Theme 2: Meeting Demand at the Household Level

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  • KenCaplan
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Theme 2: Meeting Demand at the Household Level

Last week, Amaka Godfrey and Lillian Mbeki led a helpful opening discussion around sanitation marketing and financing as approaches to increasing access to sanitation (on the SuSanA Forum but see also ). This week, Emily Endres and Nicola Greene invite you to continue the conversation, this time focusing particularly on local entrepreneurs that offer sanitation products and services, either formally or informally.

First, an introduction to the facilitators for this week: Nicola Greene is a sanitation consultant currently working for UNICEF ESARO where she is focused on understanding how UNICEF can best engage with the private sector to increase access to improved sanitation facilities across the region. Previously, she worked as a Sanitation Engineer with Water for People Malawi to enhance supply and demand for sanitation products and services from small scale entrepreneurs in the Blantyre region. She holds a PhD from the Water, Engineering and Development Centre (WEDC), Loughborough University.

Emily Endres currently works with Results for Development Institute’s (R4D) WASH Impact Network, which brings together local WASH innovators in India and East Africa to collaborate and overcome shared challenges. Previous to her work with R4D, she held a Technical Advisor position at Population Services International (PSI) in Laos working on a rural sanitation marketing program with the Water and Sanitation Program of the World Bank.

Meeting Demand at the Household Level

In many ways, business owners acting in the sanitation market have goals and interests aligned with those working to end open defecation. Sanitation entrepreneurs seek to increase their customer base and sell more products or services, while development organizations and governments seek to increase the number of people with access to those products and services. By working together, entrepreneurs benefit from capacity building opportunities, financing, marketing and sales support that are often key components of sanitation marketing programs, while development organizations and governments benefit from making their investments in sanitation go further by leveraging the strengths of the private market to reach more people more sustainably.

However, there are also misalignments in the goals of private sector actors and development organizations or governments. For example, some entrepreneurs may reach their profit goals by reaching fewer people with a higher margin product. This business model, however, does not necessarily help development organizations or governments meet their goals, because they are aiming to reach the greatest number of people with sanitation products and services, including poor and vulnerable populations. Further, populations that live in remote areas may be target populations for development organizations and governments, but would not be target customers for businesses because the cost of delivering products and services to hard-to-reach areas would outweigh the potential revenue they might earn from that community.

In addition, some development approaches directly interfere with the viability of private businesses, making partnership difficult. For example, the widespread use of sanitation subsidies has discouraged market growth in many areas. In addition, many informal sanitation entrepreneurs are hesitant to collaborate with governments because of prohibitive registration requirements or because of perceived threats to the way that they do business.
These issues, among others, point to some of the challenges in working with the private sector to achieve development goals. In this discussion for the next week, let’s explore these challenges and what has been learned about the best (and worst) ways of working with sanitation entrepreneurs of all kinds.

Here are a few guiding questions to get us started:

1. What are the enabling conditions necessary to stimulate growth in the sanitation private sector? How are small and medium sanitation businesses best supported and positioned for long-term success?

2. How are issues of equity best addressed in market-based solutions to sanitation coverage? Is there a way that subsidies can be used to ensure equity without distorting the market?

3. What are some worst practices in working with sanitation entrepreneurs? What can we learn from our mistakes?


Quick References

In addition, here are a few of our favorite publications on sanitation as a business that I found particularly thought-provoking and insightful (and importantly, easily readable). Share your own favorites if I’m missing any good ones! Huge thanks to SuSanA for making these publications so easily accessible.

1. HYSTRA paper on Designing the Next Generation of Sanitation Businesses (Full Text ) and Summary by iDE

2. Building Partnerships for Development, “Sanitation—Just Another Business? The crucial role of sanitation entrepreneurship and the need for outside engagement.” here

3. International Finance Corporation (IFC), “Transforming Markets, Increasing Access: Early Lessons on Base-of-the-Pyramid Market Development in Sanitation.” link

There is a wealth of information and experience out there in utilizing collaborations between entrepreneurs and those working to end open defecation to maximize the impact and sustainability of WASH interventions. We’re excited to hear from a diverse group of people and see what we can learn from each other throughout the next week.

With best regards,
Emily, Nicola and Ken
Ken Caplan
Partnerships in Practice
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  • nicolag
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Re: Theme 2: Meeting Demand at the Household Level

Thank you Ken and welcome everyone, I will be assisting in guiding this conversation as I am very passionate about this area and still immensely confused about best practices despite my past year dedicated to enhancing small scale sanitation businesses in Malawi.

For me the core sentence from that introductory text is this: "some entrepreneurs may reach their profit goals by reaching fewer people with a higher margin product". and thus they may not reach 'our' development targets. This is touched upon in all of the questions really.

What level of business owner can I convince to reach the poorest when (a) for emptying, there are high level customers who will pay a lot more for services (in particular NGOs and institutions)(b) for construction, there are people who want house etc. and have much easier to finance than BoP customers who need their first latrine.

