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The Sanitation Technology Platform
Please 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 The report is confidential and proprietary and only for internal uses and not for
publication or public disclosure.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
3
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 a favored framework: The Business Model Canvas.
METHODOLOGY
4
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
6
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.
1
2
3
7
Each model has positive and negative aspects that should be considered 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
8
Task Objectives and Project Approach
Overview
Models and Case Studies
Insights
TABLE OF CONTENTS
• Microfinance• Franchise• Subscription
10
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 nonprogram villages.
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.
11
The microfinance model creates a pathway to latrine ownership 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
REVENUE
Collection 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).
12
The microfinance business model relies heavily on partnerships 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).
13
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
14
Case Study: GUARDIAN microfinance-based business model leverages SHGs and enables in-home latrine ownership.
MICROFINANCE
Personnel
Credit officer
and loan officer
Interest on Loans
21% interest rate for
new toilet construction
or renovations (as of
May 2015, repayment
rate is 95.6%)
Fees
Loan 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 NGOs
Gramalaya,
WaterAid UK,
and Water.org
Promotion to SHG
Securing capital for
loan
National Banks
Indian 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).
15
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 the aligned incentives between the franchisor and franchisee to drive adoption.
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
17
Franchisors benefit from empowering the franchisee with strong branding and marketing materials 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
manufacturerTrust 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)
18
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
Personnel
Sales 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 support
Training, supplying
prefabricated toilets,
and operational and
marketing support
19
6
20
Subscriptions provide access to in-home or community toilets at no capital cost and charge a recurring fee for unlimited use during the fee period.
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:
21
Subscription fees are set at a reasonable price point for latrine users, who pay a recurring fee for in-home or community use rather than pay-per-use.
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
REVENUE
Subscription 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
22
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
resourcesSales team and
contract team
Waste removal
personnel
Sales and
contracts staff
Latrine installation and
latrine maintenance/
cleaningWaste removal
23
SUBSCRIPTION
The Clean Team is a for-profit social business that operates in Ghana and is owned by Water and Sanitation for the Urban Poor (WSUP). About
Clean 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
24
Case Study: WSUP Clean Team subscription-based business model delivers affordable access to latrines and related 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 usageUnilever (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.
