public sector’s scope o action.

Last but not least, these models hold the promise o involvingfciais as

willing suppliers and customers, and o recognizing their innate drive and ca-

pacity to improve their lives in signicant ways, instead o seeing them as mere

recipients o charity.

reAlity check

While we believe that this potential is real, we also believe that we are a long way

rom realizing it ully. The rosy picture o abundant opportunities to make high re-

turns that many have drawn rom the hype may be obscuring the challenges aced

by investors seeking to deploy capital into inclusive businesses.

In Investing or Social and Environmental Impact ,6 Monitor Institute colleagues

argued that the newly identied impact investing industry was entering a phase

5 Where we have drawn out implications and recommendations for philanthropy, we intend those to apply to both private

philanthropy and aid, unless otherwise stated.

6 Freireich, J. and Fulton, K. (2009) Investing for Social & Environment Impact, Monitor Institute.

We take a close lookat the challengesacing those who arepioneering inclusivebusinesses today, andexplain how philan-

thropy can play anessential role in situ-ations where investorcapital cannot.

Inclusive businesses

promise effective

models for producing

social benefits that

are sustainable

and scalable.




o ‘marketplace building’ that would likely take ve to ten years. They identied

three key challenges. The rst was the lack o ecient intermediation, with high

search and transaction costs caused by ragmented demand and supply, smalland complex deals, and a lack o understanding o risk. The second was the lack o

enabling inrastructure to help people identiy and unction as part o an industry

since the market was structured around a history o biurcation between philan-

thropy and investment.

The third, and most relevant or this report, is the lack o sucient absorptive ca-

pacity or capital. This means there is an imminent lack o impact investing oppor-

tunities into which large amounts o capital could be placed at investors’ required

rates o return. Monitor’s conversations with numerous impact investors have

conrmed that this remains a major challenge or the industry. This has also beencorroborated by a recent survey7 o more than 50 impact investors conducted by J.P.

Morgan. When asked about the most critical challenges to growth o the impact

investment industry, respondents ranked “shortage o quality investment opportu-

nities” second, right ater “lack o track record o successul investments.”

This shortage o opportunities is particularly acute when it comes to inclusive busi-

nesses whose activities are clearly socially benecial to Base o the Pyramid (BoP)

households, and whose work is thereore credibly part o a market-based approach

to solving some o the problems o poverty.

Acumen Fund’s investing experience refects this reality: it has considered more

than 5,000 companies in the past ten years and has invested in just 65 o those.

Recent Monitor studies o inclusive businesses on the ground paint a similarly chal-

lenging picture. In 2009-10, a team led by Mike Kubzansky conducted an ambitious

16-month study o inclusive businesses across nine countries in sub-Saharan Arica.

Their aim was to gain a better understanding o when, where and how market-

based approaches in Arica succeed.8 The team looked at 439 promising inclusive

businesses and ound that only 32 percent were commercially viable and had po-

tential to achieve signicant scale. Only 13 percent were actually operating at scale.

Many o the companies in Monitor’s Arica study aced not only all the challenges

o small businesses in Arica — such as diculty in accessing nance, attract-

ing and retaining human capital, achieving economies o scale, creating trusted

brands — but also involved urther challenges. They would sell to a hard-to-reach

customer base with severely limited resources. They would engage suppliers with

limited capabilities, high volatility in production and low loyalty due to cash fow

needs. The goods and services oered by these companies were oten in ‘push’

7 Saltuk, Y., Bouri, A. and Leung, G. (2011) Insight into the Impact Investment Market, J. P. Morgan and GIIN.

8 Kubzansky, M., Cooper, A. and Barbary V. (2011) Promise and Progress, Market Based Solutions to Poverty in Africa,

Monitor Group.

Of 439 promising

inclusive firms studied

by Monitor in Africa,

only a third were

commercially viable

and only 13% were

actually at scale.

Monitor GrouP4



Extensive innovation is central to Hsk P

Sss (HPS), a company based in the Indian

state o Bihar that is becoming increasingly

well-known as a model o rural biomass energy

generation. (For more inormation on HPS, see

the ull case study in section 3.)

HPS began by pioneering technology that

transorms rice husk, a readily available agricul-

tural waste product, into gas that in turn gen-

erates electricity. However, HPS is a micro-grid

electrication company seeking to bring power

to villages and districts without any pre-exist-

ing electricity inrastructure. Thereore, innova-

tion had to go ar beyond its core technology,

reaching urther up and down the value chain

relative to a conventional developed-economy

power producer (see Figure 1).

HPS had to devise ways o distributing power,

using low-cost bamboo poles, to the homes o

villagers. It implemented sophisticated power

thet prevention systems to achieve thet rates

below ve percent, compared to the Indian

average o over 30 percent. It could not nd su-

ciently low-cost smart meters and so needed

to develop its own, which the company says

are the lowest cost smart meters in the world.Meanwhile, the company’s target customers

had never bought electricity beore and had ew

appliances, so the company oered a simple

tari based on the number and type o electri-

cal appliances they possessed, and then built an

invoicing and collection system accordingly.

Upstream, HPS encountered diculty sourcing

gas-powered generators, and so it developed

the capability to convert diesel-powered ones

that were much more readily available. The

gasication process itsel produced a waste

product, rice husk char, that had to be dis-

posed o responsibly and this drove up costs.

In response to this, HPS developed a method

o turning this waste into incense sticks, which

has become a signicant side business gen-

erating additional revenues and providing

employment or hundreds o local women.

Unsurprisingly, recruiting skilled sta to build,

operate and maintain this complex web o

activities in many small villages has been a

challenge, especially since there is no existing

electricity industry to speak o in the regions

where it works. HPS is thereore in the process

o setting up ‘Husk University’ to train the

workers it needs now and in the uture as it

moves into aggressive growth.

deMonsTRaTinG

exTensIve InnovaTIon

fiGuRe 1: Husk Power Systems — Innovation Across the Value Chain

SuPPlIerS/InPutS Core ACtIvIty CHAnnelS CuStomerS

•Conversionofgeneratorstogaspower

•HuskUniversityto

trainpersonnel

•Charprocessing–incensesticks

•Powergenerationsolelyfromricehuskgasication

•Physicaldirectdistributioninfrastructure

•Smartmeter/

theftprevention

•Billingandcashcollection

•Simpliedpay-per-usetariff




categories like preventative healthcare, which required high levels o awareness

building and education, unlike ’pull’ categories like mobile phones that consumers

already desired and demanded. And these challenges would come on top o thepervasive issues o poor inrastructure, and unriendly and inecient regulation.

In response to these myriad challenges, many o these businesses cannot simply

ollow business models that have been established to serve more developed, non-

BoP populations. Instead, they are required to innovate on multiple dimensions

simultaneously, oten pioneering new business models that are tailored to the

particular needs and constraints o the BoP marketplace.

the ProBleM And the oPPortunityInnovation is risky. Innovation across multiple dimensions in order to pioneer new

business models serving the BoP is especially risky. In the emerging eld o inclu-

sive business, there are still many more unproven models than there are proven

ones, so the vast majority o investment opportunities are at the early stage. And

building and scaling new business models takes time: Monitor’s research in India

suggests that new inclusive rms take more than a decade to achieve a reasonable

level o scale.

Meanwhile, the extreme challenges o the BoP environment mean that operating

margins are typically low and volatile. Monitor’s recent analysis o 50 inclusive busi-

nesses in Arica indicated that net operating margins were, at best, between 10 and

15 percent. As an impact-ocused investor, Acumen Fund reports that its portolio

companies have an average prot ater tax o minus 20 percent. Its eight most

protable investees record an average prot ater tax o just six percent. Despite

a highly selective approach, and heavy investment in post-transaction support to

enhance value and manage risk, Acumen Fund only expects a return o just over 1x

invested capital rom its current portolio. This is in line with its stated aims, but is

ar o the expectations o mainstream nancial-rst investors.

Returns rom micronance — by ar the most established and mainstream o in-

clusive business sectors — are higher but still modest. Unitus Capital, or example,

reports that net internal rates o return or debt-based micronance investment

vehicles (MIVs) averaged 4.9 percent through 2008, while riskier equity-based MIVs

achieved 12.5 percent.9

But most models o inclusive business are at a much earlier stage o development

than micronance. Their modest margins and long times to scale combine to

generate low internal rates o return. When this is set against the high risk o these

9 MIV Overview , (2009), Unitus Capital.

Modest margins, long

times to scale and high

risk add up to a tough

proposition for investors.

Monitor GrouP6



situations, it paints a decidedly unattractive

proposition or investors, because small gains

on a ew successes could be ar outweighed byheavy losses on many ailures; this is particu-

larly true where businesses are pioneering new

business models or which commercial viability

is unknown. For this reason, the assumption

that investor capital will naturally fow to these

opportunities and catalyze the ull potential o

inclusive business is unduly optimistic.

Investor capital may also be unable to support

the heavy up-ront expenditure that is requiredto stimulate awareness o (and thereore de-

mand or) new push product categories among

customers, or to improve supplier skills to meet

the requirements o the business model. This is

because o both the quantum o expenditure

required and the diculty or the rm (and its in-

vestors) o capturing its exclusive benet. Unless

there are signicant barriers to entry (e.g., well-

protected technological advantage, exclusivetrading rights), a product’s commercial success

will likely spawn copycat competitors that ree-

ride on the rm’s category marketing investment,

thereby diluting the value captured by the rm

and returned to investors.

From a philanthropic under’s perspective, howev-

er, things look very dierent. In a world with vast

and seemingly intractable problems, and limited

philanthropic resources, there is tremendousappetite or innovations to improve eectiveness

and sustainability, including those that seek to

direct the power o private markets (see sidebar).

There is also a growing realization that loty aspi-

rations or social impact will not be achieved by

placing only the sae bets. Moreover, the process

o developing and trying out good impact ideas

typically produces some social good — directly or

the beneciary and sometimes indirectly in the

donoRs and The PRivaTe secToR

Somefunderswillalreadybefamiliarwiththeratio-

naleforengagingwith theprivatesectorto achieve

their program goals, but many will not be. Louis

Boorstin,adeputydirectorattheBill&MelindaGates

Foundationwhohasalsobeenaninvestmentman-

agerattheIFCandaninvestmentbankeratLehman

Brothers,explains:“Donorscanusethepowerofthe

privatesectortodeliverimprovedhealth,sanitation

andotherbenetsforthepoor.Theseinterventions

with theprivatesectorcatalyzechanges intheway

companies,nancialinstitutionsandconsumersop-erate ratherthansimplyprocuringspecicgoodsor

services for beneciaries. However, funding must

alwaysserveasacomplement,notasubstitute,for

marketforces.”

Louisdescribesvepotentialsourcesofsocialvalue

fromprivate-sectorinterventionsbyfunders: 1

• SuStAInAbIlIty —Onceanactivityisshowntobe

commerciallyviable,theprivatesectorislikelyto

sustainitwithoutrequiringsubsidies.

• rePlICAtIon—Asuccessintheprivatesectornatu-rallyleadstoimitationbyotherswhoalsowantto

earnaprot,producingreplicationwithdiminish-

inglevelsoffurtherpublicsupport.

• leverAge—Privatecapitalcanbecatalyzedtosup-

portsocialobjectives,therebyminimizingtheuse

ofscarcedonorfunds.

• InnovAtIon—Engagementwiththe privatesec-

torprovidesdirectaccesstonewtechnologiesand

businessmodels that can meet social objectives

moreeffectively.• eICIenCy—Workingdirectlywiththeprivatesector

offers accesstothe latestmanagement techniques

andsystems,whilealsobenetingfromthefocuson

efcientoperationsdemandedbythemarket.

Louisaddsanoteofcautionthatengagingwiththe

private sector carries a different set of risks from

workingwiththepublicorNGOsectors:“Youhave

lesscontroloverhowaprojectisimplemented,and

youneedtobeawarethatmarketforcescanmovein

unexpectedways.”

1 From a discussion draft prepared by Louis Boorstin for the Workshop

on Private Investment for Social Goals held in Geneva, Switzerland, in

September 2004.




orm o learning eects or the eld — that is valued by the philanthropist, even when

it does not result in a viable business. In contrast, an investor aces the prospect o an

unmitigated loss o value i a business idea turns out not to be viable.

Funders are also used to committing sizeable resources to such initiatives as ‘social

marketing’ to change behaviors in BoP communities, or training BoP workers and

suppliers in new skills. The existence o a business model that can leverage those

initiatives to drive sustainable improvement or BoP households makes spending on

those programs all the more worthwhile. And unders have little issue with creat-

ing valuable public goods — such as business models, labor skills, inrastructure

and customer awareness that can be used by more than one rm — so long as they

produce the desired social impact. From this perspective, copycat replication that

ends up reaching more o the BoP population while improving value, reducing costand improving choice, is a good thing because it multiplies impact.

It is precisely in these situations that philanthropic support can play a catalytic

role in ways that investor capital cannot. Nowhere can this be seen more clearly

than in the development o the micronance sector. As is now well known, micro-

nance (or, rather, microcredit) is based on a radically dierent business model rom

mainstream bank lending: namely, joint-liability group lending, mobile agents, very

small loan sizes. As micronance is now seen as a commercially attractive sector

with billions o dollars o invested capital, it is easy to orget that the micronance

business model was promising but unprotable or many years, long beore it burst

into the public consciousness. In those unprotable years, subsidies in the orm o

grants, sot loans and guarantees rom philanthropists and aid donors allowed the

early pioneers to rene the model through “thousands o cycles o trial and error”10

until it established its commercial viability and became attractive to investors. It is

estimated that the micronance sector received $20 billion in such subsidies in its

rst two decades o development.11

The pioneers who received these subsidies not only became successul in their

own right, they also paved the way or other players to replicate their model much

more quickly and easily. For instance, Grameen Bank, the pioneer o the microcredit

model in South Asia, took 17 years to break even ater launching in 1976. However,

subsequent replicators achieved the same success over a much shorter time: SKS in

India, launched in 1996, broke even six years later. The pace continued to accelerate,

with Ujjivan (ounded in 2005) achieving break-even ater our years o operation,

and Equitas (ounded in 2007) ater just one year (see Figure 2). The early subsidies

or a pioneer rm such as Grameen did more than just build its own business op-

erations; it also helped to establish the business model or all players in the sector.

10 As the journey of refining the Grameen Bank model was described in Counts, A., (2008), Small Loans, Big Dreams: How

Nobel Prize Winner Muhammed Yunus and Microfinance are Changing the World.

11 As referenced in Mapping of Funding Flows, (2005), CGAP, from the working paper by Hudon, M., On the Efficiency Effects

of Subsidies in Microfinance: An Empirical Enquiry.

The MFI sector received

$ 20 billion in subsidies

from philanthropists and

aid donors to refine its

model over two decades.

Monitor GrouP8



fiGuRe 2: Time rom Start o Operations to Operating Break-evenMicronance Lenders

Today, with interest growing in the potential to prot rom impact investing, buoyed

by the commercial success o the micronance model, we risk overlooking the role o

philanthropic support in developing the inclusive business models that are emerging

today. Without this, ‘the next micronance model’ is unlikely to get very ar, and the

capital that is seeking to invest in such a model will remain on the sidelines.