There was an emptier in Malawi who claimed to cross subsidise his poorer customers with profits from 'the rich' - but for the average business owner who may not have social/personal goals to make the service reach the poor - can this really be your target customer base?
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  • vpost
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Re: Theme 2: Meeting Demand at the Household Level

Meeting household demand;

Having missed out on the first week of the discussion I just jump in somewhere. Nice to be in touch again Nicola.

I will assume that a genuine and effective household demand has been generated – this actually is part of our (WASTE / FINISH) activities, awareness and need creation translating this through marketing efforts in demand and subsequently with financial inclusion in effective demand.

Meeting household demand means combining various requirements from the supply side. For now I focus on two only: Good quality products or systems at low prices or in other words typical bottom of the pyramid market characteristics. Starting with low prices this can be achieved by improving technical skills of those constructing (this reduces a lot of unnecessary expenses), standardising and aggregating demand so as to allow for bulk purchases. It has been our experiences that by doing this prices can be reduced by at least 38% for standard double leach pit systems. Much more of course if unnecessary expenses are calculated as well. Good quality requires skill training, including building capacities to recognise opportunities and the use of local materials. As an example in bamboo rowing areas bamboo is a material of construction (incidentally much more earthquake proof a well).

Ways to improve current systems; in countries where there are no sanitation standards (e.g. for pits or septic tanks) develop minimum standards. Technical skill training programmes for masons. General increase in acceptance of sanitation which would allow talented people to work in this sector.

Valentin Post, WASTE
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  • eendres
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Re: Theme 2: Meeting Demand at the Household Level

Thanks for your input, Valentin!

I think you're spot on when you highlight the impact that simply training entrepreneurs in the production of more efficient, low-cost latrine models can decrease cost of production dramatically. You also hinted at the need for softer skills training when you said there was a need for "building capacities to recognize opportunities."

In my experience in Laos, we learned that these softer skills were extremely important in ensuring the long-term success and sustainability of sanitation entrepreneurs. For example, a small business owner who produced an attractive, low-cost product may not succeed in the sanitation business in the long-term if they deliver the product late and disappoint their customers. Likewise, business owners who are trained to produce low-cost products and yet sell them for very high margins to a few wealthier customers will not reach a high volume of consumers that are in demand of sanitation products. Finally, business owners who are not able to find and retain skilled workers may struggle to keep up with demand even if their products, marketing, and customer service are of high quality.

I am interested to hear from you and others if you have had similar experiences with sanitation entrepreneurs. How important are these soft skills in training sanitation business owners? Should these be standard practice in training curricula?
Emily Endres
Senior Program Associate

Results for Development Institute
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  • rezaip
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Re: Theme 2: Meeting Demand at the Household Level

Another great thread of discussion! Good to see so many professionals are working in the sanitation business area.

Enabling conditions
There is visibly huge sanitation-chain wide opportunities for SME entrepreneurs, particularly at the household level, given that the regulatory authorities have enforced the sanitation laws. Let’s start with containment which in most cases may not be compliant with septic tank / containment building rules, health and hygiene and wider environment. The masons and other service providers who can be certified with construction as per building codes can provide quality services and receive orders from households who would construct new / reconstruct old toilets. These service providers may also come with different estimates with materials, design and hygiene issues to offer choices to the clients. But for this to happen, regulation needs to be fully enforced. If there is design requirement for containment, it needs to be enforced. Second, sanitation products marketers / sellers will also cater to the needs of the household who seek after toilet solution at different budgets. What has not taken place till now is greater cooperation between sanitation product sellers and construction service providers. Partnerships between hardware sellers and service can bring about professional services to cater to household needs. To enable cooperation among the chain actors, association needs to be formed by the related actors and national and local authorities should initiate programmes and campaigns to make the entrepreneurs aware of the emerging opportunities. Third, faecal sludge collection can also attract a new group of small entrepreneurs to offer pit / containment collection services with affordable mechanical devices. For this to take place, among others, microfinance and other financial institutions should design new financial services to purchase mechanical devices keeping in mind the cash-flow of the collections services. Fourth, medium entrepreneurs can also get into the collection businesses using collection devices like smaller vacutugs to serve the households located in narrow alleys in urban centres. Moreover, mobile transfer stations can also be used by some entrepreneurs to play a role of intermediary collection point of faecal sludge. For this to happen, regulatory authorities need to recognize and legalize new types of vehicles than the traditional ones. From the experience in Bangladesh, it shows that vehicles likes vacutugs have yet to be categorized to be awarded licenses which is crucial to promoting private sector running collection services. Fifth, occupational health and safety (OHS) will be an integral part of the toilet installation and faecal sludge collection services. National and local authorities should develop OHS guidelines which in turn facilitate a new group of professionals to train emptiers and other sanitation professionals about the OHS which would eventually enable the emptiers / service providers to obtain relevant certification. These are some of the possibilities open to the sanitation-entrepreneurs upto the household level in the value chain.

Equity without Market Distortion
Understandably there needs to done more than the engagement of the private sector to ensure equity, particularly, to the inhabitants informal settlements in urban centres and isolated community in the rural context. These are area where intervention would be needed to make the sector lucrative to private sector. Cross subsidies, reduced rate of interest for the toilet construction and partially subsidized (by local / national government or CSR funds) subscription services to the settlement users are some of the ways to meet the challenges reaching out to the underserved.

