WRI Publications Feed: NextBillion: Development Through Enterprise

Power to the People: Investing in Clean Energy for the Base of the Pyramid in India

Maggie Barron — Fri, 01 Oct 2010 12:52:23 -0400

Executive Summary

India, a rapidly emerging economy with the world’s second largest population, is facing a surging energy demand. Its rural Base of the Pyramid (BoP) consists of 114 million households, representing 76 percent of India’s rural residents and almost 60 percent of the country’s total population. Despite their low income, these households constitute a significant consumer market for the energy services and products required to provide daily necessities such as cooking and lighting. Using the most recent available expenditure data (2004/2005), we estimated that India’s rural BoP consumers spent INR 224 billion (US$4.86 billion) per year on their energy needs.

What is the Base of the Pyramid?

The Base of the Pyramid (also referred to as the Bottom of the Pyramid) refers to the estimated 4 billion people around the world who are poor by any measure and have limited or no access to essential products and services such as energy, clean water, and communications. Globally, people in this socioeconomic group earn US$1 to US$8 in purchasing power parity (PPP) per day. Yet these households often pay higher prices than wealthier consumers do for lower-quality goods and services because of uncompetitive markets.

Since this report focuses specifically on rural India, we define the rural Indian BoP market as households in the bottom four expenditure quintiles (based on data from the National Sample Survey Organization) that spend less than INR 3,453 Indian rupees (US$75) on goods and services per month. This definition represents a market of 114 million households, or 76 percent of the rural population.

In 2005, approximately 45 percent of India’s rural BoP households still did not have reliable access to electricity and relied on kerosene for lighting, and more than 85 percent of rural BoP households mostly used conventional free or inexpensive sources of fuel, such as firewood and dung, for cooking. These fuel sources, however, are not only harmful to users’ health but also contribute to pollution and environmental degradation.

A growing number of Indian companies see a market opportunity in providing rural BoP households with access to alternative cooking and electricity solutions and consequently are developing clean energy products and services for this market.

“Clean energy” refers to products and services that produce energy from renewable resources and emit fewer greenhouse gas emissions than does energy from conventional fuel sources. The lack of a reliable supply of power from the electricity grid and the availability of free and inexpensive fuels, such as wood and kerosene, are key influences on this market. In this report, we focus on two areas in this growing, high-potential market: clean energy electricity systems and clean energy cooking and light products. We examined a representative selection of companies selling solar lanterns, solar home systems, energy-efficient cookstoves, and electricity generated from decentralized sources, including small hydro power plants and biomass gasifier systems.

About this Report: Informing Investors

The goal of this report is to inform investors about the market potential of the clean energy industry serving India’s rural BoP market, by looking at its opportunities, challenges, and potential paths to growth. The purpose of our report is to present an overall picture of these growing clean energy sectors, rather than to provide investment advice on individual companies.

The potential opportunity for investors in the Indian clean energy market for the rural BoP is significant. We estimated the aggregated potential market for the four sectors studied in this report to be INR 97.28 billion (US$2.11 billion) per year, including INR 94.06 billion (US$2.04 billion) for decentralized renewable energy services and INR 3.22 billion (US$70.1 million) for energy products per year.

Our analysis shows that clean energy services and products may require an upfront investment three to ten times greater than that for conventional energy sources such as kerosene and firewood, which often are subsidized or free to India’s rural consumers. Yet despite these and other drawbacks, the average annual gross revenue of the companies profiled in this report has grown 36 percent since 2004.

What Works: CareShop Ghana. Improving Access to Essential Drugs Through Conversion Financing

Derek Newberry — Tue, 08 Apr 2008 13:05:46 -0400

In April 2002, Ghana Social Marketing Foundation (GSMF) founded CareShop as the first project of GSMF’s wholly owned for-profit subsidiary, Ghana Social Marketing Foundation Enterprises Limited (GSMFEL). CareShop is a franchise of licensed chemical sellers (retailers of over-the-counter drugs) designed to improve the quality, accessibility, and affordability of essential medicines across Ghana on a for-profit basis. CareShop uses market forces to improve health outcomes across the country and seeks an alignment of interests across franchisors, franchisees, and patients.

While Ghana’s healthcare infrastructure includes a multitude of public, NGO, and private institutions, the private sector is often better suited to meet patient demands, with far greater geographic accessibility throughout the nation and more consistent availability of essential drugs. Roughly 65 percent of all treatment seeking behavior in Ghana occurs in the private sector. The first point of care is often a drugstore run by a licensed chemical seller (LCS), and stocked with the most common over the counter medications.

LCS are not always structured or regulated to provide the quality, accessibility and affordability that patients require, especially in rural areas. LCS lack standardization, and while they are an indispensable part of the healthcare system, some also present a threat to public health through the provision of incorrect, expired, substandard, or counterfeit drugs.