I we believe that impact-oriented unders can play a crucial role here, this poses some

important questions. What is an appropriate role or such unding to play in a situa-tion where rms are seeking to make prots, albeit modest ones? Where and when in

the journey o a pioneer rm could such grants be deployed or the greatest benet?

What specic needs should be met by these grants, and what should a under be

seeking to achieve as a result? We address these questions in the next section.

0 5 10 15 20

Grameen Bank*(founded 1976)

SKS(founded 1998)

Ujjivan(founded 2005)

Equitas(founded 2007)

17

6

4

1

Note: *Grameen was started in 1976 by Prof. Yunus using the money he

received from a Fulbright scholarship as a project, the bank wasformed in 1983.Source: Mix Market data; Small Loans, Big Dreams by Alex Counts

Inthecontextofcommerciallyviablebusiness,philan-

thropicfundingisasubsidy.Thespecicfocusofthisreportisonthosesubsidiesthatcatalyzethedevelop-

ment of rms pioneering inclusive business models

thatareintendedtobecommerciallyviableandtogrow

toscaleby tappingintotheexpandingpoolofreturn-

seekingimpactcapital.

Thisisnottheonlyroleofsubsidiesinthebroadereldof

market-basedsolutionstopoverty.Notably,on-goingsub-

sidiesfromprivateorpublicsourcescouldsustainmodels

that arenotfullycommercially viable. Examplesof this

approacharedescribedinMonitor’spreviouslypublished

studiesofmarket-basedsolutionsinIndiaandAfrica(see

therecommendedreadinglistattheendofthisreport).

These include grant funding for capital expenditure in

ruralpowergenerationwhereregulatorypricecapspre-

vent such expenditure from being recouped fully fromusercharges,andthepracticeof‘buyingdown’theprice

ofcommerciallysuppliedproductstoenableaccessbythe

poorestcustomers.

Theintuitivelogicof thisapproachhasbeendeveloped

into a robust theoretical argument by economists An-

dreasNilsson andDavidT. Robinson. In a forthcoming

paper,1theyexplainhowon-goingsubsidiesofthiskind,

essentiallyhybridizingcharitable andprotable invest-

ment, can produce optimal solutions that would be

excludedbyastrictbifurcationoftheworldintopurely

charitableandpurelyprotablemodels.

1 Nilsson, A. and Robinson, D. T. (2012) What is the Business of Business?

(unpublished).

Buoyed by the

commercial success

of the microfinance

model, we risk

overlooking the roleof philanthropic

support in developing

the inclusive business

models that are

emerging today.

whaT aBouT on-GoinG suBsidies?




2T Pr Gp

“Pioneering don’t pay.” AndreW cArneGie

Fms a a pg w bsss ms s

a av b, paa BP vm. B

f, s fms a bazg w as a a

fwg w-w pas sabs b s.

They must develop and rene their models the hard way, by trying them

out in an unorgiving, low-margin marketplace. Inevitably they suer

ailures and setbacks on the road to viability. Oten they also have to invest

heavily in educating customers about the possibilities o new ‘push’ solu-

tions, and in developing unskilled suppliers and ragmented distribution

channels to serve their requirements. Although excited by their novelty,

investors are oten rattled by these rms’ risk proles and are unimpressed

by their nancial returns, all the while suspecting that they might actually

be savvy nonprots masquerading as commercially viable models.

These are tough challenges that call or strong support. However, know-ing how best to support a pioneer rm requires a rm understanding o

its needs, which change as the rm evolves over the course o its journey

rom start-up to eventual scale.

10 Monitor GrouP



Monitor’s research has identied the ollowing our stages o pioneer frm develop-

ment that are distinct both rom the rm’s experience and the investor’s perspective:

B

First o all, pioneers need to blueprint their designs or the uture business. This is

oten driven by not much more than a strong sense o ‘moral imagination’, striv-

ing or radically better solutions to meet the needs o the poor. This stage involvesconnecting the capability or business and oten technical innovation to address the

needs o customers or suppliers in the BoP. This is no trivial matter, as the requisite

capabilities or technology, product and business innovation are not as common-

place in the BoP population as they are in more afuent populations. The gul in

experience, understanding and skills that separates these groups o people is a

signicant barrier to the origination o high-potential inclusive business ideas.

Even so, an idea or concept on its own is not a blueprint. There needs to be a clear

sense o what the business will oer, what it will do and how it will do it. In other

words, there needs to be a compelling initial business plan. At the end o this rst

stage, we would also expect product prototypes and any critical novel technologies

to have been demonstrated successully, resulting in what some might call a prod-

uct or technical ‘proo o concept’.

Vd

However, having a product that works is not enough. In the second stage, pioneers

need to validate the commercial viability and scalability o the business model

described in the blueprint. This involves running market trials in which business

plan assumptions are tested. Will customers want this product? Will they be will-

ing to pay or it rom their small and hard-earned incomes? Will this be enough to

cover the costs o the business, not just the direct cost o the product itsel? These

are crucial questions, and the process or answering them is almost always itera-

tive. Market trials oten reveal issues and weaknesses in the blueprint, leading to

renements in the product, technology and business model, and urther trials. The

greater the degree o model innovation involved, the more time and resources need

to be invested in this stage.

Models o inclusive business call or particular eort and rigor at this stage be-

cause motives are almost always a blend o the social and the nancial, which can

weaken the ocus on commercial viability. Moreover, unlike a mainstream business

1. Blueprint 2. Validate 4. Scale3. Prepare

Having a product that

works is not enough;

pioneers need to

validate the commercial

viability and scalability

of the business model.

We follow the de-velopment of thesepioneering inclusivebusinesses through

the lens of Monitor’sfour-stage businesslifecycle framework,and draw out theimplications forcapital. We describethe phenomenon of the ‘pioneer gap’ ininvestment, and thepotential for ‘enter-

prise philanthropy’ toestablish new inclu-sive business models.

From Blueprint to Scale 11



pioneer at the same stage, it is important to discern whether a particular social im-

pact model might be able to develop and scale through a non-market-based route,

as traditional nonprot organizations have done.

Ppa

Successul validation sets the stage or pioneer rms to launch their products ully

into the marketplace. However, alongside this initial period o commercial activity

and growth, pioneer rms need to prepare the conditions in the market and within

the rm in order to support sustainable scaling. This is especially true where the rm

is, in eect, attempting to create a new market, by virtue o establishing a new cat-

egory o product or a new value chain model. On the demand side, the rm may need

to pay or customer education and category marketing to drive awareness o and de-sire or ‘push’ product categories that BoP customers do not actively demand at pres-

ent, such as preventative healthcare, low-cost drip irrigation or insurance products.

On the supply side, the rm may need to improve the capabilities o suppliers, such as

the skills and knowledge o smallholder armers, or build new distribution networks

to reach widely dispersed customer populations in rural villages.

There might also be internal needs that have to be addressed and these oten pres-

ent particular challenges or innovative models in the BoP. Take the need to hire

skilled personnel as the rm grows: educated personnel may be in limited supply in

the areas where the rm is operating, and the business may require new skills thathave not historically been needed in those areas and are thereore not readily avail-

able in the labor orce.

Sa

I the pioneer rm can successully surmount these challenges, it emerges in a

strong position to scale activities in order to reach many more customers or sup-

pliers in the BoP. During this stage, rms ace new challenges as they enter new

geographies, control costs, exploit eciencies, and manage a more diverse and so-

phisticated group o investors and stakeholders. They will oten also be respondingto competitors, as new entrants are attracted by the success o the pioneer rm and

see a way to benet rom the investment that it has made in preparing the market.

the Pioneer GAP

The pioneer rm, like any other rm, needs support and unding at each stage o its

journey. In the blueprint stage, there is a need to connect more sophisticated capa-

bilities or business innovation to unmet customer needs in the BoP, when the two

are normally separated by a vast gul, socially, culturally and oten geographically.

Pioneer firms may

need to stimulate new

demand for ‘push’

products, or cultivate

new value chains.

Monitor GrouP12



TaBle 1: Four Stages o the Pioneer Firm’s Journey

StAge

Developing the blue-print or the uturebusiness

Testing and refningthe business model

Enhancing theconditions required or scaling

Rolling out the model toreach large numberso customers and/or suppliers

Key

ACtIvItIeS

• Understandcustomer needs

• Develop initial

customerproposition

• Develop businessplan

• Develop coretechnologies and/orproduct prototypes

• Conduct markettrials

• Test business

modelassumptions

• Rene businessmodel,technologies and/or product asrequired

• Stimulate customerawareness anddemand

•

Develop supplychains, upstream anddownstream

• Build organizationalcapability to scale:systems, talent,plant, etc.

• Move into newgeographies andsegments

•

Invest in assets andtalent

• Enhance systems andprocesses

• Exploit scaleeciencies

• Respond tocompetitors

Key needS • Innovation capability

• Strategydevelopment and

business planning• Talent networks

• Seed unding

• Operationalizingthe model

• Focus on cost,

value and pricing• Learning

orientation andfexibility

• Innovationcapability

• Funds to acilitatemarket trials andrenement

• Marketing strategyand execution

• Supply chain design

and implementation• Systems and

processes

• Talent and networks

• Funds or marketing,supply chain, xedassets, inventory

• Competitive strategy

• Realizing scaleeciencies

• Risk management• Formalization o

impact standardsand expectations

• Stakeholdermanagement

• Funds to supportexpansion

end mIle-

StoneS

• Compelling initialbusiness plan

•

Demonstrated coretechnologies and/orproduct prototype

• Renedbusiness model,

technologies,product

• Validation o viability andscalability

• Indication o customer demand

• Strong customerawareness and

demand• Eective supply

chains

• Organizationalsystems, talent,assets in place tosupport scaling

• Sustainably reachingall BoP customers

and/or suppliers

3. Prepare




Asanimpact-focusedfunderandtheninvestor,Acumen

Fundhasseenagradualshiftinitsdealproletowards

thelaterstage.Intherstthreeyearsofitslife,Acumen

Fundmade78percentofitscapitalandfundingdeploy-

ment in theblueprint and validate stages, compared

with39percentinthelastthreeyears(seeFigure3).

Launchedin2001,AcumenFundinitiallymadeacombina-

tionofgrantsandinvestmentsmostlyinthehigh-riskearly

stages:theseincludedgrantstotheAravindEyeHospital,

ProjectImpactandInternationalDevelopmentEnterprisesIndia,aswellasinvestmentsinKashfMicronanceBank,

AtoZTextileMillsandWaterHealthInternational.In2004,

AcumenFund tomoved its approach away fromgrant-

making and towards providing exclusively investment

capital—debtandequity—tohigh-potentialsocialven-

tures,resultinginadramaticshiftindealactivityfromthe

blueprinttothevalidatestage.

The nextstepchangecamein2009asAcumenFund

beganfundingsomeofitsdealsoutofareturn-capital

fund(knownasAcumenCapitalMarketsI)inadditiontophilanthropicfunds,specicallytargetingsecond-and

third-round investments in early investees aswellas

otherlater-stageopportunities.Thisevolutionininvest-

ingstyle andchange innancialreturn requirements

contributedtothefurthershiftincapitaldeployment

towardsthelaterstages.

fiGuRe 3: Acumen’s Investment Over Time

In the validate stage, the rm requires up-ront investment to enable multiple

rounds o market trials as it tests and renes its core business model, and good

counsel to help it stay ocused on the key questions it must address. In the prepare stage, heavy investment is oten required to improve the tough conditions o the

BoP business environment and to pave the way or growth.

Unortunately or the pioneer rm, ew impact investors seem prepared to provide

money and technical assistance in these earlier stages. Monitor’s Arica research

ound that only six o the 84 unds investing in Arica or across regions oered early-

stage capital. This has been reinorced by the interviews we conducted as part o this

study: the overwhelming majority o impact investing unds and advisors we spoke to

expressed a strong preerence or investing in the later stage, certainly ater commer-

cial viability had been established and preerably once market conditions were wellprepared or sustainable scaling.

This is an entirely rational approach. In the blueprint and validate stages here, unlike

in the case o angel or venture capital investing in mainstream business ventures,

there is limited potential or outsized nancial returns within a timerame that is

acuMen fund’s deal PRofile evoluTion

Source: Acumen Fund, Monitor Analysis

2001-2004 2005-2008 2009-20110%

20%

40%

60%

80%

100%

64%

42%

21%

8%

22%

39%

28%

11%

14%

0%

29%

22%

Scale

Prepare

Validate

Blueprint

Few impact investors

are prepared to provide

money in the earlier

stages, and this is

entirely rational.

Monitor GrouP14



acceptable to investors (typically ve to seven years) in order to compensate or

greater early-stage risk and small deal sizes. In the prepare stage, where new prod-

uct categories or value chain models are being created, there is a high likelihoodthat initial spending on market preparation may not be recouped by the rm and its

investors because much o the benet accrues to others, such as new entrants, or to

the rm’s customers or suppliers.

This poses the question: how will promising inclusive business models get to

these later stages where they become investable without support earlier on in

their journey? We call this critical gap in support the ‘Pioneer Gap’, and we believe

that this is a key actor constraining the availability o investment opportunities

or impact investors.

Unless we address this pioneer gap, much impact capital will continue to sit on

the sidelines or be deployed into sub-optimal opportunities or impact, and ail to

achieve its potential in driving powerul new market-based solutions to the prob-

lems o poverty.

hoW PhilAnthroPy cAn cloSe the GAP

We believe that philanthropic unding can play a critical role in closing this pio-

neer gap. The right grant support can help pioneer rms to develop, validate and

establish new business models, and even build entirely new markets to serve the

BoP. Grants represent the ultimate ‘risk capital’ or these businesses because they

are not predicated on the likelihood o nancial return, and so can tolerate uncer-

tainty around commercial viability. They also lend themselves well to the creation

o a public good where heavy investment is required to prepare market conditions,

such as building supply chains or stimulating customer awareness. The benets o

this investment accrue not just to the pioneer rm but to the copycat competitors

that spring up in its wake. Moreover, the time horizons o private philanthropists

in particular can be much longer than that o investors or governments, and so can

support the long gestation periods associated with new inclusive business models.

M-PeSA — uk dpam f iaa dvpm (dFid)

a Vaf

We have already described the role o grants and similar subsidies in the develop-

mental journey o the micronance sector. Another example is that o M-PESA, a

small‐value electronic payment system accessed using ordinary mobile phones in

Arica. Developed by a team at mobile phone giant Vodaone in London, England,

and introduced by its aliate Saaricom in Kenya in 2007, the service has seen

dramatic growth in users and is now used by some nine million customers, repre-

Grants represent theultimate ‘risk capital’

because they can

tolerate uncertainty

around commercial

viability and can seek

to create public goods.

How will promising

inclusive business

models get to these

later stages where they

become investable

without support earlier

on in their journey?

We call this critical

gap in support the

‘Pioneer Gap’.




senting 40 percent o Kenya’s adult population. BoP customers who previously had

to use slow, expensive and unreliable methods o sending money to riends, amily,

colleagues and business partners can now use the M-PESA service to help meet lieneeds, do business and save regularly.

As in the case o micronance, M-PESA has achieved considerable public acclaim

as a commercially viable model that delivers signicant benets or the poor. It is

also too easy in this case to overlook the role that grants played in getting M-PESA

to where it is today. The UK’s Department or International Development (DFID)

provided critical unding to Vodaone in the blueprint and validate stages, in order

to develop the initial idea into a product and to conduct market trials to establish

its viability. DFID also unded organizations such as the Financial Sector Deepening

Trust, whose FinAccess survey data helped the central bank o Kenya to realize theopportunity presented by this new product and lend its support as a regulator.