Learning from Sanitation Entrepreneurship
Sanitation would be a new sector to explore and experience. As such to facilitate the sector-entrepreneurs both public and private sector needs to test a range of initiatives and learn from these. The authorities also need to see what kind of interventions (e.g. promotion, campaign, incentives etc.) / progammes work better than the others and the underlying factors like the tendency of non-conformity to occupational health and safety by the privates sectors. However, these areas are also the ones where local authorities have a lot to catch up and regulatory authorities need to formulate guidelines.
Reza Patwary
WaSH Business Advisor
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  • Marijn Zandee
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Re: Theme 2: Meeting Demand at the Household Level

Dear all,

Some quick thoughts on the guiding questions. Fully realizing that many of my ideas are very difficult to realize in practice :(.

1.) Supporting entrepreneurs.
Entrepreneurs are not likely to invest (in skills, materials, tools, etc.), if there is no stable environment. Rules should not only be enforced (as mentioned above), but they should also be transparent, consistent and not change every few years. For the larger donors working at the policy level, this means effectively that planning horizons should at least double (from 3 to 6 years).
A line of credit below market rates (or soft loans), should be considered in countries with very high borrow cost.
In my experience in Nepal, many entrepreneurs are simply good sales people. Skills like accounting, data management, comptrolling and market insight sre often lacking. Besides technical trainings, these kinds of skills need to be improved. I think this would be true in many other countries as well.

2.)Subsidies without market distortion.
I am convinced that some subsidies will be needed. There is a segment of the population (say 10-15%) who simply cannot afford a dignified and safe toilet. I think the key is to build a market and supply chain that functions independent of subsidies. Then, the poorest segments of society (to be verified by local government??) can be assisted through something like a voucher system to purchase systems and services from suppliers. Subsidy money should never be routed through the suppliers directly!

3.) Bad practices
-Creating a market with subsidies, with the intention of weaning the entrepreneurs off subsidies later.
-Single training events, without follow-up
-Community motivation without follow-up
Marijn Zandee

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  • daoporto
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Re: Theme 2: Meeting Demand at the Household Level

Dear all:

Nice discussion, I missed the last week's part.

Anyhow, from my experience in the field, I always recommend NGO's and donors categorize the low-income households in three groups/categories by income level, at least. In general, we tend to make some conclusions about low-income families, treating them as a homogenous group, and they are not. Market segmentation is needed to create enabling conditions to stimulate growth.

If we agree that 'meeting the demand' is a role for the private sector, then we can always find different actors interested in creating, supporting and triggering that demand, including microfinance institutions, masons, hardware suppliers, small entrepreneurs/enterprises, among others.

However, as some of you already addressed, the level of subsidies and distortions is always a barrier for the private sector, as some NGO's and local governments, tend to give toilets away, even though some families can afford to buy a toilet under market mechanisms. In my opinion the overuse of 'blind subsidies' in the on-site sanitation sector, is the primary cause that harms private sector's interests in this area.

In my experience in Vietnam and Latin America, even in the case of the poorest of the poor, there are sustainable mechanisms that can improve the access to sanitation, avoiding the direct subsidy; especially if we want to bring the private sector's attention and meet the demand at the household level.

At last, sometimes subsidizing sanitation entrepreneurs has been a common (bad) practice in this field. Entrepreneurs' selection, incubation or acceleration, should always follow a competitive process to avoid another type of market distortions. At the same time, sanitation entrepreneurs should always allocate cash contributions, as eligibility criteria.
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  • eendres
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Re: Theme 2: Meeting Demand at the Household Level

Thanks for really stimulating comments, everyone. Here is a quick summary of your comments and some follow-up questions.

Enabling Conditions
- Regulations and standards need to be designed and enforced from local authorities, but they should be transparent and consistent.
- The purchase of equipment should be facilitated through interest-free or low-interest loans, microfinance, and licensing of a wider range of FSM equipment.
- Soft skills training is needed for entrepreneurs in topics such as accounting, data management, comptrolling, and market insight.
What's missing from this list? How else should sanitation entrepreneurs be set up for long-term success? What else is needed in an enabling environment?

Supply Side Subsidies
- There is general consensus that supply-side subsidies distort the market and are inappropriate interventions.
- However, Nicola Greene commented on the WSSCC CoP forum for this discussion via LinkedIn with two examples of supply side subsidies being used to enforce good practices such as the use of safety equipment and dumping at treatment facilities instead of into the environment.
What are your responses to Nicola's examples? Are there certain conditions under which supply side subsidies could work?

Demand Side Subsidies
- To avoid market distortion, subsidies for low-income consumers should be segmented and subsidies should be well-targeted, and non-traditional subsidy mechanisms should be utilized such as subscription services and cross subsidies.
What other subsidy mechanisms are out there that have worked to provide more equitable access to sanitation products and services without harming entrepreneurs?
Emily Endres
Senior Program Associate

Results for Development Institute
Washington, DC
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