The Sanitation Technology PlatformPlease Note: This report is a good faith effort by RTI International to accurately represent information available via secondary and primary sources at the time of the information capture. The report is confidential and proprietary and only for internal uses and not for publication or public disclosure.

THE SANITATION SOLUTIONSBusiness Models for Access

MARCH 2016

Task Objectives and Project Approach

Overview

Models and Case Studies

Insights

TABLE OF CONTENTS

TASK OBJECTIVES AND PROJECT APPROACH

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It is challenging to develop social-impact-focused business models that scale in developing and emerging economies. Over the course of the past decade, social entrepreneurs have developed ventures intended to provide marginalized communities access to latrines and fecal waste management. These models have had mixed success, but a few show early signs of the potential to scale. Analyzing the business models of these firms may shed light on models for other sanitation-focused businesses to consider when establishing new ventures in the sector.

This study was designed by STeP to understand best practices in developing scalable business models in the water, sanitation, and hygiene (WSH) sector and provide insight into how firms do (or do not) create, deliver, and capture value within sanitation businesses.

Omitted from this report are product innovations that leverage a traditional sales channel or business model such as Eram, which sells directly to the public sector, or Banka Bioloo, which typically sells to the private sector.

“Creativity is just connecting things”—Steve Jobs

For partners, STeP explored social-impact-focused business models that scale through The Business Model Canvas.

METHODOLOGY

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ApproachSTeP’s approach to this study was to:

• Aggregate secondary information sources,

• Analyze publicly available data to identify patterns,

• Model identified categories on a business model canvas, and

• Extract transferable insights.

Data CollectionSTeP gathered data from:

• Organization Web sites and annual reports,

• Videos,

• White papers, and

• Published reports.

We aggregated secondary data to quantify and qualify information, then placed it on the Canvas.

Task Objectives and Project Approach

Overview

Models and Case Studies

Insights

TABLE OF CONTENTS

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The Business Model Canvas breaks down into nine key elements, which help to identify patterns across ventures.

OVERVIEW

What resources are essential to delivering on the value proposition?

How and where will customers buy the product, learn about the product, or know about the product?

For whom are you creating value?

Who are key suppliers? Who provides financing (strategic alliance)? Who will assemble or install offerings?

Revenue

Partners

Cost

Key Resources

What activities deliver on the value proposition?

What pain points does the venture address?

How will you interact with customers?

Channel

Customer SegmentValue Proposition Customer RelationshipKey Activities

What drives cost in the business?

How does the business make money?

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

STeP analyzed 35+ sanitation ventures and identified three common business model innovations for deep analysis.

OVERVIEW

Microfinance Microfinance institutions (MFIs) provide low interest rate loans to urban

and rural poor users.

Franchise Local entrepreneurs purchase a latrine business and charge usage fees.

Subscription Users pay a subscription fee to use latrines, sometimes as part of

a larger community sanitation center.

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Each model has positive and negative aspects to consider when thinking of innovative sanitation business models.

OVERVIEW

MODEL PROS CONS

Microfinance Makes latrines affordable by covering upfront capital costs

User has sense of latrine ownership Typically in-home latrine access

Demand generation dependent on nongovernmental organizations (NGOs)

Screening of potential applications can be time-consuming and expensive for MFIs

Loan provider assumes higher risk

Franchise Local entrepreneurs are empowered No capital cost to latrine users Job creation in community (e.g., franchise owner and

latrine servicer)

Success dependent on local entrepreneurs investing in franchise

Latrine users have no sense of latrine ownership; could lead to mistreatment of latrine

Subscription No capital costs to latrine users; affordable fee structure

Provides in-home access Job creation in community (e.g., latrine servicer) Latrines are often part of a community center,

providing greater incentives to latrine users

Semipermanent structure Requires external (philanthropic) support to cover

latrine costs

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Task Objectives and Project Approach

Overview

Models and Case Studies

Insights

TABLE OF CONTENTS

• Microfinance• Franchise• Subscription

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MFIs create access by extending loans to the poor that cover upfront capital costs.

MICROFINANCE

MFIs are organizations that offer small loans and other financial services to low-income populations. Within the WSH sector, MFIs often partner with sanitation education NGOs to supply small, low interest rate loans to urban and rural residences to cover the upfront capital cost to install and/or upgrade latrine and access sanitation services. These loan services create access to in-home or community sanitation solutions. It has been seen that those who receive microfinancing to aid in their access to basic needs see improvements in household economic welfare. For example, Grameen members who received loans from Gramalaya Urban and Rural Development Initiatives and Network (GUARDIAN) saw a 43% increase in income compared to nonprogramvillages.