More recently, M-PESA’s growth in newer geographies has also been supported

by grant unding. In 2010, the Bill & Melinda Gates Foundation committed a $4.8

million grant to Vodacom in Tanzania to help it prepare the market or broader M-

PESA adoption, by raising awareness about the benets o the service, particularly

among unbanked communities in remote parts o the country.

S Fa a a-bg svs

Another example comes rom the clean-burning cookstoves sector. Billions o

people in the developing world cook using indoor stoves uelled by wood, coal or

biomass such as dung. According to the World Health Organization, the indoor air

pollution produced by these uels kills almost two million people every year. More

than hal o those are children under the age o ve. The scale o this problem has

motivated a range o governments and aid donors to develop and promote alterna-

tives over the past our decades, but many o the initiatives ailed to be sustained.

Learning rom these past ailures, Shell Foundation12 began to work on identiy-

ing nancially sustainable solutions that could be taken to scale and replicatedto achieve global impact. The oundation took a variety o approaches spanning

the blueprint , validate and prepare stages. For instance, the oundation partnered

with the United States Agency or International Development (USAID) to und

EnterpriseWorks/VITA to train 78 entrepreneurs in Ghana to develop improved

cookstoves and to conduct a category campaign to encourage consumers to switch

12 Shell Foundation is an independent UK charity established by the Shell Group in 2000 to promote enterprise-based solu-

tions to the challenges arising from the impact of energy and globalization on poverty and the environment.

The UK’s Department

for International

Development (DFID)

provided critical funding

to Vodafone in theblueprint and validate

stages to develop M-PESA

Monitor GrouP16



to energy-ecient cook stoves. Out o this program came a

company called Toyola Energy that went on to secure $270,000

in investment rom impact investor E+Co and has now sold morethan 100,000 stoves, with loty ambitions or urther growth

across West Arica.

Between 2002 and 2007, Shell Foundation also committed more

than $10 million in seven countries to und nine cookstove pilot

schemes. The realization that better-perorming stoves were

required, together with a more commercial approach to sales and

distribution, led Shell Foundation to partner with a single com-

pany, Envirot, that has now sold more than 300,000 clean cook-

stoves beneting over a million people. With a loan guaranteerom Shell Foundation, Envirot is now seeking to lever in debt

nance to enable continued growth and market expansion.

Building on its work with individual enterprises, the Foundation

has begun to invest in preparing the global market or clean-burn-

ing cookstoves. In 2010, Shell Foundation — in partnership with

the United Nations — spearheaded the creation o the Global Al-

liance or Clean Cookstoves with some 270 partner organizations,

$130 million o additional unding levered in and strong support

rom world leaders like US Secretary o State Hillary Clinton. The

Alliance aims to strengthen supply, enhance demand and pro-

mote an enabling environment to oster the adoption o clean

cookstoves and uels, and hopes to impact 100 million house-

holds by 2020.

M isv Mas a lw-im

hsg ia

Grant support can also help to catalyze entire market ecosystems. This is important

because sometimes a wide range o innovation is needed across the value chain, as

we described in the previous section, and a single rm or type o rm may not be

able to achieve this on its own. One example o this is a grant-unded initiative in

low-income ownership housing at Monitor Inclusive Markets (MIM) in India, which

has successully established new models or both housing supply and mortgage

lending. This is providing an unprecedented opportunity or those living on less

than $3 a day — many o whom live in slums and work in the inormal sector with

little documented proo o income — to buy and move into high-quality housing,

whaT aBouT ThedeveloPed woRld?

Whilethisreportfocusesonthepioneergap

for inclusive businesses serving the poor

inthe less-developedworld,our conversa-

tions with funders and impact investors

thatoperateinthedevelopedworldsuggest

that thereis a similarneed for early-stage

philanthropicsupportformodelsthatmay

later attract investor capital. For example,

theanti-recidivisminterventions thatnowplay a central role in the groundbreaking

private-sector social nancing pilot of the

SocialImpactBond(SIB)inPeterboroughin

theUnited Kingdom,weredevelopedover

manyyearsbycharitableorganizationsus-

inggrantfunding.Impact-focusedinvestors

inthe developedworldalso report similar

difculties in sourcing good investment

opportunities,andinachievingsufcientre-

turnfromsuccessfuldealstooffsetlosseson

failuresinahigh-riskenvironment.

Grant support canhelp catalyze entire

market ecosystems

that generate

sustainable and

meaningful impact.




nanced by ‘micromortgages’ and delivered on a ully commercial basis. In the past

two years, more than 50,000 units have already been sold, and there is growing

interest in the model in India and elsewhere.

In the blueprint stage o this ecosystem’s development, MIM ocused on under-

standing the target customer and developing tailored business models, working

closely with the regulator, the National Housing Bank. In the validate stage, MIM

provided implementation support and, in one case, incubation support, to the

rst-mover companies in this new industry, the majority o whom were small en-

trepreneurs with limited resources. In both o these early stages, substantial grant

unding rom the World Bank, IFC, Michael & Susan Dell Foundation, the Rockeeller

Foundation and other donors made it possible or MIM to play a catalytic role in

developing solutions or a market segment that mainstream housing players hadnot historically viewed as being commercially viable.

enter enterPriSe PhilAnthroPy

What we are describing is not philanthropic unding in a conventional sense. Its im-

mediate beneciaries are typically businesses with a prot objective — albeit only

modest prots in many cases — rather than nonprot organizations. The ocus is

still on impact, but instead o paying or specic social goods or services, it aims to

establish models or inclusive business enterprise into which return-seeking capital

can be invested to drive scale. It supports and develops rms pioneering these new

models in the interest o the impact created by those pioneer rms themselves and

by those that ollow in their wake i they are successul. Because o these character-

istics, we have called this emerging practice ‘enterprise philanthropy’.

How, then, should enterprise philanthropy be carried out? How can grant unding

help pioneer rms to move towards — not away rom — being investable? How

should existing unders think about approaching this practice o enterprise philan-

thropy vis-à-vis the established work o giving grants to nonprots?

In the next two sections, we will use a number o cases taken rom the Acumen

Fund portolio to draw out some key learnings rom the work o unders and inter-

mediaries in this area, such as the Bill & Melinda Gates Foundation, Shell Founda-

tion and Acumen Fund itsel. Our aim is to provide some early answers to these

questions, ocusing in particular on the validate and prepare stages o the pioneer

rm’s journey.13

13 The blueprint stage has not been a focus for this report as the challenges in that stage often relate more to the develop-

ment of impact-creating interventions and their supporting technical innovations, than to the challenges of building an

enterprise. Perhaps in accordance with this, the practice of providing charitable funding for this stage is more established

than for later stages. That said, we believe that grant funding for the blueprint stage continues to be a priority need givenits high early-stage risk and consequent unattractiveness to investors.

Enterprise

philanthropy aims

to establish models

for inclusive business

into which return-

seeking capital can be

invested to drive scale.

Monitor GrouP18



While our case study approach will necessarily ocus on a small number o compa-

nies, the themes refected in these cases are drawn rom Monitor’s accumulated

research knowledge in this space, Acumen Fund’s investing experience, and thereported observations o the investors, unders and other experts interviewed or

this study.

O course, these cases are narratives about rms, their challenges and their oppor-

tunities, their successes and their ailures, with all the complexity that that implies.

It would be unrealistic to suggest that grants were wholly responsible or the busi-

ness outcomes, good or bad, described in these cases. The many variables relating

to leadership, strategy, organizational capability and market conditions are the real

actors driving success or ailure. It is thereore the potential or grants to aect this

complex interplay o people and organizations that is our ocus as we delve into thecase studies in the ollowing sections.




3vlitig vibilit

Every new business model needs to be validated. Nowhere is

this more critical than for businesses that are trying to create

social benefit and operate in challenging BoP conditions.

In this section, we discuss two case studies drawn rom

the Acumen Fund portolio where signicant grant sup-

port has been applied to the validate stage: one with a

positive trajectory that has been reinorced by grant support, and an-other with a negative trajectory, where grant support could have played

a more eective role. We then summarize our key themes o eective

enterprise philanthropy practice that are drawn rom our broader eld

observations and are exemplied by these case studies.

case sTudy: lifTinG The foG of daRkness

In spite o a booming economy in India that recorded growth rates o

nearly 10 percent per year in late 2011, more than 400 million Indian

hs Pw Ssms as p a w wa f pvg a ia

g gasfa f s.

20 Monitor GrouP



citizens14 — or a third o the population — still have no access to electricity. In rural

areas, 45 percent o poor households currently lack access to an electric power

source. The Central Electricity Authority (CEA), the main advisory body to the Gov-ernment, has said that a massive 100,000 megawatts o additional power genera-

tion capacity will be needed between 2012 and 2017 to satisy India’s energy needs,

a target that is unlikely to be met due to the acute shortage o coal and growing

concern about ecological impact. Even i power generation capacity targets were

to be met, the country would still ace the considerable challenge o distributing

electricity to rural areas.

The third o the population that does not have access to electricity live a very

dierent, literally darker lie compared to the rest o the country. Their primary

access to light is rom unsae and inecient kerosene lamps and candles, whichare more expensive than the equivalent electric lighting. Their enterprises are less

productive because work is limited to daylight hours; their children are unable

to study in the evenings; they have very limited access to modern inormation

technology; and they suer rom a signicant rate o respiratory illnesses related

to indoor air pollution.

It was against this backdrop that, in 2007, Gyanesh Pandey and Ratnesh Yadav

made a breakthrough. Working through a nonprot called Samta Samriddhi Foun-

dation, the ambitious entrepreneurs succeeded in producing gas rom rice husk, a

readily available agricultural waste product. From this gas, they generated electric-

ity, bringing power and light or the rst time to the remote and run-down village

o Tamkuha (which means ‘Fog o Darkness’).

The company that sprang rom that breakthrough, Husk Power Systems (HPS), now

provides electricity to 25,000 households in 250 hamlets and villages across the ru-

ral state o Bihar. The company has 75 operational mini power plants. Each o these

achieves operating break-even15 on average within six months o starting opera-

tions. HPS has raised $1.65m o investor capital rom Acumen Fund, Draper Fisher

Jurvetson, LGT Venture Philanthropy, Bamboo Finance and IFC, and has very recently

secured unding to take its model to Arica.

In section 1, we laid out the impressive scale and scope o innovation achieved by

HPS in order to serve its target customer. However, back in 2007, very little o this was

in place. Personal savings and winnings rom business plan competitions allowed

HPS to build two working power plants and demonstrate that its core technologies

14 Article published on IEA website, Energy poverty: The missing Millennium Development Goal?, (March 1 2011), http://www.

iea.org/index_info.asp?id=1847.

15 The Indian Ministry of New and Renewable Energy (MNRE) provides on-going sector subsidies to power-generating projectsusing biomass and wind sources. This contributes significantly to the break-even economics of the HPS model in India.

Husk Power Systems

has 75 operational

mini-power plants, each

achieving break-even

within six months.

We discuss two casestudies drawn romthe Acumen Fundportolio to showhow pioneer frms

need to validate theviability o their busi-ness models. We alsoshow how enterprisephilanthropy can playa pivotal role, andintroduce the ‘Four Ps’o eective practice.




worked. However, that was hardly sucient or either social impact or commercial

success in serving the o-grid villagers o Bihar. Relating this back to the our-stage

ramework we introduced earlier, HPS had made good progress in the blueprint stage(see Figure 4). However, it had yet to validate the commercial potential or the whole

business model, which involved the signicant challenge o actually getting power

into o-grid village homes and generating revenues rom those households.

fiGuRe 4: Stages o Development o Husk Power Systems

In 2008, HPS entered into a unding relationship with Shell Foundation, which had

been seeking to back promising ventures delivering energy to low-income commu-

nities, especially those based on ‘bio-energy’ technologies. Shell Foundation made

grants rather than investments in the conventional sense, but took an enterprise-

based approach and intended to develop businesses that could then attract

investment capital in order to achieve signicant scale; in other words, it was an

enterprise philanthropist .

Simon Desjardins, who manages Shell Foundation’s Access to Energy Program,

explains, “We started by asking the question: what will investors need to be able to

back this business? We then designed our support in order to help the business move

towards ultimately receiving commercial investment and scaling. I we had to do this

all over again, the one thing I would change is that we would start the conversation

with investors right at the beginning, so that their input is taken into account ar in

advance o them actually investing. In act, this is a process we have since adopted.”

Note: *HSSE – Health Safety Security and EnvironmentSource: Acumen Fund, Primary research interviews, Monitor Analysis

2007 2008 2009 2010 POST 2011

1. Blueprint 2. Validate 3. Prepare 4. Scale

» Savings and winningsfrom business plancompetitions used toexperiment and create2 working power plants

» Shell Foundation grantfor capex of 8 plantsto test scalability

» Focus on achievingunit breakeven andnot on achievingpremature scale

» Leveraged ShellFoundation’s expertiseto build managementcapacity

» Grant funded R&D toreduce operationalcosts and for HSSE*

Grant Funding

Investment

Founder’s savingsBusiness plan competitions

Shell Foundation made

grants rather than

investments in the

conventional sense,

but took an enterprise-

based approach to

develop businesses

that could then attract

investment capital.

Monitor GrouP22



Table 2: Shell Foundation Grants to Husk Power Systems

PerIod SPeCIIed uSAge And CondItIonS Key outComeS

nov 2008 –

Jun 2009

• Research and development

• Build 3 new plants to test scalability

• Demonstrated ability toreplicate plants at acceleratedpace and with consistentperormance outcomes

Jun 2009 –

JAn 2010

• Build 5 new plants

• Trial new energy payment system

• Initiate carbon credit conversionwith the assistance o a specialistconsultant

• Hire senior management

• Further R&D to enable tar reduction,assisted by Shell Global Solutions

• Further R&D to reduce plant cost

• Complete intellectual property legalwork

• Establish Husk Power University,a centralized training acility orpersonnel

• 20 percent reduction in tar

• 10 percent reduction in cost o engine development

• IP ormally protected in Indiaand USA

• Training acility established

APr 2010 –

deC 2010

• Pre-paid metering system tested andinstalled at pilot

• Further R&D on operationaleciency

• Explore options to monetize wastestreams

• Hire key senior sta, includingdirector o operations, with partialsubsidy support

• Conduct an external HSSE audit

• $1.3 million capital raised

• Pre-paid meter systemdeveloped

• Key sta hired and on-boarded

• Progress on implementationo recommendations undersaety audit report

JAn 2011 –

Jun 2012

• External consultancy to assist withbuilding Husk Power University

• Continued implementation o HSSEaudit recommendations

• Rolling out o pre-paid meters

• Establishment o Husk PowerUniversity

• HR Subsidy or senior management

• Disbursement o nal trancheconditional upon successul raisingo commercial Series A unding

• Initial training curriculumand scale-up plan or HPSUniversity developed

• Existing plants retrotted toHSSE standards refecting

audit recommendations, andnew plants being installed tothe new standard

• New meters rolled out

• Training acility establishedand in use as the primarytraining site or new HPSemployees

• New senior manager (COO)hired

• Series A unding secured

“If we had to do this all

over again, we would

start the conversation

with investors right at

the beginning.”

