Potable Water Problems in West Bengal

Transcription

1 Potable Water Problems in West Bengal Analysis towards the creation of a non-profit social enterprise Yumiko Yamada Master in International Business,

2 Introduction This paper presents a business plan of a non-profit social enterprise which delivers potable water to rural communities in West Bengal State, India. I spent January 2012 in West Bengal with two other students from MIT Sloan School of Management, focusing our efforts on performing small business experiments and co-create our business model with organizations such as AWS, WfP (Water for People), and UNICEF. After observing potential obstacles towards dissemination, mainly overall costs and the depth and seriousness of underlying problem, we started to believe that it would be necessary for us to incorporate as a non-profit organization in order to give a big impact to the society. The early part of the paper briefly describes the underlying issue and conventional solutions. Then, to overcome the problem, the creation of the social enterprise is proposed, along with funding plan, potential challenges and barriers and possibilities of scalability of the business development. Description of the problem In India, access to potable water is one of the societal issues. People who do not have access to safe drinking water suffer from health problems, such as diarrhea, cholera, typhoid and amoebic dysentery. This problem affects economic, social and human development in various ways. For example, health hazards attributable to lack of access to potable water reduce the total time that one spends working and thus lower productivity and income. Also, children who suffer from these diseases have to be absent from schools repeatedly, and consequently this affects their educational level. This is the case in West Bengal States too. In rural area, people suffer from health problems by drinking water from dug-wells which are contaminated with bacteria and other viruses. People in rural area fail to receive appropriate services. For example, lack of infrastructure prevents some people from obtaining water easily, making them walk up to 500m to fetch water in daily basis. Also, even though there are dug-wells, the quality of water is not appropriate for drinking, thus causes health problems and subsequent barriers to 2

3 economic development 1. Conventional problem solvers In West Bengal, a variety of actors have been working to tackle the problem. In West Bengal State Government, for example, Water Investigation and Development Department sets a policy about elimination of the pollution of surfaced and ground water resources to improve water quality. Under this policy, they lead an initiative to monitor the quality of ground water 2. International organizations are getting involved in this problem too. UNICEF is closely working with the Indian government s National Rural Drinking Water Program to provide adequate safe water to every rural household 3. They also support community participation in the rural water supply program by developing the concept of hand-pump maintenance by villagers 4. Various NGOs, from international ones to local ones are working in the rural area. One of the noteworthy NGOs is the U.S.-based international NGO, Water for People. They aim at promoting sustainable systems that facilitate provision of safe water and sanitation in communities and schools and have reached 5 districts 5. Also, another U.S.-based NGO, Project Wells, constructs and maintains arsenic-free community dug-wells in West Bengal. Why is the problem still unsolved? Despite the great efforts from various organizations, why have all people been unable to obtain safe drinking water? One of the reasons is the lack 1 Water Health International; available from 2 The Official portal of the West Bengal State Department; available from artmentlistportletwindow?action=e&windowstate=normal&mode=view 3 UNICEF India, Water, Environment and Sanitation; available from 4 Tristan Fletcher, Water supply and sanitation in India, (University of Cambridge, Institute for Manufacturing, 2002); available from 5 Water for People-India: Background; available from 3

4 of decentralization. The Indian government designates each state to build infrastructure and be responsible for planning, implementing and managing of water supply programs 6. However, lack of incentives, knowledge and ability of state officials hinders them to fully implement policies and thus prevents thorough outreach. Similarly, funding from international organizations and multilateral development aid organizations is not used effectively. This is due to the governance issues arising from high degree of bureaucracy and corruption, in other words, the upper rank of government officials behaving in politically speculative manners. Poor governance affects poor people who need public service. Finally, lack of multi-actor cooperation barriers to scaling up the solution. In other words, although each NGO has been tackling the regional-specific problem in potentially impact-generating ways, they fail to collect funding that is enough to scale up the program from various sectors, or collaborate effectively with local government and generate a synergistic effect. The author argues that above-mentioned three factors make the problem hard to solve by conventional ways. Proposed intervention to the problem This section explores the possible way of intervention to solve the issue. The paper proposes the creation of a new non-profit social enterprise which manufactures, distributes and delivers a water purification device called Zimba (see appendix A) to rural communities in West Bengal. Current status I currently engage in a project to design a business model of Zimba with other team members in Kolkata, West Bengal. The product design has been finished, several prototypes have been made and pilot tests have been conducted. In search for the possibilities of dissemination, we have contacted with several organizations. However, we are still working this with a project level and have 6 Government of India Ministry of Rural development Department of Drinking Water Supply IEC plan for rural Drinking Water; available from 4