According to the Consultative Group to Assist the Poor (CGAP), unlike traditional microloans, loans for water and sanitation are typically offered in conjunction with a much broader set of services, including:

• Creating demand,

• Assisting communities with technical aspects of construction,

• Liaising with government for approval of household connections,

• Ensuring appropriate end use of the loan, and

• Monitoring functionality and usage of the infrastructure.

MFIs typically partner with NGOs to carry out the above nonfinancial activities.

Examples of MFIs within the WSH sector.

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The microfinance model creates a pathway to latrine owner-ship for the poor, while creating a revenue source for MFIs.

MICROFINANCE

Urban and rural poor without access to latrines

Access to capital for toilet ownership

CUSTOMER SEGMENT

VALUE PROPOSITION High-touch, including in-

person interviews, follow-on visits around repayment, and confirmation of proper loan use

CUSTOMERRELATIONSHIP

MFI branchesCHANNEL

REVENUECollection of interest rates from issued loans

Improved health leading to improved economic outcomes

Collection of loan service fees

In some cases, collection of loan defaults

NGO hygiene education and awareness camps

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

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The microfinance business model relies heavily on partner-ships for loan capital and education to increase latrine use.

MICROFINANCE

National banks (loan capital)

PARTNERS

Risk management

KEY ACTIVITIES

Access to loan capital

KEY RESOURCES

COSTLoan officers

NGOs (hygiene education and demand generation)

In some cases, latrine suppliers

Cost of capital

Loan collectionHygiene education

Loan officers

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

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MICROFINANCE

GUARDIAN, established by the nonprofit Gramalaya, is an MFI that offers loans for water and sanitation infrastructure.

AboutGUARDIAN is an MFI and nonprofit organization that was established by Gramalaya, a health and hygiene education nonprofit that assists with the construction of low-cost sanitation solutions. GUARDIAN lends only for water and sanitation projects and has a high-touch loan application process that has resulted in 1,200 loans to 100% women and has seen a repayment rate of 95.6% as of May 2015.

Programs in SanitationGUARDIAN loans are provided to married women who are members of existing self-help groups (SHGs) or joint liability groups (JLGs). These women must have their own home, be between the ages of 18 and 60, agree to repay the loan in 18 monthly installments, and use the loan for its intended purposes. To ensure proper loan use, field staff frequently visit, coordinate, and guide loan customers by helping to select locations for latrine construction, assisting with water connections, assisting with material purchase, and monitoring the completion of construction and usage of the facilities. GeographyFour districts of Tamil Nadu, India

Source: www.guardianmfi.org

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Case Study: GUARDIAN microfinance-based business model leverages SHGs and enables in-home latrine ownership.

MICROFINANCE

PersonnelCredit officer and loan officer

Interest on Loans21% interest rate for new toilet construction or renovations (as of May 2015, repayment rate is 95.6%)

FeesLoan processing fee is 1% of loan; insurance and administrative fees for 2 years are 100 Rs (USD 1.51)

Capital from national banks, loan officers, and credit officer

Access to a microloan to purchase an in-home latrine, which will reduce illness and enable future earning potential

MFI branches, health workers, and field staff education sessions

Rural, urban, and tribal women in SHGs in Tamil Nadu, India

In-person loan interview and weekly home visits to help with infrastructure, construction, and ensuring proper usage

Education NGOsGramalaya, WaterAid UK, and Water.org

Promotion to SHG

Securing capital for loan

National BanksIndian Overseas Bank and National Bank for Agriculture and Rural Development

Risk mitigation on loans

CUSTOMER SEGMENT

REVENUE

VALUE PROPOSITIONPARTNERS

COST

CUSTOMER RELATIONSHIP

CHANNEL

KEY ACTIVITIES

KEY RESOURCES

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

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Franchising promotes latrine access as well as new economic opportunity for the local franchisees.

FRANCHISE

A franchise typically involves one party (the franchisor) granting another party (the franchisee) the right to carry either a particular name or trademark, usually within a territory or location, for agreed upon terms. The franchisee is granted a franchise license to use the franchise company’s trademarks, systems, signage, and other proprietary tools in exchange for an upfront franchise or licensing fee and, in some franchise relationships, a portion of the revenue the franchisee collects.