SiMon deSjArdinS,Shell FoundAtion




Shell Foundation provided a series o targeted grants aligned with key business step

changes, complemented by business and technical expertise drawn rom the Shell

Group as well as rom external consultants where appropriate. All in all, the Founda-tion has made grants totaling $2.3 million to HPS. It also helped to acilitate the en-

try o investors that led to the successul close o pre-Series-A investment16 in 2009.

This range o support was provided in the context o a close, collaborative working

relationship between HPS management and Simon Desjardins, who spent a third o

his time working with HPS on the ground in India. This support proved to be invalu-

able to HPS as it proceeded to validate its business model between 2008 and 2010,

and then to prepare the business or greater scale through 2010 and 2011.

Each tranche o the grant was targeted and designed to help the business main-

tain its ocus as it progressed towards ull investability and scalability. Meanwhile,the specic, time-bound nature o the grants minimized any perception that grant

unding might be available to und any expenditure on a permanent basis within

the business. Figure 5 shows how dierently the Shell Foundation grants were used

in the validating and preparing stages.

fiGuRe 5: Usage o Grants rom Shell Foundation

From the outset, the premise was that HPS would sustain itsel rom its customer

revenues, as any mainstream business would. The typical HPS customer paid Rs.

16 Early-stage investment.

Source: Shell Foundation, Acumen Fund, Monitor Analysis

Other

HR Subsidy

Training

HSSE

R&D

Capex

Validate

$442K Grant $1.88M Grant

Prepare0%

20%

40%

60%

80%

100%

24%

53%

36%

12%

31%

20%

1%

0%

13%

4%6%0%

Each tranche of the

grant was targeted and

designed to help the

business maintain its

focus as it progressed.

Monitor GrouP24



100 ($2) per month, covering the requirements o two light bulbs and a mobile

charging point. This ocus on charging a ‘commercial price’ and achieving a cost

structure that enabled protability at that price, was critical to building a busi-ness that could scale up commercially. The Shell Foundation grants were careully

designed so as not to compromise this discipline. Furthermore, the Foundation also

required HPS to contribute its own unds towards activities that were grant-unded:

or example, the Foundation’s grant o over hal a million dollars or training is be-

ing matched by $950,000 rom HPS.

The risk with highly targeted and prescriptive grants is that they run counter to

the actual needs o the business, and interere with the competent decision-mak-

ing o management. HPS and Shell Foundation managed this risk by ensuring

joint prioritization o key needs and grant objectives. Gyanesh and his teamhelped to ormulate the objectives, targets and conditions attached to each grant,

as they were closest to the business. There were some exceptions to this, notably

the Health Saety Security Environment (HSSE) improvement program in 2009.

The primary impetus or this came rom Shell Foundation, which saw the critical

need or robust saety standards and systems, based on the extensive experience

o their Shell Group colleagues.

Gyanesh, who is CEO o HPS, says o the relationship: “We

have a very open, collaborative working relationship with

Shell Foundation. Yes, each o the grants is given or a specic

purpose — none o it is just ree money or us to spend as we

wish — but I have never been asked to do something that I didn’t

think was important or the business.”

It is critical to charge

a commercial price

and achieve a coststructure allowing

profitability at

that price.




case sTudy: PRoTecTinG The PooR fRoM financial shocks

The economic development o low-income communities is vulnerable to the

nancial shock o adverse events such as crop ailure, serious illness, death and

natural disasters; such shocks can wipe out years o steady progress by a household

in a matter o months. These communities also have minimal access to insurance

products that could help them to manage these risks more eectively. However,

selling insurance in the BoP is dicult as it involves customers sacricing some

cash today (when they have very little as it is) to receive a uture benet that is notonly uncertain but also perceived to be unlikely, as most people underestimate their

vulnerability to these events.

In 2005, the Geneva-based Aga Khan Agency or Micronance (AKAM)17 launched

an initiative to test new micro-insurance18 products to help the poor mitigate the

risk caused by severe adverse events. This was unded by a $5.5 million grant rom

the Bill & Melinda Gates Foundation. The initiative ocused on mitigating two key

risks — death o a amily breadwinner and hospitalization due to severe illness or

maternity complications — which were ‘high-severity, low-requency’ events a-

ecting BoP households. By 2005, credit lie micro-insurance was well establishedinternationally, but there were no successul precedents or commercially viable

health micro-insurance products and so it ell to a new company created by AKAM,

First Microinsurance Agency (FMiA), to pioneer a new model in Pakistan.19

17 The Aga Khan Agency for Microfinance (AKAM) was established in 2005 in order to provide a professional dedicated

platform for the microfinance activities, programs and banks that had been administered by sister agencies within the

Aga Khan Development Network (AKDN) for 25 years.

18 ‘Micro-insurance’ is the term used to describe a range of insurance products aimed at low-income groups not served

by mainstream commercial insurance schemes, typically with low premiums and accordingly low caps compared with

mainstream products.

19 While the initiative launched in both Pakistan and Tanzania, the Tanzanian company only offered a credit life product, not

a health product, and did not develop its business as much as its sister company in Pakistan. Much of the data used in this

case study comes from a detailed report prepared by Aga Khan Foundation USA and AKAM, “The AKAM Microinsurance

Initiative: Case Study and Lessons Learnt,” supplemented by interviews with individuals who had been involved with FMiA.

We are grateful to AKAM for sharing their report with us and allowing us to draw on it in preparing our case study.

FMA’s s awass amps, sgs a sas w pa a

xsg ps Pasa.

In 2005, AKAM

launched an initiative to

test new micro-insurance

products to help the

poor in which Acumen

Fund invested $384,000

of equity, with the

expectation that the

firm would grow

rapidly and break-even

within 3 years.

Monitor GrouP26



fiGuRe 6: Stages o Business Development o FMiA

Following an initial period o research and design — the blueprint stage — with

work conducted both at AKAM in Geneva and on the ground in Pakistan, FMiA

Pakistan was created in January 2008 (see Figure 6). Ten months later, Acumen

Fund invested $384,000 o equity in the new business, with the expectation that

it would grow rapidly, just as microcredit had done in Pakistan, and achieve break-

even within three years. AKAM and Acumen Fund injected a urther $1.8 million

into a stop loss acility that would bear 90 percent o the company’s cumulative

underwriting losses (i.e., the shortall o premium income over claims payments)

in order to encourage a mainstream commercial insurer to underwrite FMiA’s

policies. Because o the low premiums associated with micro-insurance, FMiA

decided to ocus on group rather than individual sales in order to gain distribution

and administration cost eciencies. Its health insurance products were to be sold

to households on a voluntary basis in the rural northern areas o Pakistan, and

bundled mandatorily by micronance institutions (MFIs) with microcredit in cities

such as Lahore and Karachi.

In 2008, FMiA Pakistan moved into the validate stage with its health insurance

product. The city pilot launched in Lahore as a mandatory product or all new bor-

rowers and enrolled some 10,000 persons in 2008. However, by the end o that year

the company’s MFI distribution partner had run into broader business diculties

and ound itsel unable to continue. Undeterred, FMiA struck up a partnership with

another MFI to run a pilot in Karachi along similar lines. By the end o 2009, close to

Source: Acumen Fund, Primary and secondary research, Monitor Analysis

2005 2006 2007 2008 2009 2010 2011

» $5.4M Gates Foundation grant toAKAM to create life and healthmicro-insurance products

» Products developed in AKAM HQin Geneva in consultation withlocal staff in Pakistan

» Mixed results in the initial pilots

— High claim ratios for healthinsurance product reflecting adverseselection and limited uptake

— High sales of credit life insurance of over 370,000 policies sold throughKhushali – an MFI partner

Grant Funding

Investment

1. Blueprint 2. Validate




21,000 people were insured, but the claims ratio20 was high at approximately 285

percent. Under pressure rom its partner, the company introduced a lower-price

‘amily package’ in October 2009 or a three-month trial, but once launched, theseconcessionary terms proved dicult to retract and this in turn made it dicult to

bring down the claims ratio.

The challenges in the rural northern areas were even greater. To begin with, the

population was generally in poorer health than those in the cities. FMiA also very

likely experienced the phenomenon o adverse selection: those who were already

ill or pregnant were more likely to get insured. The company had tried to prevent

this by requiring that sales were made only to pre-existing ‘natural groups’ such as

Village Organizations or Women’s Organizations, and that at least hal o all house-

holds in a group should take up the product. However, it transpired that householdscould easily join such groups in order to buy the product, and the 50 percent take-

up minimum was too low to protect against adverse selection.

The other part o the challenge was claims management. FMiA implemented a

smart card system or patient authentication, but the lack o computer connectivity

in many acilities rendered this unusable. And despite the company’s close links to

the healthcare provider, Aga Khan Hospital Services, it is likely that treatment proto-

cols were not ully enorced and that hospitals sometimes recommended treatment

and hospitalization in cases where FMiA doctors would not.

As a result, the northern areas health product registered a high claims ratio o

almost 270 percent in 2008. AKAM and FMiA knew that they had to assess the

situation in detail, and make the necessary changes to the product and distribution

model. However, because o the armed insurgency in the neighbouring Swat region,

the AKAM expert team based in Geneva was unable to visit the northern areas until

late 2009. Meanwhile, total enrollment tripled to over 23,000 in 2009 without any

reduction in claims ratios, with the district o Gilgit-Baltistan registering a peak o

415 percent in that year. Eventually, the expert team was able to assess the situa-

tion and make substantial modications to the health product, to bring down the

claims ratio through 2011.

20 The ratio of claims payments to net premium income in any given period. Insurance models must have claims ratios

significantly below 100 percent in order to be sustainable. New insurance schemes often show high claims ratios in the

initial period; sometimes these decline automatically through growth and diversification of the risk pool, but at othertimes these reflect underlying problems with product design or distribution that require rectification.

FMiA introduced a lower-

price ‘family package’

for a three-month trial,

but once launched these

concessionary terms

proved difficult to retract.

Monitor GrouP28



FIGURE 7: FMiA Northern Areas Health Product —Persons Insured and Claims Ratio

By the end o 2011, there had been heavy underwriting losses rom the health

product, borne mostly by the stop loss guarantee acility. Meanwhile, even though

the more conventional credit lie product had grown to cover 370,000 lives and

stabilized at an acceptable claims ratio o 60 percent, it did not generate a sucient

income contribution to cover the high xed costs o the FMiA business, and the

company could not see a clear path to independent nancial sustainability.

AKAM thereore agreed with the Gates Foundation to end the grant, and FMiA was

closed down. Acumen Fund wrote o its equity investment in the company and

withdrew its share o remaining unds in the stop loss acility. New Jubilee LieInsurance (NJLI), which had been underwriting FMiA’s policies and was considering

a move into micro-insurance at the time, decided to acquire the ailed company’s

sta and assets, encouraged by AKAM’s decision to continue providing the stop loss

acility. AKAM is condent that the work o pioneering a viable micro-insurance

model will continue developing within NJLI and a new business plan or the ormer

FMiA unit projects nancial break-even in 2016.

Source: AKAM Microinsurance Initiative Case Studyand Lessons Learnt, Annex 3, Monitor Analysis

2008 2009 2010(2 months

claims data)

0

5,000

10,000

15,000

20,000

25,000

6,044

19,51823,260

195%

156%

133%

Claims Ratio

Lives Insured

0%

100%

200%

L i v e s I n s u r e d

C l a i m s R a t i o

Heavy underwriting

losses from the health

product and insufficient

income from clients led

to FMiA closing down.




the Four Ps oF enterPriSe PhilAnthroPy

These two case studies underscore the importance o validating the viability o in-

novative business models, and highlight the pivotal role that unders such as Shell

Foundation and the Gates Foundation, and intermediaries such as AKAM, can play

at that critical juncture. We believe there are our general themes — Four Ps — o e-

ective enterprise philanthropy practice that are exemplied by these case studies:

Pps

It is essential that management, unders, intermediaries and investors are

well-aligned on their goals and expectations or the business. We see this

alignment o purpose clearly in the case o HPS: Shell Foundation shared

the management team’s vision o achieving scale by way o commercial

capital and helped to bring in investors, including Acumen Fund, to rein-

orce this trajectory.

In the case o FMiA, this alignment was not as strong. While there was a

shared interest in both impact and viability across the company and its

backers, the Gates Foundation and AKAM were ocused on testing and

learning rom an experimental model o health micro-insurance, while

Acumen Fund was more ocused on building a successul inclusive busi-

ness that would reach nancial break-even within three years. AKAM was

also more interested in developing a product that was targeted at the rural,

hard-to-reach population to have maximum impact while Acumen expect-

ed that the ocus would be more on urban growth through MFI partners.

Pfab Pps

When validating the business model, the customer proposition that is

oered in the marketplace must be one that is protable or the rm long

term, at prices that customers are actually willing to pay. Market trials are

unreliable i they are run with short-term concessionary prices and oer-

ings that are signicantly dierent rom those that can be sustained over

the longer term, as market conditions in the BoP are so stringent. For much

the same reason, businesses in the validate stage need to have a robust

understanding o unit cost and a tight ocus on achieving an ecient cost

position. Any investor, under or intermediary involved in the rm’s devel-

opment at that stage should be aware and supportive o that ocus.

From the outset, HPS charged the long-term sustainable price or electric-

ity, using a simplied tari tailored to its target segment o low-income,

low-usage households who were new to buying electricity. In line with this,

P

P

Monitor GrouP30



HPS and Shell Foundation went to great lengths to reduce the unit cost o

electricity, including designing proprietary smart meters (as existing ones

were too expensive), urther R&D to reduce the cost o plants by 25 per-cent, and the processing o char into incense sticks to avoid the high cost

o disposing o this waste product. At no time was the Shell Foundation

grant used to enable provision o the product or ree or at a short-term

concessionary price.

Meanwhile, FMiA struggled to achieve a protable proposition in health

insurance, in part because it launched products with terms that were too

generous (both in the northern areas and in Karachi) and were then di-

cult to scale back. This refected an understandable concern that custom-

ers would not buy the product because it was not suciently attractive.Refecting on the experience, AKAM now believes that it would have been

wiser to start with a less generous product that had a high likelihood o

protability, and then assess the scope or adding cost to deliver more ben-

ets. Another contributing actor identied by AKAM was the low burden

o risk borne by NJLI — just 10 percent o losses, compared with 90 percent

borne by AKAM (supported by the Gates Foundation grant) and Acumen

Fund through the stop loss acility — which may have led to them not

pressing more strongly or decisive and eective action on protability.

Pgss

In the validate stage, investors, unders and intermediaries should help the

pioneer rm progress towards greater viability. A key part o this is helping

management to maintain discipline at each step-change milestone and

honestly assessing progress towards validation.

The specicity and discipline o the Shell Foundation grants to HPS are

a good illustration o this. Contrary to the perception o grants as ‘ree

money’, grants can be more prescriptive at an operational level than equity

or debt, through a combination o restriction, disbursement conditionality

and reporting requirements. Shell Foundation used this quality o grants in

designing its instruments, thereby helping HPS to stay ocused on the key

step changes it was seeking to achieve. The key to this working in prac-

tice was Shell Foundation’s highly engaged approach, allowing aims and

milestones to be developed jointly by both parties so that they were ap-

propriate to the business and thus more likely to be achieved. HPS and Shell

Foundation also did not rush into bringing in investors beore the model

had demonstrated its viability.