5 not incorporated as an entity. Therefore in this paper, I would like to address potential social impact, challenges and necessary funding when the project is incorporated as a non-profit social enterprise. Product The Zimba automatic chlorine doser attaches to existing hand pumps and water tanks and automatically adds the correct amount of chlorine to water as it flows out. The enterprise uses chlorine as a solution because it is one of the most effective methods of treating biologically-contaminated water and it continues to disinfect after the initial treatment. Furthermore, programs using chlorination at the household level have seen water-borne illness decrease by 22-84% 7. With a Zimba doser, villagers can continue to collect water as they normally do without the additional steps of calculating the correct dose, measuring chlorine, or activating a separate device. No behavioral change is required on part of the users to treat the water, eliminating a major barrier to adoption. Procurement and manufacturing Main parts of Zimba are comprised of a dispenser, a siphon and an outer case and they are made of acrylic, plastic and fiberglass. Materials are procurable in local market. Because the assembly of the siphon and the outer case, which are made of fiberglass requires particular skills, their assemblies are outsourced to a local specialist. The whole parts are manufactured in a worksite in Kolkata at early stage of dissemination. Marketing, sales and delivery Zimba is going to be sold to local NGOs which work in water-related programs at a price of $80 per unit. Next section describes detailed financial plan. As the product is portable, it is delivered using public 7 CDC, Preventing Diarrheal Disease in Developing Countries: Proven Household Water Treatment Options. Centers for Disease Control and Prevention; available from: 5

6 transportation by a sales representative. At the same time of the delivery, the product fee is collected. Regarding the marketing, the awareness campaign is going to be conducted for local villagers. At the same time, we advertise and promote the product in the search for collaborations with private sectors that conduct businesses for the bottom of the pyramid. Installation and maintenance The product is installed in community dug-wells by the staff. The staff is going to visit installation sites periodically in order to check the product status and conduct maintenance. It is necessary to exchange chlorine approximately once in three weeks, and community villagers are going to be in charge of the work. Short-term developmental plan In the short-term, the enterprise plans to scale up the product, focusing only on rural communities in West Bengal. At the early stage of the dissemination, the enterprise is going to sell the product to local NGOs, which are located relatively close to Kolkata, working on the issue and willing to replace their projects with Zimba. At the same time, the enterprise works with international organizations (UNICEF India and UNDP) and asks them to introduce other NGOs in the search for expansion of product sales. Competitive analysis Currently, there are several organizations which tackle with potable water issue in unique ways. Water Health International (WHI) WHI is one of the most successful companies which deliver potable water. They build community water system and purify water using the UV light disinfection technology. Each water system has the capacity to serve up to 5,000 people a day. Villagers purchase water from WHI at a cost of $0.2 per 20 liters. WHI delivers water by truck for those who live far from the water system. Acumen Fund carried out equity investment of $600,000 in 2004 to help them to launch the first community water system 8. 8 Water Health International Acumen Fund, Water Portfolio, Water Health International; available from 6