In sanitation service franchises, the franchisor develops a sanitation system and process, which they sell to franchisees. In return for a licensing fee, the franchisor constructs the community toilet block for the franchisee. The franchisees are responsible for daily operations, including payment collection, cleaning, and generating user demand for the community toilet. The franchisor frequently collects the waste, and, in some cases, the waste is further processed to create value add products such as electricity or compost. At each step, jobs and opportunity are created while addressing serious social needs.Examples of ventures using a franchise model:

The value-generating side of the franchising models shows incentives between the franchisor and franchisee.

FRANCHISE

CUSTOMER SEGMENT

Safe and clean latrine access

CUSTOMER RELATIONSHIP

Community events

CHANNEL

Community latrine users

REVENUE

Opportunities to own a sanitation business and increase livelihoods

Franchisee Franchisor

Collection of per-use payment when users visit latrine

Entrepreneurs

Franchise sales team presentations at community events

Usage fees (which may be shared with franchisor) and, in some cases, sales from complementary products

Landlords

Ongoing training and business support and infrastructure service support

In some cases, a portion of franchisee-collected usage fees

Licensing fee from franchisee

Sale of transformed waste

VALUE PROPOSITION

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).16

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Franchisors benefit from empowering the franchisee with marketing and advice for generating demand for their toilets.

FRANCHISE

Franchisee

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

Cleaning toilet, collecting usage fees, generating toilet demand, and, in some cases, selling complimentary products

Site location for toilet

Franchisor

Franchisor, MFI, and, in some cases, latrine supplies and labor to install

PARTNERS KEY ACTIVITIES

KEY RESOURCES

COST

Franchise sales, branding and marketing, and, in some cases, installation and waste conversion/ treatment

Franchisee, MFI, and, in some cases, latrine manufacturer

Trust and reputation, access to entrepreneurial talent, and, in some cases, waste transport and conversion assets

Cost of capital, human capital, and marketing

Franchise fee and, in some cases, cost of capital (if not covered by franchisor)

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FRANCHISE

Sanergy offers sanitation franchises to local entrepreneurs who provide pay-per-use community toilets.

AboutSanergy’s mission is to build and scale viable sanitation infrastructure in Nairobi, Kenya. Sanergy franchises its Fresh Life Toilet (FLT) to local entrepreneurs, who run the toilets as a pay-per-use business. Sanergy’s Fresh Life frontline team collects the waste daily and converts it into fertilizer and energy. Fertilizer is then sold to local farmers. Franchises are sold for roughly 50,000 Kenyan Shillings (USD ~489), and usage fees range from 2 KS to 6 KS (USD 0.02 to USD 0.06) depending on the franchisee. Programs in SanitationSanergy designs and manufactures low-cost sanitation facilities. FLTs are prefabricated at local workshops. Fresh Life operators (FLOs) are local entrepreneurs who purchase and operate FLT. Sanergy provides the FLT, training, access to financing, ongoing operational and marketing support, and daily waste collection by a Fresh Life Frontline team that transports the waste to Sanergy’s waste management center for treatment. Sanergy’s Fresh Life has created 779 jobs, including the Sanergy team, FLOs, and attendants hired by FLOs.GeographyNairobi, Kenya

Source: http://saner.gy

Case Study: Sanergy’s franchise-based business model couples income-generation with community access to latrines.

FRANCHISE

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

Local (potential) entrepreneurs

PersonnelSales force, waste collection employees, and waste conversion employees

Franchisor

Sales force speaks at village chief camps and village gatherings

Building prefabricated toilets, training franchisees, developing access for franchisee financing, marketing, and collecting daily waste

CUSTOMER SEGMENT

REVENUE

VALUE PROPOSITIONPARTNERS

COST

CUSTOMER RELATIONSHIP

CHANNEL

KEY ACTIVITIES

KEY RESOURCES

Donor grants

Management skills, capital funding, and waste transportation equipment

Quick launch and income-generating opportunity for local entrepreneurs while helping the community

Daily waste removal and ongoing training opportunities

Franchisee licensing fee (~USD 575)

Local entrepreneurs

Grants from nonprofits

Kiva (loan providers for franchisees)

Sale of transformed waste

Franchisee supportTraining, supplying prefabricated toilets, and operational and marketing support

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Subscriptions provide access to community toilets at no capital cost and charge a recurring fee for unlimited use.

SUBSCRIPTION

The subscription business model is a model where customers pay a fixed reoccurring price to have access to a product or service. Within the water and sanitation sector, latrines are provided for in-home or community use for free, and latrine users pay a recurring usage fee. In return, users have unlimited access during the agreed upon usage period (e.g., weekly or monthly). The toilet is not owned by the user; it remains the property of the company.