P




The story o FMiA shows how dicult this can be in practice, especially

when complicated by external events. The insurgency in Swat prevented

the rapid-cycle learning and adjustment that was critical to the renemento the health insurance product in the remote northern areas, in contrast to

the quicker and more eective modications made in the rst six months

o the Karachi pilot. Lack o adjustment, combined with accelerating enrol-

ment in the northern areas, led to the escalation o underwriting losses.

The Gates Foundation could have instituted stronger measures in its grant

to support disciplined progression at FMiA through AKAM; or instance,

this could have required the company to restrain continuing growth in

enrollment where claims ratio data pointed to serious issues with product

design, distribution model or gate-keeping. Acumen Fund could also have

used its infuence as a major investor to help the business maintain disci-

pline. Evelyn Stark rom the Gates Foundation, says: “The grant was made

in the early days o the Financial Services or the Poor program when the

team was in a more exploratory phase. Our strategic goals and grant-making

practices have been signifcantly tightened since that time.”

Pss

Persistence is critical because it is not easy to develop new business models

that work. As we have explained, the pioneers o the microcredit model

spent decades developing and rening the model beore they demonstrat-

ed viability and became investable.

Shell Foundation took a realistic view o this when it began working with

HPS. Instead o rushing to scale, HPS and Shell Foundation worked over a

number o years to test key assumptions and build out the model, think-

ing about each step in the value chain. HPS and Shell Foundation also took

time to build the capabilities required to operate eciently and saely at

scale, beore pushing ahead with Series A commercial investment and a

concerted eort to scale up.

Whether persistence in validating the FMiA business model, within NJLI,

will eventually pay o is not certain — it never is, with any new model.

However, given the inherent challenges o micro-insurance and the ex-

perimental nature o health micro-insurance in particular, many cycles o

trial and error were likely necessary. It was highly unlikely that the model

would break even within three years o Acumen Fund’s investment. Brian

Trelstad, the ormer Chie Investment Ocer o Acumen Fund, says: “The

expectation that FMiA would break even in three years was unrealistic. Even

in developed markets a new insurance product can take ve to seven years to

P

Monitor GrouP32



4Prprg Mrt

BP mas a awas a f vas a

a b p fms, a s s f a ba

sssf gw f sv bsss ms.

Customers in the BoP do not always readily desire and

demand the products that could be highly benecial to

them, such as preventative healthcare or insurance. We

call these ‘push’ product categories, in contrast to ‘pull’ categories, such

as housing and mobile phones. Distribution channels in the BoP do not

always have the ability to get products to customers, especially in rural

areas. And suppliers in the BoP sometimes do not have the ability to de-

liver the products that they should ideally produce. In these situations,

markets need to be prepared in order to create the right conditions or

activity. Enterprise philanthropy can play a vital role here.

In this section, we will discuss two grant-related case studies rom the

Acumen Fund portolio, both drawn rom the same sector but in two

dierent countries and with dierent trajectories. We will also revisit andbuild on the Four Ps that we introduced in the previous section.

3. Prepare

34 Monitor GrouP



case sTudy: easy waTeR, BeTTeR livelihoods

In 2002, International Development Enterprise India (IDEI), a nonprot organization

seeking to improve the productivity o the smallholder armer, invented a promis-

ing product. The product looked unassuming — a thin but strong plastic tape with

holes punched in it . However, it promised to bring drip irrigation, a valuable tech-

nology that had been previously available only at high cost to large arms, withinreach o the smallholder armer. Amitabha Sadangi, the head o IDEI, knew that this

could have a dramatic impact on rural BoP livelihoods. By bringing water directly to

the stalks o plants instead o fooding channels, crop yields could be increased by

50 percent and signicant reductions could be achieved in water and energy use,

leading to both cost savings and environmental benets.

But how would he get the product to the smallholder armer, and to as many as

possible? While IDEI had always relied on grant unding rom donors such as Swiss

Agency or Development and Cooperation (SDC), Skoll Foundation and Lemelson

Foundation or its R&D activities, Amitabha believed that the best route to scaleor a strong product was a commercial one. He wished to avoid relying on on-going

subsidies, which he viewed as distorting markets and encouraging corruption. He

had already tried once beore to commercialize a product — a treadle pump or ir-

rigation — and saw no reason to proceed any dierently with this new product.

usg w-s p ga, ramasa Maaa as pw s a as s

fm sx as f a vgabs s Aagaba, ia.

GEWP’s promise was

to bring drip irrigation

within reach of the

smallholder farmer with

a dramatic impact on

rural BoP livelihoods.

We discuss twourther case stud-ies to show howenterprise philan-thropy can helpfrms to prepare new markets atthe Base o thePyramid (BoP) andrevisit the Four Ps.




fiGuRe 8: Stages o Business Development o GEWP

Intrigued by the product’s potential, Acumen Fund stepped in as under, giving IDEI

$100,000 and technical assistance rom Adrien Couton, an Acumen Fellow. This

helped IDEI to urther invest in product development, leading to the creation o two

new product variants and to develop a business plan or a new company, Global

Easy Water Products (GEWP), that would take the new KB Drip low-cost drip irriga-

tion solution to scale. GEWP received investment rom Acumen Fund and proceed-

ed with validating its business model: developing its product oering, beginningcontract manuacturing, conguring its distribution model, and, most importantly,

proving that it could sell products at a commercial price to smallholder armers.

However, it aced a tough problem. Smallholder armers in India had no previous

experience with drip irrigation and thereore had no appreciation o its benets.

IDEI and GEWP aced an uphill struggle trying to convince armers that they should

spend some o their scarce money on this new product that neither they nor any-

one they knew had ever used beore. The eager early adopters taken or granted in

upper-income markets were nowhere to be ound in this one. Meanwhile, the small

agricultural dealerships that were distributing KB Drip were used to responding tocustomer requests, not to actively promoting specic products.

IDEI had been using donor and commercial unds since 2002 to create this new mar-

ket, but the breakthrough came in November 2007, when the Bill & Melinda Gates

Foundation committed $16 million o unding to IDEI to specically support the

development o the low-cost drip irrigation program with a particular ocus on pre-

paring the market. Approximately $11.5 million o the grant went towards increased

demand stimulation activity, designed to make armers more aware o the benets

o drip irrigation. Using this money, IDEI showed Bollywood-style lms in villages,

conducted product demonstrations, and installed demonstration plots in the elds o the most receptive armers, which then generated word-o-mouth publicity about the

Source:Acumen Fund, GEWP/ IDEI Website, Secondary research, Interviews with IDEI/ GEWP Personnel

1009080706050403020100999897 POST

11

» Funding from various donors utilized primarilyfor R&D activities and business expansion

» Low-cost drip irrigation system developed andrefined by 2004

» Building supplychain and marketingstrategy

» Pilots done with aimto set-up a for-profit

» ~$16M BMGF grantfor demand genera-tion in 2008

» Targeted R&D toreduce cost, enhanceproducts and build /enhance supply chain

» Further expansion

Grant Funding

Investment

Donors to IDE-I

Rajiv Gandhi Foundation

1. Blueprint 2. Validate 3. Prepare 4. Scale

The problem was that

smallholder farmers in

India had no previous

experience with drip

irrigation and therefore

had no appreciation of

its benefits.

Monitor GrouP36



product’s benets. The remainder o the grant unded urther research and develop-

ment to improve the product oering, and development o the supply chain.

The investment in generating customer awareness and demand resulted in accelera-tion o sales. The annual growth rate in sales increased rom 40 percent in the years

beore the grant to 73 percent in subsequent years (see Figure 9).

fiGuRe 9: Grant-Enabled Market Creation

GEWP’s current trajectory is highly promising. In 2011, some 65,000 armers pur-

chased KB Drip products. With penetration in the ‘prepared’ districts still relatively

low at ve percent, there is considerable headroom or urther growth and impact.

However, despite the undamental alignment in strategic intent between IDEI and

GEWP, there are usual dierences between them in day-to-day operations that one

would expect between a mission-driven organization and a or-prot company. As

such, it is encouraging that GEWP has now achieved ull operational independencewith the transer o the remaining drip irrigation units rom IDEI. The company has

also hired a new managing director, O.P. Singh, who has a commercial background

in rural and agricultural nancial services, to strengthen the capabilities that the

company will need as it pushes orward into scaling.

Perhaps the clearest sign o IDEI and GEWP’s early success is the emergence o

competitors in this market. Most o these are small local copycat producers, but one

notable recent entrant is an American startup called Driptech, which has launched

operations in India and China. In India, Driptech is headed by Pratyush Pandey, the

ormer managing director o GEWP, and is targeting villages in districts where the

Gates Foundation-unded demand stimulation activities have been conducted but

penetration o low-cost drip irrigation is still minimal.

Note: 1 USD = 45 INRSource:Acumen Fund,

Monitor Analysis

2006 2007 2008 2009 2010 2011(11 months)

0.330.43

0.65

1.39

2.95

3.37

+40%

0

1

2

3

4

Gates Foundation Grant for Market Creation

77%

14%

9% USAGE OF ~ 16M GRANT

Demand Generation

Technology Development

Supply Chain Enhancement

+73%

The clearest sign of

IDEI and GEWP’s

early success is

the emergence of

competitors in

the market.




“All the players in the market have beneted rom the Gates grant, because the

market is now aware o the product. But armers also now have a range o options in-

stead o just one supplier, which has to be a good thing ultimately,” says Pratyush. Ineect, the Gates Foundation grant has helped to create a public good in the orm o

greater smallholder armer awareness and receptiveness to drip irrigation products.

Whether this grant achieves greater impact directly through GEWP or indirectly

through players such as Driptech makes no dierence to a philanthropic under

such as the Gates Foundation, whose interest in this situation is the benet o the

armer rather than a private return on investment.

case sTudy: The sToRy conTinues… in PakisTan

The story o IDEI’s invention extends beyond India’s borders. In Pakistan, Thardeep

Rural Development Program (TRDP) — led by Dr. Sono Khangharani, a passionate

and charismatic non-governmental organization (NGO) leader — had been working

with armers in the Tharparkar desert and other arid areas o southern Pakistan.Since 2005, TRDP had been exploring ways to make drip irrigation accessible to the

smallholder armer, including early discussions with Unilever about bringing appro-

priate technology to Pakistan.

When Dr Sono heard rom Acumen Fund about the promising work o IDEI and

GEWP in India, he was intrigued by the prospect o replicating their model and their

impact in Pakistan. Talks ensued and, in 2007, MicroDrip was incorporated to bring

low-cost drip irrigation to Pakistan with TRDP and Acumen Fund as shareholders.21

21 While the company was incorporated in 2007, Acumen Fund’s investment in MicroDrip was made in 2008.

Zfqa A fams f as vag f dab, Pab pv, ga b Mdp

ga s.

Monitor GrouP38



The opportunity seemed straightorward. MicroDrip would begin its operations in

the arid regions o Sindh, an area with a high degree o water scarcity and a large

number o smallholder armers, and thereore a clear need or drip irrigation solu-tions. The company would import the KB Drip tape and accessories rom GEWP in

India, and would then leverage connections with TRDP and other similar organiza-

tions (known as Rural Support Programs, or RSPs) to get those products into the

hands o the smallholder armer. By doing so, it also aimed to tap into the large pool

o donor subsidies available to the RSPs and signifcantly reduce the price o the

product to encourage adoption.

Figure 10: Stages o Business Development o MicroDrip

Such was the level o confdence ollowing initial product trials in the blueprint

stage that MicroDrip moved quickly through the prepare stage and into the scale stage (see Figure 10). Our research indicates that there was minimal work done on

market research or testing in the validate stage. Neither was there much work done

on preparing either the market (e.g., stimulating demand) or the supply chain (e.g.,

training distribution partner personnel).

It soon became apparent that this confdence had been misplaced. Even though

Sindh was an area o high need, there was no ready demand or its products. Being

an arid region, Sindh had never developed agriculture to the levels o more ertile

regions like Punjab. Farmers were highly risk-averse and drip irrigation was even less

amiliar to them than it was to Indian armers, which meant that MicroDrip had a

real challenge on its hands trying to convince them to buy its new product.

Source: Acumen Fund, Monitor Analysis, Primary research

2005 2006 2007 2008 2009 2010 POST2011

» TRDP and Unilever in talks tocollaborate on bringing driptechnology to Pakistan

» In 2007, company set up withinvestment by Acumen tomarket drip irrigation systemssourced from IDEI

» Explored andbuilt partnershipswith RSPs whoacted as interme-diate buyers anddistributors of the product

» Expanded into Punjab, regionwith highest concentration of smallholder farmers

Grant Funding

Investment

1. Blueprint 3. Prepare 4. Scale

Rural Support Programs

MicroDrip aimed to tap

donor subsidies to the

RSPs to reduce price and

encourage adoption.

From Blueprint to Scale 39



Acumen Fund believed that the new business needed to be separated rom TRDP so

that it could develop a more independent, commercial culture while leveraging its

vast rural network or marketing and distribution. Supercially, this was achieved:many o the MicroDrip team were hired rom outside TRDP, and the new company

was housed in a separate building. In reality, however, the ties between the parent

not-or-prot and new or-prot were close and deep. In the short prepare stage o

just over a year, TRDP was closely involved in every aspect o MicroDrip operations

as the new organization was being assembled. Going orward, the active support o

TRDP was essential to help MicroDrip promote and distribute the product to armers.

Compared to IDEI in India, which had prior experience o selling products such as

treadle pumps to armers, TRDP had a more traditional nonprot orientation, accus-

tomed to providing ree support to rural communities. Unsurprisingly, this shaped itsapproach to distributing MicroDrip’s product. TRDP and the other donor-unded RSPs

that distributed the product subsidized the price o the product by up to 80 percent in

order to encourage armers to take the product. They would oten accept the armer’s

labor in digging trenches and laying the pipes as in-kind payment or the remainder,

such that in many cases there was no cash cost to the armer. An estimated PKR 3.5

million ($39,400) has been provided in price subsidies through TRDP alone.

At rst glance, this approach appeared to be bearing ruit. By 2009, MicroDrip sales

had grown to nearly PKR 9 million ($100,000). However, the picture on the ground

was less positive, as reports came in that armers were not using the products they

had bought. One o the problems was that smallholder armers in Sindh typically

had no access to tubewells or canal water, so they needed to run diesel pumps to

draw water or irrigation. The MicroDrip system required pumps to be run daily or

short durations rather than once a week or a longer time in order to food the eld,

as armers were used to doing. This required signicantly greater eort rom the

armer, both in running the pump multiple times a day and in the additional main-

tenance required o the KB drip system.

Many armers received the product without sucient training in how maintain it,

and thereore did not see the benets o the product. There were reports o instal-

lations ailing ater a period because pipes would become clogged up with miner-

als due to the harder groundwater, exacerbated by poor system maintenance. The

ormer chie operating ocer o MicroDrip says, “I have had rst-hand experience

o these problems. I had a MicroDrip system that ailed to work, and ater several

attempts to get it xed, such as manually repairing tears and regularly fushing the

laterals, I just gave up and pulled it all out. It now just sits there outside our house,

unused. I ear that’s what happened with many armers who see too much eort and

too little value o the product, and will probably never buy it again.”

