Interesting that you mention cooperatives; yes I think something could be learned from the "Raiffeisen" cooperatives in central Europe. Basically those are cooperatives that took the role of agricultural middle-men in offering a distribution chain to farmers, but also many additional services like micro-finance and local small hardware stores for everything a small farms needs. They have been very successful for more than 100 years now, and in some countries they even took over a significant part of the banking sector.

Dear Julius and others,

I have been wondering about this market maker problem as well. I think a coop like structure mixed with a franchise system would possibly work. There would be a central organization that standardizes a number of designs, service packages and promotion materials. Then private sector companies, like hardware shops, can be come members / franchise takers. The staff of the shops would have to be trained and their work audited to make sure their work complies with the standards of the central organization.

The individual shops profit from advertizing and promotion done by the central organization and their product would have a brand name. Certain economy of scale advantages would work for the companies also. The central organization could be a semi-for profit. ie.: it is a commercial entity, but does not give dividend to shareholders but puts profit back into marketing, product improvement, R&D, etc.

Does anyone here know of a sanitation venture based on such a model? And how did it fare?

Kind regards

Marijn Zandee

Interesting study.
One general remark: this and other studies have shown that convenience and safety are pretty much the main reasons why people are interested in owning a toilet, yet designs are not adjusted towards this. It's still the same old "out-house" pit-latrine mentality, that is both unattractive to potential buyers and also relatively expensive in regards to the super structure.

aroonvijaykar wrote:

In both models, a central player or ‘market maker’ could help by conducting market-building activities to get the models started, and create an enabling environment for growth; organizations such as NGOs, MFIs and cement companies can play this role.

MFIs, in particular, can play a key role. Apart from customer financing, MFIs can act as enablers, helping raise awareness and drive demand for specific products (through pamphlets, etc.), and maybe even perform quality control and mason training, incubate new value chain players, etc.

Yes, a market maker is needed, however I don't think MFIs (or cement makers for that matter, as that is a too tiny fraction of their business) are a good candidate for that. Already now MFIs struggle with too high over-head costs resulting in extremely high interests rates and bloated administrative structures. I guess this is due to the history of most MFIs as being somewhat like NGOs with outside funding.
Of course this could be continued, e.g. outside funding support given to the MFIs to play that role, but would you rather invest that money to build up a real supply chain, or to continue support unsustainable MFI structures?
MFIs rather need to become more lean and focused on their core business.

Maybe there are some ceramics manufactures, or other smaller scale local producers of home improvement materials?
Edit: In rural areas, agricultural value chain middle men who are already in the business to supply inputs like fertilizers and tools/machines etc. could be potential market makers. They have been already identified as important stakeholders for giving access to micro-finance and micro-insurance and they have the logistics and supply chain in place for the most part.

Monitor Inclusive Markets (MIM) has written a white paper titled “A Market Led, Evidence Based, Approach to Rural Sanitation” (attached to this posting) on supply side market-based approaches to scale rural sanitation in India, based mainly on findings from the “Supporting Sustainable Sanitation Improvements” (3SI) project and supplemented by additional investigation of interventions in other parts of India.

Coming out of the 3SI project, many experts liked the results and the funder, the Bill & Melinda Gates Foundation (BMGF), felt that the findings would be worth sharing with the broader sanitation community. As such, with the support of BMGF, MIM has developed this white paper to disseminate the findings.

Please visit www.inclusive-markets.org/sanitation to see a more complete set of outputs from the 3SI project.

Key highlights of the white paper:

• Sanitation is a major global issue with over 1Bn people defecating in the open, and 2.7Mn dying annually due to lack of access to hygienic sanitation, including many children
• The issue is acute in India – of all the people in the world who defecate in the open, a majority (600Mn) live in India; and of all the people who live in India, more than half defecate in the open - 67% of rural Indian households (116Mn households) do not have toilets.
• The Government of India recognizes this issue and has approved funding of over INR 20,000 crores (USD 4 Bn), but less than 60% of these funds have been used and data from the census indicates that many of these Government supported toilets may be non-existent or not-in-use.
• Contrary to popular belief, demand for toilets exists in rural India – 84% of households surveyed in Bihar indicated their desire for a toilet and 38% of these households had actually researched available product options. Safety of women, convenience and privacy as opposed to health are key drivers – in fact less than 1% cited health as a key driver for wanting a toilet.
• Current products in areas like Bihar are septic tank options or modified versions and cost at least INR 20,000 (USD 400), which is beyond the reach of most rural customers.
• Our research and the experience of various organizations indicate that it would be possible to construct and deliver quality, long-lasting leach pit toilet options at a price of INR 7,000-10,000 (USD 140 to 200) by making judicious design choices.
• However, availability of a more reasonably priced product by itself may not be sufficient to drive significant toilet penetration, due to low incomes and irregular income patterns in rural areas.
• Financing of 70% of the cost, through 18 to 24 month loans at 24% interest rates and monthly payments of Rs.250 to 500, would enable 16 to 20% of households without a toilet to afford one. A further 40-45% would be able to afford a toilet if provided part subsidy (e.g., the current government NBA subsidy of INR 4,600 or USD 92). The remaining 35 to 40% would require a full subsidy (e.g., as provided by Government schemes such as NREGS).
• This could lead to a INR 500-700Bn (USD 10 -14 Bn) opportunity to deliver toilets, and an INR 300-450Bn (USD 50 – 90 Bn) opportunity for financing
• The multiple business models to deliver such toilets can be broadly classified into a Do It Yourself (DIY) model and a Turnkey Solution Provider (TSP) model, each with its advantages
• In both models, a central player or ‘market maker’ could help by conducting market-building activities to get the models started, and create an enabling environment for growth; organizations such as NGOs, MFIs and cement companies can play this role.
• MFIs, in particular, can play a key role. Apart from customer financing, MFIs can act as enablers, helping raise awareness and drive demand for specific products (through pamphlets, etc.), and maybe even perform quality control and mason training, incubate new value chain players, etc.
• The Government is a key player and can facilitate development of the sanitation market by developing cost-effective standard designs, funding demand generation, ensuring efficient transfer of subsidy, and helping financing companies access lower-cost funds for on-lending.
• Scale pilots are currently underway through PSI in Bihar, MFIs like Grameen Koota and Guardian in the south and players like Water.org enabling other organizations to give credit.

MIM will be holding a series of six open conference calls to discuss the key findings of the white paper as well as to field questions and hear feedback. The conference calls will be held on the dates and times below. Please RSVP to This email address is being protected from spambots. You need JavaScript enabled to view it. in order to receive dial-in information and materials for the calls.

• January 16, 8:30pm IST
• January 29, 9:30pm IST
• February 12, 10am IST
• February 25, 10am IST
• March 5, 9:30am IST
• March 13, 9:30pm IST

We hope organizations working on scaling sanitation might be be able to apply learnings from the work here to their specific circumstances. Please join us for any of the conference calls above to carry the discussion forward!

---
Introduction:

Monitor Inclusive Markets (now a unit of Deloitte Touche Tohmatsu India Pvt. Ltd.) is dedicated to identifying, understanding, developing and catalyzing investment in business models that engage the poor in socially beneficial markets. Our strength is in understanding how to make these business models work and how to get them to scale.

I am a Senior Consultant with Monitor Inclusive Markets and have been focusing on our work in the Sanitation space. As of late, this means disseminating our white paper and seeing how organizations on the ground can use the information here to effect! I joined Monitor Inclusive Markets in Mumbai after spending a few years in the commercial practice of Monitor Group, a strategy consultancy, in San Francisco.