CareShop unifies and standardizes the fractured LCS sector in Ghana through conversion franchising. Individual franchisees operate as profit centers, contractually bound by clearly defined, strict regulations on diagnosis, quality, and pricing of a specific list of drugs. When properly functioning, the CareShop franchise makes it more profitable to comply with government and franchise regulations than to break them.

Over CareShop’s five-year history, it has made great progress in building its network and business, but has also faced formidable challenges. Today, its network of 276 franchisees continues to operate, but the franchisor, GSMFEL, has failed to turn a profit. In this case study, we will explore the CareShop business model and the challenges it faces today.

The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid

admin — Thu, 01 Mar 2007 00:00:00 -0500

Join the community of BOP experts at NextBillion.net
Browse a range of environmental and social indicators at EarthTrends

Four billion low-income consumers, a majority of the world’s population, constitute the base of the economic pyramid (BOP). New empirical measures of their aggregate purchasing power and behavior as consumers suggest significant opportunities for market-based approaches to better meet their needs, increase their productivity and incomes, and empower their entry into the formal economy.

This volume, based on unique access to the household income and consumption surveys of developing and transition countries, offers a new and compelling perspective on low-income communities worldwide. Drawing on income data from 110 countries and standardized expenditure data from 36 countries across the globe, The Next 4 Billion is an important first look at the market opportunity represented by four billion individuals who make up the BOP. The analysis for the first time provides a quantitative assessment and characterization of BOP markets, at several levels of analysis:

How large is the BOP and what is its income-by country and region?
What is total market size and consumer ability to pay within a number of critical sectors, including water and sanitation, energy, IT/telecom, healthcare, and financial services?
What is nature of the penalty faced by BOP consumers in the form of higher prices, poorer quality goods and services, or lack of access to services? What does the BOP penalty imply for needed policy reforms or opportunities for market rationalization?

The Next 4 Billion would not be possible without the support of the following organizations. Visit their sites for more information on BOP market-based approaches.

Like consumers everywhere, the poor are constantly looking for products and services that improve their quality of life at an affordable price. The poor are also vital producers and distributors of an immense range of goods. Companies that are smart enough to tailor their offerings to the needs of low-income consumers and entrepreneurs will thrive in the 21st century. As illustrated in this important volume, The Next 4 Billion, companies that provide affordable solutions in areas such as housing, sanitation, public transport, and connectivity will also make a vital contribution to human development.
Luis Alberto Moreno
President,
Inter-American Development Bank

C.K. Prahalad and Stuart Hart’s ground-breaking work alerted private sector businesses to the importance of the market at the base of the pyramid. Now, for the first time, we can express that importance in hard numbers—a 5 trillion dollar, 4 billion person market. That represents a massive opportunity for private sector firms to engage in ways that improve poor peoples’ lives.
Michael Klein
Vice President, Financial and Private Sector Development,
International Finance Corporation and World Bank, and
Chief Economist, International Finance Corporation

Global productivity, education, and the sciences have advanced at an increasingly fast pace due to information technology and access to the Internet. Yet, most of the world’s population who inhabit the middle and bottom of the “economic pyramid” is being underserved in realizing the transforming benefits of IT. The IT industry can narrow this gap by helping local communities evaluate and pursue inventive approaches to realizing the benefits of technology, and through co-creation of new business endeavors with NGO and public sectors that focus specifically on the needs of middle- and bottom-of-pyramid customers.
Will Poole
Senior Vice President
Microsoft Corporation

It is very clear that the private sector has an important and constructive role to play in addressing the needs of the poor and disenfranchised. The Next 4 Billion lays the foundation for the empirical, market-based approach necessary for private enterprises to bring scale and sustainable solutions to heretofore intractable problems.
John Elkins
Executive Vice President
Global Brand and Marketing
Visa International

It is great to see an extensive study correlate the facts that The Next 4 Billion are a viable market place and that private sector engagement with the BOP can help drive sustainable growth and capacity building for these new economic actors.
Willy Agatstein
Vice President Sales and Marketing Group,
General Manager Emerging Markets Platform Group,
Intel Corporation

What Works: n-Logue's Rural Connectivity Model

admin — Wed, 01 Dec 2004 00:00:00 -0500

WRI’s business case studies go deeper into some of the most promising projects represented in the Digital Dividend Clearinghouse, providing detailed description and analysis of each business model, the market segment in which it operates, its successes and challenges, potential replicability and scalability. If possible, the study also documents the social impact of the venture.