The lack o training o both MicroDrip and RSP personnel has been identied as one

cause o these problems. Another was the lack o market-specic customer research

Usage of the subsidized

product by farmers was

limited as they were not

used to the increased

effort in running and maintaining the product.

Monitor GrouP40



and R&D to develop oerings tailored to the needs and conditions o the Pakistani

smallholder armer. More undamentally, it now seems likely that MicroDrip and

its distribution partners suered rom a misguided ocus on selling the hardware(i.e., drip irrigation tape and accessories) into as many smallholder arms as pos-

sible through deep price subsidies, instead o on delivering value to the customer

through a complete proposition that delivered satisactory levels o perormance

and was backed up by strong service elements.22 The act that it chose to ocus on

the tougher, albeit needier, region o Sindh rather than Punjab made matters worse.

In 2010, MicroDrip nally accepted the commercial logic o ocusing on the more

ertile and developed province o Punjab, which also has the highest density o

smallholder armers, moving its base to Lahore, the capital o Punjab. Signicant

investment has also been made into market research and product R&D, and thecompany now oers a revised range o products that are more tailored to local

preerences and aordability constraints, including product options with motorized

accessories to help draw water.

The problem o the rm’s reliance on RSP partners and their subsidies has also

proven to be a weak point in 2011, as massive foods in Pakistan caused the part-

ners to redirect a signicant portion o their unding to relie, rescue and rehabilita-

tion work, rather than to subsidizing MicroDrip’s products. This has caused sales or

the year to all signicantly below expectations. Sales growth rates in recent years

have been in the low single digits, a ar cry rom the dramatic growth rates posted

by GEWP in India.

the 4Ps reViSited

These case studies illustrate the critical dierence that can be made by appropriate

grant support in preparing the market or new ‘push’ product categories. We have

identied some key learnings or unders and intermediaries: these recap the Four

Ps we introduced in the previous section — Purpose, Protable Proposition, Progres-

sion and Persistence.

Pps

Alignment between under, investor and company is critical to the un-

damental aim o creating an investable business that sells products to

customers with a specic social benet, rather than one that gives things

away to beneciaries. The Bill & Melinda Gates Foundation and IDEI not

only shared a ocus on impact on smallholder armers in the BoP, they also

shared a vision o scale or GEWP that was based on sustainability without

22 Our discussions with GEWP in India suggest that some 40 percent of the product’s direct cost relates to the service

rather than hardware elements.

P

MicroDrip focused on

selling the hardware

through deep price

subsidies, instead of

delivering value to the

customer through a

complete proposition.




on-going subsidy and the potential to attract investor capital in time. Past

activity can be a good guide to uture expectations: a market-based, rather

than charitable, approach had been refected in IDEI’s track record on thetreadle pump product that preceded its innovation in drip irrigation.

In contrast, TRDP was a traditional nonprot that was more accustomed

to responding directly to the social need o beneciaries, rather than to

creating a commercial business that could grow without subsidies, as Acu-

men Fund intended. Despite the steps taken to separate MicroDrip rom

TRDP and set it on a commercial trajectory, the critical decision to launch

in Sindh rather than Punjab indicates a primary concern with social need

rather than commercial actors, and one that was ultimately not sustain-

able in business terms.

Pfab Pps

From the outset, GEWP charged a price or its products that it expected to

be able to sustain on a commercial basis over the longer term; meanwhile,

its parent organization, IDEI, invested heavily in building customer aware-

ness and cultivating demand. This was accompanied by a signicant R&D

eort to enhance its product oering.

MicroDrip took a dierent approach, relying on deep price concessions

through TRDP and other RSP channels, instead o stimulating genuine

customer demand. This was eective in terms o driving hardware sales

but resulted in insucient attention being paid to delivering a proposi-

tion that customers really valued. This was refected in problems across

a range o areas including product design, installation, maintenance and

customer training. This practice also established price points in the market

that would not be possible to maintain without increasing the amount o

subsidy proportionally in line with sales.

Pgss

It is clear that GEWP progressed distinctly through the blueprint, validate

and prepare stages, and with each step the rm moved closer towards

the eventual goal o sustainable scale. In the prepare stage in particular,

the substantial investment in the market and the rm enabled by Gates

Foundation led to marked improvements in sales and have likely created a

strong oundation or urther scaling.

On the other hand, MicroDrip relied too heavily on the Indian precedent

and ailed to validate the assumptions supporting its business model inPakistan. MicroDrip then ailed to invest in demand stimulation, R&D and

P

P

Monitor GrouP42



supply chain development in the prepare stage, which were precisely the

areas that had received investment in India. As a result, MicroDrip aces

an even harder challenge going orward than it did when it started, as thecompany seeks to overcome negative customer perceptions due to poor

product perormance and lack o perceived value.

The case o MicroDrip also holds a cautionary lesson or those interested

in porting products or business models rom one country to another: just

because it works in one country does not mean it will work in another, or

even in a dierent part o the country. The rigorous testing and renement

o the validate stage is skipped at one’s peril, as is the investment in the

market and the rm at the prepare stage i the target customer is not yet

amiliar with the value o the product one is selling.

Pss

The work o educating potential customers and building supply chains in

the BoP in the prepare stage cannot be accomplished overnight; instead, it

requires persistent ocus and resources over time. In the case o IDEI-GEWP,

each district required targeted and sustained eort over three to six years

in order to build genuine customer understanding and demand; only then

could GEWP generate a reasonable return on its sales eorts in those areas.

Conversely, the story o MicroDrip to date shows that, while direct pricesubsidies can give businesses a more immediate boost in getting products

into the hands o the target customer, such subsidies do not create the

conditions or — and might even hinder — longer-term success in both

nancial and impact terms.

Because the work o preparing market demand and supply may not produce su-

cient private nancial return within ve to ten years, i ever, a dependence on

return-seeking capital alone may come up short. This is particularly true in situa-

tions with ‘push’ categories that are novel in the BoP market and do not enjoy ready

eective demand rom customers, and where suppliers and distributors are under-

developed and inadequate or the requirements o the new business model.

In situations like these, where investor capital is unlikely to meet business needs,

enterprise philanthropy can have critical and lasting impact. Enterprise philanthro-

py can take a broad view o impact beyond the individual rm to encompass whole

markets, and provide unding to build the right demand- and supply-side conditions

in these markets so that pioneer rms — and those that ollow them — can truly

scale their activities and impact.

P




For PhilAnthroPic FunderS:

1. cs mvg ps pap g a

ag f appas

More enterprise philanthropy is needed to unlock the potential o

inclusive business, and interested unders can consider a spectrum o

approaches as described in Table 3. One route is what we have called

‘classic’ enterprise philanthropy as exemplied by the work o Shell

Foundation (described in section 3). Another is to give grants to non-

prots that are already engaged in inclusive business development as

the Bill & Melinda Gates Foundation does (described in sections 3 and4). Across the spectrum collaboration with established players or with

networks such as Toniic (a global impact angel investing network) could

help seek out promising opportunities to und.

Philanthropic unding does not have to be deployed in isolation rom

investment capital. In act, two o the approaches in Table 3 blend or

‘layer’ grants with capital to create hybrid models that target high-risk

situations. Another uses grants to deliver much-needed capacity build-

ing (or technical assistance) to overcome the inherent disadvantages

Interested funders

can consider a range

of approaches, and

potentially in tandem

with investing strategies.

5cg T Pr Gp

eps pap a pa a mpa

sg p gap bw Blueprint a Scale,

g pms f sv bsss mpa

a. W s sx a mmas f fs

a vss p vp s as pa.

44 Monitor GrouP



W s

mmas f

s fs a

f mpa vss.

We set out our keyrecommendationsor interestedunders and orimpact investors.

TaBle 3: The Enterprise Philanthropy Spectrum —Potential Approaches or Interested Funders

APProACH deSCrIPtIonoPtIonS or

new underSexAmPleS

1 Grants to rms,including or-prots

‘Classic’ enterprisephilanthropy direct toinclusive businesses inless-developed coun-tries

• Build owncapability

• Collaborate/co-und withestablishedplayers

Shell Foundation

Lemelson Foundation

Arica EnterpriseChallenge Fund

KL Felicitas Foundation

2 Grants tononprot hosts orintermediaries

Grantmaking to non-prots incubating orotherwise developinginclusivebusinesses

• Seek ownopportunities

• Collaborate/

co-und withestablishedplayers

Bill & Melinda Gates Founda-tion — AKAM, IDEI(see sections 3 and 4)

3 Philanthropicunds deployed asequity or debt

Investing debt or eq-uity into businesses inhigher-risk situations,aiming or 1x return


• Fund or co-undwith establishedplayers

Acumen Fund

4 Early-stageaccelerators

Layering grant undingwith investment capitalto pursue high-risk,early-stage situations,with signicant capacitybuilding support orinvestees


• Fund establishedplayers

First Light Accelerator

Village Capital

ACCION Venture Lab

5 Technicalassistance/capacity buildingadjunct

Grant unding toenable investee capac-ity building, alongsidereturn-capital invest-ment operation


• Fund establishedplayers

Grassroots Business Fund

6 Market/ecosystemdevelopment

Grant unding todevelop a range o com-plementary businessmodels and promotewider conditions (e.g.

standards, regulation)needed or sustainableimpact at scale — o-cused on a given sector


• Fund or co-undwith establishedplayers

Shell Foundation— clean burningcookstoves

Omidyar Network —micronance

Michael & Susan DellFoundation — clean water

Gatsby Foundation —agriculture




o the BoP business environment, alongside a return-capital investment model.

Even where unding ultimately fows through as a grant to the pioneer rm or a

nonprot, unders could deploy complementary mission investing strategies.23

However, moving to enterprise philanthropy will be challenging or most unders. It

aims to shape the working o market orces that may be unamiliar, and in contexts

that are not only less-developed but physically and culturally remote. It requires the

blending o a resolute ocus on impact with the ability to adopt an investor’s perspec-

tive on business models, management teams and perormance. Some unders will

be condent in building their own capabilities, but many others will preer to und or

co-und with established players who already have such capabilities.

2. ca a ba w spas mas

We believe that more players with specialist enterprise philanthropy capabilities

need to emerge. In particular, we see a critical lack o specialist intermediaries to

connect mainstream philanthropic resources to the practice o ‘classic’ enterprise

philanthropy, in contrast to the 200 impact investing unds that have emerged.

We believe that unders interested in this emerging eld should support the

creation o new specialist intermediaries or enterprise philanthropy, in much the

same way as leading unders interested in impact investing, such as The Rock-

eeller Foundation, helped to create Acumen Fund over ten years ago. These new

intermediaries would accept unding rom a wide range o oundations and aid

donors, and develop strong in-market capabilities in order to deploy grant unding

and capacity building into the pioneer gap.

O course, these new intermediaries will ace tough questions and challenges.

Enterprise philanthropy is not a amiliar concept, and these new unds will need

to clearly distinguish themselves rom impact investors and venture philanthropy

unds. They will need to develop strong on-the-ground capabilities in less-devel-

oped countries — hiring sta, building networks, nding opportunities, delivering

technical assistance, managing portolios and measuring impact — and maintaina strong connection to unders that are predominantly based in more-developed

countries. The good news is that they will be entering at a time when groups such

as the Aspen Network o Development Entrepreneurs and the Global Impact Invest-

ing Network are beginning to invest signicantly in building the eld inrastructure

and skills on which to scale up their operations.

23 Discussion of the practice of ‘mission investing’ by foundations is beyond the scope of this report. We refer funders based

in the United States to Stetson A. and Kramer M. (2008), Risk, Return and Social Impact: Demystifying the Law of Mis-

sion Investing by U.S. Foundations, FSG Social Impact Advisors. Funders in Europe could read Bolton M. (2006), Founda-tions and Social Investment in Europe, European Foundation Centre, and consult the directory of resources prepared by

the European Foundation Centre’s Social Investment Group http://www.efc.be/Networking/InterestGroupsAndFora/

SocialInvestment/Pages/KnowledgeResources.aspx.

Funders should support

the creation of new

specialist intermediaries

for enterprise

philanthropy, in much

the same way as

leading funders helped

to create Acumen Fund

over ten years ago.

Monitor GrouP46



3. emba s a awg fas

Working at the rontier o inclusive business in the hope o breakthrough impact

is an inherently risky endeavor that will see signicant, i not high, rates o setback

and ailure: we need to acknowledge and accept this. Much o the support that is

utilized in these situations will not result in business success, which mirrors the ex-

perience o venture capital (VC) investors in developed markets. However — unlike

VCs who expect a high rate o ailure and sometime even preer to invest in entre-

preneurs only ater they have tried and ailed — unders may struggle to reconcile

this with the traditional concept o accountability and good stewardship in philan-

thropy. We encourage enterprise philanthropists to take risks with new models and

new markets, and to be open about their experiences o ailure as well as o success

so that learning can be maximized or the eld.

4. expa pspv mpass mas a ssms

Experienced philanthropic unders may nd the entire approach o this report

somewhat strange: why are we so ocused on the individual rm? History does not

suggest that successul individual ventures, either or-prot or non-prot, are su-

cient or driving large-scale social impact, because o the complex and systemic na-

ture o entrenched problems. What we have observed is the powerul change that

can result rom the aligned activity o many players, on issues such as civil rights in

the United States and the immunization o children in poor countries.

Meanwhile, we have also observed that vibrant and increasingly global markets in

goods and services (and talent and capital) are infuencing the way we live, work

and relate to others. Markets do this in ways that cannot be attributed entirely

to individual companies; even companies like Apple and Facebook, which are

exerting signicant infuence on both popular culture and the evolution o their

industries, have relied on — and been shaped by — their suppliers, customers,

competitors and precursors.

In the same way, the impact o any market-based solution, at its ullest potential,

will be achieved by a multiplicity o actors working in a given market, and not just

within the private sector. The micronance sector illustrates this well: in addition to

a competitive array o micronance institutions lending to end customers, there is a

wider ecosystem o unders, investors, investment unds, ratings agencies, research

bodies, conveners, regulators and policymakers that is shaping the evolution o the

market and, ultimately, its impact on poor households.

Philanthropic unders are uniquely placed to take this perspective and work

at a range o points across the market and ecosystem in order to enhance theconditions or eventual impact at scale. Investors, even impact-ocused inves-

Philanthropic funders

are uniquely placed

to take a broader

perspective and work

at a range of points

across the market

and ecosystem.




tors, must keep their eye trained on the perormance o their own companies

irst and oremost, and their interest in the broader issues will be shaped

largely by this lens. We believe that this perspective is vital and that is why wehave included market and ecosystem approaches in the spectrum o enterprise

philanthropy in Table 3. In particular, we believe there is an opportunity to take

the emerging lessons o microinance24 to shape the market-based solutions o

tomorrow or the greatest possible impact.

For iMPAct inVeStorS:

5. caba w fs w bsss ms

Impact investors, particularly those seeking innovative solutions to the problems o

poverty, will continue to ace serious challenges with deal fow. It is imperative that

investors recognize the crucial role that unders can play in building the pipeline in

these situations by cultivating pioneer rms and ecosystems. Investors could en-

gage more with those unders working upstream o or alongside them, and explore

the potential or collaboration in order to establish new models and markets. Some

investors, particularly those investing in the early stage, may even pursue layered

capital approaches as described in Table 3. At the very least, impact investors should

clearly and proactively communicate their requirements and criteria or investment

so that active enterprise philanthropists are ully aware o them and can guide

early-stage pioneer rms towards true investability.