7 Spring Health International The organization designed a business model which delivers safe drinking water through kiosk retailers. Each kiosk retailer constructs a water tank near their shops and employees at Spring Health International travel by motorcycle to purify water tanks with liquid chlorine. Acumen Fund made an original investment of $130,000 with convertible debt 9. Rationale for a non-profit social enterprise Although there is no specific definition about what a social enterprise means, O. Brozek defines social enterprise as a nonprofit organization with a sustainable, scalable revenue stream generated from activities related to its social mission 10. While some companies have successfully built for-profit enterprise in water delivery, this paper proposes the creation of non-profit social enterprise from following reasons. First of all, Zimba s objective, which is to deliver potable water to rural areas, is a part of basic infrastructural policies and should have been accomplished by central government. In many cases, pursuing double bottom line, that is to say, achieving both social missions and financial returns is idealistic. However, considering the characteristic of the product (water), I believe that there are plenty of possibilities to align with the government and other philanthropic organizations which find value in funding this social enterprise. Secondly, even though companies such as WHI sell water to villagers, it is very difficult to let them pay water charge. Many municipal corporations in India do not charge water rate, and as long as accessible to water 9 Acumen Fund, Water Portfolio, Spring Health; available from 10 Kathy O. Brozek, Exploring the Continuum of Social and Financial Returns: When Does a Nonprofit Become a Social Enterprise?, San Francisco, CA: Federal Reserve Bank of San Francisco, Community Development Investment Review, vol. 5, no. 2, (August 2009): 7-17; available from rozek.pdf 7

8 points, people are able to obtain water for free. Indeed, in a village near Kolkata where I visited, villagers did not pay for water except those who are relatively rich and afford to purchase bottled water. In addition, because Zimba is installed in community hand pumps, there is no behavioral change for customers. In order for them to be willing to pay, educational awareness will be necessary for long-term. Thus, especially at an early stage of business development, the social enterprise is going to sell the product to NGOs and pursue the dissemination as a non-profit. Proposed financials Based on the above discussion, this section explores the expected financials. At the inception of the social enterprise, I would like to request grants from foundations and the government. Brief expected financials are described below. Expected Financial Summary (US D) Expected sales volume , Year Revenue Grant revenue 1 20,0 Government grants 0 2, ,0 Foundation grants 2,000 1, ,0 Total grants revenue 2,000 3, , Program revenue,000 0,

9 Investment Income , Total revenue 6,000 3, Expenses , Project expenses,000 0, ,0 Salary and personnel cost,200 1, ,50 Office and administration,000, ,00 Sample expenses,600, , Total expenses 4,800 2, ,5 Changes in net asset, The assumption in making the financials is as follows. Expected sales volumes are 50 units for the first year, 500 units for the second year and 5,000 for the third year and they are going to be sold in rural communities in West Bengal. Product cost is $80 for the first and the second year, and after the third year, approximately 12% of cost reduction will be realized, achieving economies of scale. To proceed business, the enterprise will hire one, three and ten persons each year at a cost of $600 per month 11. Office and administration cost includes transportation cost which employers travel to villages and other miscellaneous expenses. In order to cover expenses, I ask grants from foundations which 11 Minimum wage in West Bengal is approximately $40 per month. (Source: ILO) 9

10 target underserved populations because the funding cost is expected to outweigh the monetary return. Foundations are becoming more and more diverse. They use wide range of tools from traditional grant makings and loans to innovative Program-Related Investments to deploy their assets as efficient as possible. Recognizing these options, the social enterprise seeks charitable equity investment to cover start-up cost. More specifically, the enterprise wants to target foundations which specialize in social enterprises and social entrepreneurs, such as Skoll Foundation. From the subsequent year, the social enterprise will seek government grants. The enterprise generates public goods by making up for areas where government has not reached. To maintain good balance between costs incurred by purchasers and the financial revenue of the enterprise, the enterprise needs to collaborate with the government. Grants can be various forms, such as a subsidy or a direct purchase of the products. The plan for the long-term financing argues in the next section. Analysis of opportunities, challenges and possibilities of replicability The first section analyzes how the proposed solution tackles the problem. Firstly, the solution toward community level resolves the lack of decentralization. There will be no intervention from the central government. Rather, managing and maintaining the community water source enable villagers, principally community leaders and panchayats to act autonomously and strengthen their capabilities. Also, there will be no misuse of money by corruption because the product is directly delivered to rural areas. The bottom of the pyramid will make it possible to benefit from the service, improving their living conditions. This business model has a potential to give a significant social impact from the standpoint of scalability. This will be realized by bringing in various financial resources. Hybrid with them will create a synergy, which was impossible to produce with only one actor. At the same time, the partnership with local NGOs, communities and the social enterprise will generate many benefits to society, such as promotion of communication and interaction between them and further resolution of societal issues. 10