Digital Dividends contracts teams of MBA students, under supervision of business school faculty, to research and write our business case studies, as they are uniquely suited to provide unbiased, professional assessments of the business models at low cost. Using MBA students has the added advantage of helping to interest a generation of future business leaders in microenterprise and global development issues.

n-Logue Communications is setting up a sustainable network of wirelessly-connected Internet kiosks in rural villages throughout India. Through the kiosks, villagers are able to access a wide-range of relevant local language content and services aimed at enhancing the quality of life of rural Indians. To enable its rapid expansion, n-Logue has employed a three-tiered franchisee model that empowers local entrepreneurs to invest in and help run the network. As the company scales, there is enormous potential to leverage n-Logue’s rural networks in ways that take advantage of both existing and new technologies in the areas of health, finance, agriculture, e-government and civil society empowerment.

What Works: Smart Communications' Bop-Driven Business Model

admin — Wed, 01 Sep 2004 00:00:00 -0400

Digital Dividends contracts teams of MBA students, under supervision of business school faculty, to research and write our business case studies, as they are uniquely suited to provide unbiased, professional assessments of the business models at low cost. Using MBA students has the added advantage of helping to interest a generation of future business leaders in microenterprise and global development issues.

Smart Communications has transformed the cell phone market in the Philippines by enabling electronic sales of airtime via short message service (SMS) and by reducing the unit size of such sales to as little as US$0.03. This innovation has enabled millions of low-income Filipinos to access communications services - 98% of Smart’s subscribers are l ow-income, pre-paid customers. Its distribution system, using SMS technology, allows merchants to re-sell minutes, taking a commission on every sale, in essence creating a business opportunity for 450,000 entrepreneurs.

What Works: PRODEM FFP's multilingual smart ATMs for microfinance

admin — Sat, 02 Aug 2003 00:00:00 -0400

The second in a series of “What Works” case studies to be released, the PRODEM FFP case study highlights the innovative use of Smart ATM technology in financial service delivery in Bolivia.

PRODEM FFP is a private financial fund that has developed a strong competitive advantage in serving the bottom-of-the-pyramid market in Bolivia by developing solutions based on proprietary technology that lowers costs, better meets existing customers’ needs, and makes its services accessible to new customers.

What Works: Healthnet Uganda's Evolution from NGO to Sustainable Enterprise

admin — Fri, 01 Aug 2003 00:00:00 -0400

HealthNet Uganda is pioneering the use of Personal Digital Assistants (PDAs) in the African healthcare sector to provide practitioners with real-time access to vital information. The technology also allows for easier consultation, real-time ordering of medicines, and access to medical journals - all of which improves the quality of Uganda’s health care system. HealthNet Uganda’s leadership and strategic planning have allowed it to successfully transition from a grant-funded project to a stand-alone non-profit organization, in part due to its ability to secure support from the Ugandan government. By introducing cutting-edge technology within an innovative business model, HealthNet Uganda is successfully working to improve the health of millions of citizens.

What Works: Afrique Initiatives -- Attempts at Combining Social Purpose and Sustainable Business

admin — Fri, 01 Aug 2003 00:00:00 -0400

Brussels-based Afrique Initiatives operates two distinct services in the city of Saint Louis, Senegal: Pesinet, a not-for-profit health care organization, and St. Louis Net, a for-profit IT services company. The two entities share IT infrastructure developed and maintained by Afrique Initiatives, but have evolved different business models. Pesinet’s model, while successful, is non-profit and therefore requires continued subsidy; St. Louis Net, meanwhile, is beset by a series of business challenges and is struggling to succeed. Afrique Initiatives’ mixed results may reflect the difficulty of starting an enterprise when the impetus comes from an external - rather than an internal and entrepreneurial - source.

What Works: Vodacom's Community Services Phone Shops: Providing telecommunications to poor communites in South Africa

admin — Fri, 01 Aug 2003 00:00:00 -0400

Vodacom Community Services began under a 1994 government mandate to provide telecommunications services in disadvantaged communities in South Africa. Vodacom’s development of an innovative way to meet this mandate, via entrepreneur-owned and operated phone shops, has both provided affordable communication services to millions of South Africans and empowered thousands of previously disadvantaged individuals with income-generating opportunities and lasting business skills. The Community Services program now provides over 23,000 cellular lines at over 4,400 locations throughout South Africa.

What Works: ITC's E-Choupal and Profitable Rural Transformation

admin — Fri, 01 Aug 2003 00:00:00 -0400

In a country where 200 million people are engaged in farming or related activities, ITC is developing its internationally competitive agricultural business by empowering, not eliminating, the independent small farmer. The company is setting up of a network of Internet-connected kiosks, known as e-Choupals, through which farmers can receive all the information, products and services they need to enhance their farming productivity and receive a fair price for their harvest. Through the choupal, ITC sources the farmer’s produce directly, reducing its procurement and transaction costs. Currently ITC has set up 4300 e-Choupals covering six states and 25,000 villages. By 2010, the e-Choupal network plans to cover over 100,000 villages, representing one sixth of rural India, and create more than 10 million e-farmers.