6. Ag vsm sags w ams a xpas

More undamentally, impact investors need to realistically appraise their own

investing strategies and ensure that there is alignment with their expectations or

risk, return and impact. Pursuing new business models to tackle the toughest social

problems aecting the poorest communities will not generate high risk-adjusted

returns, and in act may not even generate 1x return. On the other hand, investingin proven business models (such as microcredit), or in businesses that serve both

BoP and non-BoP populations, could potentially allow the achievement o higher

risk-adjusted returns. We strongly encourage investors to be consistent in making

these choices, and to be honest in the way that these choices are communicated

and expectations set with investors and partners.

24 For an excellent summary of this, see Cheng P., Hodgkinson R., and Lord C., Ed. (2011) The Impact Investor’s Handbook:

Lessons from Microfinance, CAF Venturesome: Market Insights Series.

Investors should engage

more with those funders

working upstream of

or alongside them to

establish new models

and markets.

Monitor GrouP48



cloSinG the GAP

Inclusive business has the potential to transorm the lives and livelihoods o the

poor, but the eld is young and many models are as yet unproven. The long road to

establishing any new model begins with the audacious eorts o the lonely pioneer

rm: without the right unding and support in bridging the pioneer gap, the excit-

ing promise o this eld will remain just that. The good news is that there is already

a small group o enterprise philanthropists that are leading the way. However, many

more need to join them, to create a truly vibrant ecosystem that can oer the ull

range o capital, unding and support that inclusive business pioneers need. Many

pioneers will ail, but some will succeed and establish, in time, eective market-

based models into which billions o dollars o impact capital can be directed to

improve the health, education, livelihoods and security o our poorest and mostvulnerable communities.

In doing this, enterprise philanthropy draws ully on the best o philanthropy as it

has already been practised or decades: the bold and persistent support o radical

innovations and visionary leaders over long time horizons, oten building whole

elds not just single organizations, and with the ultimate goal o achieving pro-

ound and lasting change or millions o people. I is his sa ciai

phiahpic sih, aii a ca ha i h k aizi

h ‘ipac’ i ipac isi, hpi a icsi siss pis

pi sca.

Ourworkhaspointedtoanumberofareasthat

requiredfurtherstudybutfelloutsidethescope

ofthisreport.

• Ananalysisof supply-sidebarriers and con-straints for enterprise philanthropy, andrecommendations for interested funders,including detailed consideration of how ef-fectiveandsustainableintermediariesmightbeestablished.

• Anin-depthreviewofwholemarketandeco-systemapproachestoenterprisephilanthropytodrawouttheemerginglessonsfromthosepracticesandprovideconcreterecommenda-tionsforinterestedfunders.

• A collaborative, data-driven review of theenterprise grant experience basetodate toprovide more granular best-practice guid-ancetointerestedfundersinareasincludingentrepreneur due diligence/selection, de-sign of grants (and other instruments) and

performance management, and as well asbenchmarks for fundingand time scales bygeographyandsector.

FuRTheR sTudy




T etrprPtrp Pb

W sg f gamag pgams s b sp f s p, w

av a mb f as mgg fm sa.

funding ideas

In the validate stage, unders could:

• Support testing and renement o inclu-

sive business models, both in nonprots

and or-prots

•

Support nonprots in hosting andincubating early-stage enterprises with

commercial potential

• Provide targeted technical assistance,

particularly to new ventures with ew

resources and enterprises ounded by

nonprots, ocused on validating busi-

ness model viability

In the prepare stage, unders could:

• Support category marketing and edu-

cation campaigns to drive awareness

among BoP customers and create desire

or new benecial products

• Upgrade BoP supplier or labor orce

capabilities through training programs,

inormation provision, certication and/

or xed asset building

• Upgrade inrastructure or distributing

products to the BoP customer

• Strengthen management teams and

systems within enterprises

As this shows, unders who are only able to give grants to organizations that are ocially recognized

as nonprots or charities, need not eel excluded rom participation in this eld. As illustrated by the

example o the Bill & Melinda Gates Foundation and IDEI in section 4, nonprot organizations can oten

be a key player in helping to pioneer inclusive business models.

Important questions should always be asked up-ront to ensure that enterprise grants fow to the right

opportunities and minimize the risk o merely providing a cheap substitute or impact capital.

3. Prepare2. Validate

50 Monitor GrouP



Questions to ask

In the validate stage, ask:

• Is this an inclusive business model

that will help better address the

problems o poverty? Does it gener-

ate greater social benet in the BoP

than established businesses that

also engage the BoP as customers

or suppliers?

• Is there a need to validate this new

business model because there is

high uncertainty as to its viability?

• Does this uncertainty seem to be a

barrier to generating sucient in-

vestor interest in the pioneer rm?

In the prepare stage, ask:

• Is this a push product without sucient ready de-

mand rom BoP customers despite producing clearly

superior social benets while staying within aord-

ability constraints? Is there a requirement or a large

one-time investment in stimulating demand?

• Are supplier, labor orce, distribution channel or other

inrastructure constraints a critical (but addressable)

barrier to the rm’s sustainable growth? Is there a

requirement or a one-time investment in improving

these conditions?

• Is any required investment so large, or the benet

rom that investment so likely to be diused across

multiple parties, or both, that investor capital is un-likely to adequately meet that need?

Where the answers to these questions are in the armative, unders can have

greater condence that their grants are playing an important, value-adding role

that is distinct rom that played by investor capital.

We share an ini-tial set o ideas orwhat to und, andpractical advice onhow to apply theFour Ps.

While not the focus for this report, the Blueprint

stagealsoprovidesopportunitiesforgrantmakersto

stimulatethecreationofpromisinginclusivebusiness

models.Specically,funderscould:

• SupportfoundationalresearchintocustomerorsupplierneedsintheBoPwhichcouldthenbereleasedintothepublicdomainasabasisforbusinessinnovation

• Encourageestablishedcorporationstoexploreinclusiveextensionstotheircurrentbusiness

• Encouragenonprotorganizationstodevelopcommercializableimpactideasandsupportingtechnologies

• BuildstrongerinnovationcapabilitieswithinorganizationsthathavegoodunderstandingofBoPneedsandpotentialtogeneratesolutions

• Strengthenthepipelineforentrepreneurialtalentwiththerightperspective,motivationandskillstocreateandscaleinclusivebusinessmodels

BluePRinT foR iMPacT

3. Prepare2. Validate

1. Blueprint




APPlyinG the Four Ps in PrActice

But this is not just about what we und, it’s about how we und. In previous sec-

tions, we described the Four Ps that characterize eective enterprise philanthropy

practice. How should we put them into practice? Here are some suggestions.

1. Prp: Ensuring aligned purpose towards building investable businesses

that produce specific social impact

Speak to management and key investors and unders: ask them about how

they dene as success or the business and what metrics or milestones

they would use to track success by their denition.

Look at their past track record: past behavior is a good predictor o uture intent.

Discuss ‘what-i’ scenarios: ‘What i the product loses money? What i cus-

tomers don’t buy the product? What i a better product comes along rom a

competitor?’ These discussions can tease out signicant dierences in aims

and expectations between the parties. Ater all, it is when things go wrong,

or serious challenges (or opportunities) arise, that alignment o purpose is

really tested.

2. Prtb Prpt: Driving a focus on profitable propositions for

customers and suppliers

Push or rigorous testing o protability: because many inclusive business

promoters come rom non-BoP backgrounds, there is a tendency to ‘over-

eature’ or just ‘over-cost’ products, in the hope that some combination o

customer preerence, scale economies and on-going subsidies will make

the product viable in the long run.

Invest eort up-ront to clearly dene the standards or protability, and

help the rm design and run valid market trials. It is not always easy to

agree the conditions or viability, and test or them, in the early stages o a

new business model. For instance, companies commonly expect signicant

scale economies which would bring down unit cost as production increas-

es, which could make it dicult to determine the long-term sustainable

unit price at which to run market trials, especially because there are no

benchmarks rom similar companies already operating at scale.

Invest in helping the company track and analyze their unit protability:

many early-stage businesses do not have well-developed capabilities in

this respect.

P

P

Monitor GrouP52



Avoid constraining the set o customers the business is allowed to serve.

Monitor’s research suggests that many viable models serve a range o cus-

tomers at various income levels in the BoP or even outside the BoP.

3. Prgr: Encouraging progression through key stage gates

towards investability

Develop a team with the right skills and experience to help the rm navi-

gate its progression, identiy the critical step changes ahead, and support

management in achieving those. Not all o these people need to be on

your sta; in act, given the range o challenges the rm will ace, it is a

good idea to develop a strong network o capable, trusted advisors who

can be called on to assist as needs arise.

Design eatures into the grant to help the rm maintain discipline on

achieving key step changes in its business. This needs to be done with the

company, not to it, because grants can only be an enhancer o discipline,

not a substitute or it. And these design eatures should allow some fex-

ibility, in terms o timing or instance. Where there are multiple enterprise

philanthropists engaged with one company, these design eatures should

be aligned across all relationships, in the same way that all key investors

in a business should be aligned on the rm’s business plan and objectives

going orward.

Be disciplined yoursel. The temptation to orgive business model issues

when we see clear potential or impact is strong indeed.

Encourage honest and open consideration o the paths orward. Many

interesting impact models will not turn out to be great business ideas but

they may well have strong potential to develop and grow as nonprots.

4. Prt: Expecting and supporting persistence in overcoming the chal-

lenges inherent in pioneering new models and new markets

Plan or multiple cycles o business model testing, learning and renement.

The world’s toughest development challenges are unlikely to be solved on

the rst attempt. Looking to previous attempts to solve similar problems or

meet similar needs can provide some guidance on how much time, money

and eort will be required.

Be realistic about time rames. Monitor’s research suggests that it is not

uncommon or the rm’s journey to viability and scale to take ve to ten

years. Pushing a pioneer rm to scale beore the model is worked out or the

distribution inrastructure developed is a recipe or disaster.

P

P




VisionSpring is a pioneering inclusive business

ounded in New York in 2001 by Dr. Jordan

Kassalow and Scott Berrie to manuacture and

sell aordable eyeglasses to BoP communities

in the less-developed world. Jordan, a qualied

optometrist, had seen rst-hand the wide-

spread lack o access by the rural poor to eye-

sight correction during his year volunteering at

the Aravind Eye Hospital in India. By bringing

reading glasses to the rural poor where they

lived, he hoped to improve their lives through

better eyesight. 1

Jordan explained: “The idea was to reach tens

o millions o people, using philanthropic capital

to kick start the business but ultimately scal-

ing through market orces.” VisionSpring was

1 A study by the University of Michigan showed that the improved

vision enabled by VisionSpring products increased customer

incomes by 20 percent and their productivity by 35 percent.

established using grants rom unders such

as the Open Society Institute, Draper Richards

Kaplan Foundation and Skoll Foundation, but

the model had always been intended to be

commercially sustainable rom sales revenues.

It also aimed to deliver dual social impact:

through the improved vision o rural low-

income customers, and through the improved

livelihoods o Vision Entrepreneurs (VE), who

are typically women drawn rom the same

rural poor communities, specially trained to sell

VisionSpring glasses.

When Monitor rst studied VisionSpring in In-

dia in 2007, it was clear that there was a prob-

lem with VE channel economics. The approach

was door-to-door, raising awareness among

customers, conducting spot eye tests andselling reading glasses priced at Rs. 150–200

($3–4) each. Typically, the rst ew months o a

t a ompaas’s vs a b ag, x a as p was s bas v

saw ss a w avagg fs. Af vg vs sgs g VsSpg, a

bg a pa f gasss. S m s aga a g a f ga a w av a

a p a a f avs.

PHOTO: TOTI AND OMPRAKASH , (CREDIT: ESTHER HAVENS PHOTOGRAPHY)

Monitor GrouP54

case sTudy:

Model vision



VE’s career would go well as she sold to amily

and riends in her home village. As the local

pool o customers was tapped out, with little

prospect o repeat sales, the VE would have to

venture arther aeld to make additional sales.

This required greater eort and incurred travelcosts, and yet sales were unlikely to reach

the levels achieved initially; as a result, ew

VEs made this their primary livelihood. More

importantly, it did not seem easible to scale

the VE approach into a model with break-even

economics that would be sustainable in the

long term, so VisionSpring management knew

something needed to change with the product

oering or the go-to-market strategy.

In response to these issues, VisionSpring devel-oped new channel models with improved eco-

nomics. In El Salvador, unded by a grant rom

the Inter-American Development Bank, the

company expanded their pilot hub-and-spoke

model, which was centered on a village store

carrying a wider range o products including

prescription eyewear. This new approach led to

an eightold increase in revenue rom 2010 to

2011, with ve stores at the end o the period

running at over 90 percent o costs covered bysales. Thanks to the catalytic eect o the IDB

grant o validating the business model, the

company is now looking to scale the model

across the country.

In India, VisionSpring created a new channel in

which mobile vans visit villages to run commu-

nication activities, conduct eye camps, and sell

glasses. This has been enabled by grant und-

ing rom Mulago Foundation and the Jasmine

Charitable Trust, among others. Results romthe initial feet o 20 vans have been positive,

with a doubling o sales rom 30,000 eyeglass-

es in 2010 to 65,000 in 2011, and there are

plans to grow the mobile van network substan-

tially in 2012.

These examples o what VisionSpring calls

‘strategic philanthropy’ are now helping the

company to validate its business model and

move closer towards ull commercial viabil-

ity. It estimates that 55 percent o revenues

will be rom sales (as opposed to grant sub-

sidies) in 2011, compared to 23 percent two

years beore.

Over the years, VisionSpring has also sought to

consolidate and align the support coming rom

grant unders towards their long-term goals.Jordan explains: “The Foundation side o the

organization was consumed with undraising,

oten in painully small increments. Given our

small team, in the early years, this distracted

rom the critical business mechanics that

needed to be hammered out. To make mat-

ters worse, many unders were only interested

in unding programs, not in building a robust

organization with the capacity to provide those

programs in perpetuity.”

In an eort to get some control back, Vision-

Spring issued an ‘investor prospectus’ in 2007

to gather a small group o key grant unders

who would provide growth capital and have

standardized reporting requirements. Within a

12 month period, VisionSpring attracted over

$3 million in philanthropic capital rom lead

investors including the Skoll Foundation, The

Lavelle Fund or the Blind and The Peery Foun-

dation. In 2011, the company reported that ithad already exceeded all o its 2012 goals.



http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 60/68Monitor GrouP56

Founded in 2009 by South Arican entrepre-

neur Bruce Robertson, Gulu Agricultural Devel-opment Company (GADC) is a or-prot cotton

ginnery operating in the war-torn districts o

Gulu and Amuru in Uganda. By the time he

started GADC, Bruce was already an experi-

enced cotton entrepreneur, having run similar

businesses in Uganda since 1995, as well as in

Zimbabwe, Mozambique and Malawi.