The company will service the toilet on a regular basis to include waste collection. Collected waste is often transformed into a new product, mainly energy or fertilizer. Some ventures provide in-home access, while others provide community access. Community latrines are often part of a community center that includes services such as banking, shops that sell hygiene products, and places to charge electronics.

Examples of ventures using a subscription model:

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Subscription fees are set at a reasonable price point for latrine users.

SUBSCRIPTION

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

Access to latrines with no upfront cost to users

Urban and rural, poor latrine users

Frequent, ongoing interaction through waste removal (daily/weekly) and fee collection

CUSTOMER SEGMENTVALUE PROPOSITION CUSTOMER RELATIONSHIP

Promotions in public gathering areas

CHANNEL

REVENUESubscription fees (includes waste removal)

In community toilets, sales of hygiene products

Word-of-mouth once client base is established

Door-to-door sales for in-home use

In some cases, sale of transformed waste products

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Several subscription business model companies currently have latrines donated by an NGO.

SUBSCRIPTION

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

Local government

PARTNERS KEY ACTIVITIES

Latrine design/manufacture

KEY RESOURCES

COST

NGOs/Government entities for substitutes

Donors

Capital for latrine if not donated by NGO, and installation labor

Acquisition of funds to purchase or build latrines

Brand/Reputation

Waste removal (often weekly)

In some cases, city waste treatment facility

Collection of subscription fees

Waste treatment resources

Sales team and contract team

Waste removal personnel

Sales and contracts staff

Latrine installation and latrine maintenance/ cleaning

Waste removal

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SUBSCRIPTION

The Clean Team is a for-profit social business that operates in Ghana.

AboutClean Team, operating in Ghana since 2012, was developed in partnership with WSUP (a nonprofit in the UK), Unilever, and IDEO. Unilever provided technical assistance and seed funding, and IDEO designed the business model and brand strategy.Programs in SanitationClean Team charges a monthly subscription fee for an in-home portable toilet that has waste collection two to four times per week, depending on the number of users. There is no upfront toilet cost to users because the toilets remain Clean Team’s property. Collected waste is disposed at a local city sludge treatment plant. Users pay anywhere from USD 8 to USD 15 per month depending on the frequency of waste removal.

Toilets are currently manufactured in China for USD 82, including manufacturing and shipping. Unilever owns the toilet models and hopes to reduce the per-unit cost by looking for local manufacturers.

GeographyKumasi, Ghana

Source: http://cleanteamtoilets.com

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Case Study: Clean Team subscription-based model delivers affordable access to latrines and services for communities.

SUBSCRIPTION

Adapted from Osterwalder & Pigneur, Business Model Generation (2010).

Rural, urban residents

USD 82, including manufacturing and shipping

Manufacture and ship latrines; waste collection and cleaning; and sales

CUSTOMER SEGMENT

REVENUE

VALUE PROPOSITIONPARTNERS

COST

CUSTOMER RELATIONSHIP

CHANNEL

KEY ACTIVITIES

KEY RESOURCES

Latrine mold and sales team

Access to in-home latrines and proper removal of waste leading to improved health outcomes

Installation and training on latrine usage

Unilever (donates latrine and owns the toilet mold

Latrine manufacturer in China

IDEO (business model and brand strategy)

Reoccurring service visits for waste removal

Door-to-door sales team

Word of mouth

Street promotions

Subscription fees (~USD 9, USD 12, or USD 15 per month, depending on frequency of waste removal)

Task Objectives and Project Approach

Overview

Models and Case Studies

Insights

TABLE OF CONTENTS

26

INSIGHTS

Outside of the business model categories identified, STeP noted several cross-sector insights. Access to latrines and behavior change around latrine usage are independent.In order to drive behavior change and usage of latrines, many ventures accompany access with education and training to highlight the link between proper sanitation and hygiene and health. This is either a core activity the venture delivers or one that is delivered through the engagement of strategic partners.

There were no stand-alone pay-per-use models identified outside of the public sector.Rather, pay-per-use was encapsulated within a broader model such as the franchise model. In the case of Eram or other latrine providers, the system is sold directly to the public sector that chooses whether or not to charge a usage fee.

Education-focused NGOs are a critical component of the WSH ecosystem. These NGOs are focused on building awareness about the link between sanitation and health and frequently help drive demand for latrine access despite not providing access to latrines themselves (directly). Additionally, their services frequently promote social and gender inclusion.

Microfinancing the capital cost is an often essential component of scalable ventures. Almost all ventures identified leveraged some form of microfinancing, either for their own venture or for their franchisees, in order to finance the initial capital cost of the latrine installation.