11 Next part enumerates possible challenges that the enterprise faces. One of the concerns regarding the short-term financing is the subsidy from the government. Because the proceeding of civil service is slow in India, it may take significant time to be granted after the application of funding is submitted, thus the efficiency of the social enterprise may be down. To deal with this issue, it is necessary to look into circumstances of municipalities in India well beforehand. However, the biggest challenge to the enterprise is long-term financial sustainability. The above chart described financials for the next three years, but it is necessary to ensure financial sources to continuously give social impact. One of the options to make the enterprise be sustainable is to convert the enterprise into a for-profit entity. According to Bugg-Levine et al, social enterprises can sell an essential service to poor customers at a decent profit while still providing the affordable service 12. After the research, if we make sure that villagers are willing to pay purified water, the Zimba will be able to incorporate as a for-profit social enterprise and generate enough profit to sustain the business. Another option is to attract investors by scaling up the service provided. For impact investors, how much financial return the enterprise can produce is the key, as well as achieving social mission after all. Thus, it is important to assess the feasibility of scaling up at earlier phase. As an enterprise, we have to make sure that whenever it is difficult to measure visible social outcomes or generate expected financial return, it is always possible to close the deal and lead the business to fail. Finally, the paper mentions the possibility of scalability of this business. Basically, the business model is replicable in any places where there is water source and water management by the government does not function well. Moreover, the simplicity of the product enables for any type of people to use easily. Because the product does not require electricity, it is accessible to remote areas where infrastructure has not yet reached. Thus, not only India, but other developing regions such as Sub-Saharan Africa and part of Latin America will be 12 Antony Bugg-Levine, Bruce Kogut, and Nalin Kulatilaka, A New Approach to Funding Social Enterprises, Harvard Business Review, January-February 2012; available from 11

12 able to purchase Zimba. If there are any areas where people are willing to purchase water, but there are not any affordable products, they will become good places to start as a for-profit social enterprise. Conclusion Needless to say, the key to success of the social enterprise is sustainability and scalability. Because the enterprise delivers new type of technology, how much comparative advantage the technology has is one of the most important issues. At the same time, combination of stable assets structure, innovative operating strategy and the availability of capital is essential. To further benefit the underserved population, advisories from various actors may be efficient. To begin with, I would like to secure the early-stage funding to implement the business plan by participating in business plan contests and asking grants for foundations. Appendix A Product description 12

13 Dispenser Dispenser Tab Outer Case Knob Syphone & Inner Case How the technology works Bibliography Acumen Fund, Water Portfolio, Spring Health. Available from Acumen Fund, Water Portfolio, Water Health International. Available from 13

14 Antony Bugg-Levine, Bruce Kogut, and Nalin Kulatilaka. A New Approach to Funding Social Enterprises. Harvard Business Review, January-February Available from Antony Bugg-Levine and Jed Emerson. Impact Investing: Transforming How We Make Money While Making a Difference. John Wiley & Sons, CDC, Preventing Diarrheal Disease in Developing Countries: Proven Household Water Treatment Options. Centers for Disease Control and Prevention. Available from: Government of India Ministry of Rural development Department of Drinking Water Supply IEC plan for rural Drinking Water. Available from Kathy O. Brozek. Exploring the Continuum of Social and Financial Returns: When Does a Nonprofit Become a Social Enterprise?. San Francisco, CA: Federal Reserve Bank of San Francisco, Community Development Investment Review, vol. 5, no. 2, (August 2009): Available from ozek.pdf Robert S. Kaplan and Allen S. Grossman. The Emerging Capital Market For Nonprofits. Harvard Business Review, October Available from The Official portal of the West Bengal State Department. Available from rtmentlistportletwindow?action=e&windowstate=normal&mode=view Tristan Fletcher. Water supply and sanitation in India. University of Cambridge, Institute for Manufacturing, Available from UNICEF India, Water, Environment and Sanitation. Available from Water for People-India: Background. Available from Water Health International. Available from 14

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