GADC is a commercial business that has enjoyed

a strong start, achieving positive net incomeand cashfow in its rst year o operations. It has

also substantially improved the economic situ-

ation o more than 30,000 smallholder armersin Gulu and Amuru by rebuilding a local cotton

industry that had been destroyed by 25 years o

armed rebel confict in the area.

The Danish International Development

Agency (DANIDA) quickly saw an opportunity

in GADC to urther improve armers’ liveli-

hoods. Many o the cotton armers around

Gulu were already arming without chemical

inputs and, because the land had been allowor many years, the soil was ree o contami-

case sTudy:

PosT-conflicT oRGanic

Af 20 as a spa pss amps ugaa, Bas s w mag a vg fm a ssam

w spp f GAdc


http://slidepdf.com/reader/full/from-blueprint-to-scale-case-for-philanthropy-in-impact-investing 61/68FroM BluePrint to ScAle 57

nants. However, because they were not part o

a certied-organic program linked to a or-

eign buyer, they were not able to capture the

signicant premium o up to 30 percent paid

or organic cotton. Farmers also lacked some o

the required practices: or instance, they werenot documenting their usage o inputs nor had

they adopted rigorous measures to prevent

cross-contamination.

Eager to acilitate a move to certied organic

production, DANIDA oered an $800,000 grant

to GADC to und extension services that would

provide training to armers to help them make

the switch. DANIDA also oered to link GADC

with a Danish business partner, Illuminati Noir.They could assist with organic certication,

and also be a ready buyer or the company’s

organic cotton output.

GADC decided to take up the oer. Bruce says,

“GADC is a commercial company that also

produces a social benet. We need to make

money, so that is how we make our decisions.

We could see that moving to organic would be

good or the armer, but without the DANIDA

grant, we couldn’t run the extension services

as we wouldn’t make enough additional

money rom the business to justiy the up-

ront investment.”

Since then, the grant-unded extension servic-

es have helped more than 7,000 armers move

to certied organic production o cotton, as

well as to begin planting an additional organic

crop—sesame. This has resulted in average

crop yield rom a two-acre plot increasing rom$500 a year to around $1,200 a year, an im-

provement o 140 percent. By the end o 2012,

GADC expects that the extension services will

have helped 10,000 armers move to certied

organic production and consequently enjoy

dramatically improved livelihoods.

The support rom DANIDA alls in the prepare

stage, as it ocuses on improving the capabili-

ties o suppliers in order that GADC can scale

up production o a more socially benecial

product line. We saw in the case o IDEI-GEWP

that the level o investment required to pre-

pare the market in this stage could be pro-

hibitively high rom the rm’s perspective, but

could be very attractive rom the perspective o

the aid donor, and so it is in this case: guresshow that the overall income uplit or GADC

organic armers due to the DANIDA grant in

just one season is $2.4m, our times the value

o the grant (see Figure 11).

S o u r c e : G A D C ,

M o n i t o r A n a l y s i s

Grant $ /Farmer

OrganicFarmer2 CropsIncome

OrganicFarmer1 CropIncome

0

200

400

600

800

80 100

700US $

Spending and Income per Farmer

fiGuRe 11: Grant Expenditure vs AdditionalIncome Earned per Participating Farmer



Gr Trm• BP: The term ‘Base (or Bottom) o the Pyramid’ (BoP) popularized by the late Proessor C. K.

Prahalad1 in his book is widely used to reer to low-income communities that have historically

been excluded rom ormal markets. The World Resources Institute reports that there are 4 bil-

lion people in the BoP, with incomes below $3,000 in local purchasing power. Their incomes in

2002 PPP dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in

India. BoP markets are oten rural, poorly served, dominated by the inormal economy, and are

thereore relatively inecient and uncompetitive. Despite this, the BoP constitutes a $5 trillion

global consumer market in aggregate. 2

• inclusive Business: A business that provides a product or service that is clearly socially ben-

ecial to the BoP, based on a business model that is commercially viable and ideally scalable.

• iMPacT invesTinG: Actively placing capital in businesses and unds that generate social

and/or environmental good and at least return nominal principal to the investor. This report

is particularly interested in the placement o capital in inclusive businesses and unds that

invest in them.

• GRanT: A monetary or in-kind award provided to an organization, typically to achieve a

dened social or environmental benet, with no expectation o nancial return.

• caPaciTy BuildinG/Technical assisTance: An in-kind award to an organization tosupport the building o organizational capability and capacity, and/or enable project delivery.

This might take the orm o business advisory services, technical advisory services, research

services, organization-building activities or acilitation o linkages with partners, among others.

• PhilanThRoPic fundeR/donoR: An organization that provides grants and/or capac-

ity building to achieve social or environmental impact objectives. This would include private

or public philanthropic oundations, aid donors (bilateral or multilateral) and development

nance institutions.

• coMMeRcial viaBiliTy: A commercially viable rm or business model is one that is able

to sustain itsel and attract investment because earned revenues rom sales to customers

exceed costs, over time.

• oPeRaTinG aT scale: Serving a large number o target customers or suppliers within a

given geographic context. Previous Monitor reports on inclusive business have considered a

rm serving BoP customers to be at scale in Arica i it has reached 100,000 customers per

year, and in India, i it has reached 1 million customers per year. Likewise, a rm engaging

with BoP suppliers is considered to be at scale in Arica i it is serving 10,000 suppliers per

year in Arica, and in India, i it is serving 30,000 suppliers per year.

1 Prahalad C. K. (2004), The Fortune at the Bottom of the Pyramid, Wharton School Publishing

2 Hammond, A., Kramer W. J., Tran J., Katz R., Walker C. (2007), The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid,

World Resources Institute/International Finance Corporation

Monitor GrouP58



GENERAL

•AbbySarmac,Lemelson Foundation

•AjitKanitkar,Ford Foundation

•AmitBouri,Global Impact Investing Network

•AndresRico,TechnoServe

•AndrewFarnum,Bill & Melinda Gates Foundation

•AnilSinha,International Finance Corporation

•AntonyBugg-Levine,Nonproft Finance Fund

•AudreySelian,Rianta Capital •CharlyKleissner,KL Felicitas Foundation

•ChrisWest,Shell Foundation

•DavidPorteous,Bankable Frontier Associates

•DavidRobinson,Fuqua School o Business,Duke University

•DurreenShahnaz,Impact Investment Exchange Asia

•ErikSimanis,Center or Sustainable Global Enterprise, Cornell University

•FredOgana,TechnoServe

•GeetaGoel,Michael and Susan Dell Foundation

•GuyStallworthy,Bill & Melinda Gates Foundation

•HaroldRosen,Grassroots Business Fund

•HomiKharas,Brookings Institution

•KellyClark,Marmanie Consulting Ltd.

•LesterCoutinho,Packard Foundation

•LouisBoorstin,Bill & Melinda Gates Foundation

•MattBannick,Omidyar Network

•MonaKachhwaha,Caspian Advisors

•NeeraNundy,Dasra

•OliverKarius,LGT Venture Philanthropy

•PatrickMaloney, Imprint Capital

•PuneetJhaharia,Grassroots Business Fund •ReubenAbraham,Indian School o Business

•RobertKraybill,Impact Investment Exchange Asia

•SandeepFarias,Elevar Equity Advisors

•SimonBishop,Shell Foundation

•VarunSahni,Impact Investment Partners

•VijayMahajan,BASIX India

•VineetRai, Aavishkaar

•VishalMehta,Lok Capital

•WolfgangHafenmeyer,LGT Venture Philanthropy

COMPANY ANALYSIS

•AlDoerksen,International Development Enterprises

•AmitabhaSadangi,IDEI and GEWP

•SureshSubramanian,IDEI and GEWP

•OmPrakashSingh,GEWP

•PradipNawale,GEWP

•KarthikJanakiraman,ex-Acumen Fellow at GEWP

•KathyLombardo,Bill & Melinda Gates Foundation•BruceRobertson,Gulu Agricultural

Development Company

•WarwickThomson,DANIDA

•Dr.JordonKassalow,VisionSpring

•PeterEliassen,VisionSpring

•PritpalMarjara,VisionSpring

•VikramRaman,ex-Acumen Fund Health Manager

•LauraHattendorf,Mulago Foundation

•Dr.SonoKhangarani,MicroDrip

•SaqibKhan,ex-COO MicroDrip

•JoelMontgomery,ex-Acumen Fellow at MicroDrip

•TariqKhanBaluch,ex-FMiA CEO

•MichaelMcCord,MicroInsurance Centre

•MarianneVermeer,ex-Senior AcumenFellow at FMiA

•EvelynStark,Bill & Melinda Gates Foundation

•JohnPott,Former Project Director at Aga Khan Agency or MicroInsurance

•PeterWrede, International Labour Organization

•GyaneshPandey,Husk Power Systems

•SimonDesjardins,Shell Foundation

•MarioFerro,ex-Acumen Fellow at Husk

Power Systems•NatRobinson, Juhudi Kilimo

•RashidBajwa,National Rural Support Program(Pakistan)

•PratyushPandey, DripTech

•DavidKuria,Ecotact

•KhurramHussain,ex-Acumen Fellow at Ecotact

•SaleemIsmail,Western Seed Company

•ShaneHeywood,ex-Acumen Fellow at Western Seed Company

•SatyanMishra,Drishtee

•JustinDeKoszmovszky,SC Johnson

•ChuckSlaughter,Living Goods

•LaurieThomsen,KickStart

Individuals & Organizations

Interviewed for this Study

FROM BLuEPRINt tO SCALE 59



Recommended Reading

Investing for Social and Environmental Impact:

A Design for Catalyzing an Emerging Industry

Jessica Freireich, Katherine Fulton (January 2009)

Tis t xis it isti xs s

u t t iusty’s uti is its utitit i t . It xs it isti s

it it , iui fs i i-

t ists. T t s is uit iititis t

tyz t iusty.

Emerging Markets, Emerging Models

Ashish Karamchandani, Mike Kubzansky,

Paul Frandano (March 2009)

Tis t uss t tu is, is, usiss

s sussu ‘kt-s sutis’ i Ii. Fiis

s t 600 i-s itis it -i us-

ts s suis, ti itis it s

270 si tiss.

Promise and Progress:

Market-Based Solutions to Poverty in Africa

Mike Kubzansky, Ansulie Cooper, Victoria Barbary (May 2011)Tis t is si ysis fiy susti-

tiss tt ss s ty. It is t sut

16-t s jt t tis 439 tis-

s ss 14 sts, i i su-S tis. T us is

usti t is, is, usiss s

sussu iusi tiss.

To download The above reporTS, go To www.mIm.monITor.com

MONITOR PUBLICATIONS

MONITOR GROUP60

http://www.mim.monitor.com/





th a h b h Pai

C.K. Prahalad

(WhartonSchoolPublishing,2004)

th n 4 bii:mak Siz a bsiss Sa a h bas h Pai

Allen Hammond, William J Kramer, Julia Tran, Robert Katz, Courtland Walker

(WorldResourcesInstitute/IFC,2007)

Ipac Isi:

tasi H w mak m whi maki a dic

Antony Bugg-Levine, Jed Emerson

(Jossey-Bass,2011)

Ciai Ipac Capia:

A n Appach Isi i Sa a gi bsisss

John Kohler, Thane Kreiner, Jessica Sawhney

(SantaClaraUniversity,2011)

Iais, Sp 2011 –

SoCAP11 Ipac Isi Spcia eii

Philip E. Auerswald, Iqbal Z. Quadir (Editors)

(MITPress,2011)

th Ipac Is’s Hak:

lsss h w micfac

Paul Cheng (Editor)

(CAFVenturesome,2011)

other PuBlicAtionS




The auThors wish To express Their hearTfelT graTiTude To:

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MONITOR GROUP62



ashish karaMchandani is a Partner at Monitor Group based in Mumbai. Ater seven

years o leading Monitor’s consulting business in India, Ashish ounded Monitor Inclusive

Markets (MIM) to catalyze market-based solutions to create social change. He has led

MIM’s extensive eorts over fve years to kick start the low-income ownership housing

market representing untapped commercial potential o over $220 billion, working with

entrepreneurs, developers, fnance companies and major corporates. In 2008, Ashish co-

led a oundational study o inclusive business models in India, looking at over 300 enter-

prises across sectors including healthcare, water, education and livelihoods, culminating

in the groundbreaking Emerging Markets, Emerging Models report. Ashish has a B.Tech

rom IIT Bombay, a M.S. rom Berkeley and a PhD. rom Stanord University. With his wie

Vibha Krishnamurthy, Ashish also runs Ummeed, a nonproft organization or childrenwith developmental disabilities.

harvey koh is an Associate Partner at Monitor Group based in Mumbai. Harvey is

a leader in the Monitor Inclusive Markets (MIM) India unit with responsibilities in the

low-income housing and clean drinking water programs. Previously at Monitor, Harvey

was a senior manager based in London ocusing on competitive and growth strategy or

corporate clients across a range o industries. He also worked on public policy issues in

the UK and elsewhere. For our years, Harvey was the ounding head o programs at Pri-

vate Equity Foundation, a venture philanthropy and social investment und established

in London by leading U.S. and European private equity frms. Harvey has also worked with

The One Foundation, a pioneering European venture philanthropy und, and social sectoradvisors New Philanthropy Capital. Harvey was born and raised in Malaysia, and edu-

cated at Cambridge University.

robert katz is Knowledge Manager at Acumen Fund based in Mumbai (until Febru-

ary 2012). Rob leads Acumen’s eorts to understand where markets work—and where

they don’t—in helping to solve the problems o poverty. In practice, Rob is responsible or

applied research and writing eorts across the frm, and also oversees Acumen’s knowl-

edge management systems. Beore Acumen Fund, Rob worked with the Markets and

Enterprise Program o the World Resources Institute (WRI), where he began his work on

‘Base o the Pyramid’ business approaches to poverty alleviation. At WRI, he co-authored

The Next 4 Billion: Market Size and Business Strategy at the Base o the Pyramid, andco-ounded www.NextBillion.net, a web site and blog about enterprise and development.

Rob earned his B.A. in Political Economy rom Georgetown University.

This report is based on research funded by the Bill & Melinda Gates Foundation. The findings and conclusions contained within are those of the authors and do not necessarily reflect positions or

policies of the Bill & Melinda Gates Foundation.



Monitor Group has more than 25 years o experience working with leading corporations,

governments and social sector organizations to drive transormative growth. The frm

oers a portolio o strategic advisory, capability building and capital services or clients.

WWW.MONITOR.COM

Monitor Inclusive Markets (MIM) is a specialized unit within Monitor Group. Since 2006,

MIM has ocused on identiying, understanding, developing and catalyzing investment in

business models that engage the poor in socially benefcial markets.

WWW.MIM.MONITOR.COM

Acumen Fund is working to create a world beyond poverty by investing in social enterprises,

emerging leaders and breakthrough ideas. We invest patient capital in business models

that deliver critical, aordable goods and services to the world’s poor, improving the lives o millions. Since 2001, Acumen Fund has invested more than $70 million in enterprises that

provide access to water, health, energy, housing, education and agricultural services to low-

income customers in South Asia, East Arica and West Arica. We are building a network o

emerging leaders who are equipped to create a more inclusive world through the tools o

both business and philanthropy, and we actively share our insights - gained in more than

Monitor

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from blueprint to scale - case for philanthropy in impact investing

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