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Creating Enterprises to Provide Sanitation Solutions in India

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INDIA SANITATION
ASSOCIATED PRESS

It's easy to get overwhelmed when you think of the sanitation situation in India. We know that at least 620 million people still defecate in the open and do not have access to sanitation services, resulting in serious economic and health consequences, and the deaths of hundreds of thousands of children. An article in The New York Times highlighted sanitation as an underlying cause of malnutrition, impaired cognitive development, and growth stunting -- something sanitation advocates, such as one of my personal heroes, the late Andra Tamburro, have been saying for years.

But there is reason for optimism if you look at the story of three entrepreneurs in Bihar -- Umesh Prasad Nirala, Raghunath Prasad, and Mohan Prasad, and learn about their progress and potential to do much more with some changes to the regulatory and economic environment.

In 2012 Water For People hired Basix to identify promising entrepreneurs and train them in sanitation as a business, assisting them to set up one-stop shops for toilet construction products and services. Previously a consumer would have to interact with up to 12 different entities to get their toilet built. The new shops greatly simplified the supply chain, allowed for better quality control, and made it easier for the customer to know what they would get for their money. Basix also conducted promotional activities to generate awareness and encouraged potential customers to buy a toilet now instead of waiting for the government to build a toilet for them.

Umesh, Raghunath, and Mohan are three of 24 entrepreneurs that have invested their own resources and started sanitation shops. They have found a way to make money from sanitation in two of the poorest districts of India, Sheohar and Muzaffarpur, and are now looking at other ways to grow their businesses. "In the beginning it was a struggle to find anyone interested in sanitation," said Samrat Gupta, the sanitation manager for Basix. "We looked for individuals that had entrepreneurial skills in other business areas and pitched them on the potential for sanitation; they took a risk and now they are seeing the benefits."

Umesh was one of the early adopters; he also has an ice cream manufacturing business. Raghunath had a beekeeping business and sold honey, and Mohan ran a small hardware shop. Each of these entrepreneurs now makes over $100 a month profit from their sanitation business activities and sells five to 30 toilets a month depending on the season. While this is a good start, more than three million people are without toilets in the two districts where these entrepreneurs work. The total number of toilets required to meet existing needs is at least 500,000 toilets (100,000 in Sheohar and 400,000 in Muzaffarpur). If these entrepreneurs were able to increase their sales to 90 toilets a month each, this would result in over 25,000 toilets sold. It's not enough, but it's moving in the right direction.

The Bihar government has set specific goals to reach full sanitation coverage. Efforts from businesses and NGOs aiming to scale need to seize on the government's enthusiasm to tackle this problem and work together to push for a government role that reduces barriers, especially at the delivery level, and supports the market potential.

To achieve scale each sanitation shop needs to be linked with a funding source to finance the customers' toilets. As the entrepreneurs don't normally have expertise in microfinance, there is an opportunity for a medium-sized company to provide the business development services that Basix has been providing, and to facilitate a sale-on-credit to customers on behalf of the sanitation shops, ultimately driving higher sales. Additionally, we can support scale by continuing to identify new entrepreneurs interested in sanitation, using the success stories from the early adopters.

A recent cost/benefit analysis by Basix shows that they have actually reduced the facilitation costs (such as for training and marketing) to deliver a toilet sale through the business development approach from $65 to $20 per toilet since 2012; this also includes a reduction in the time to sell one toilet. Overall, sales metrics are improving. Yet while there is demand, sales have leveled off because the shops are not in position to offer potential customers credit to increase sales.

Water For People is considering supporting the creation of a medium-sized company to fill this gap, but the question remains how to find the seed capital to start. The biggest challenge to creating a positive balance sheet for this company is the high cost of goods that must be paid up front to construct toilets. The solution could be industry facilitation that enables cement and other high value materials for toilet construction to be offered on credit, or to find social investors with patient capital that that are willing to take a high risk and wait longer than usual to receive a return on investment.

What we can learn from previous examples of scaling industries is that these efforts take time, they are complex, and they require addressing scaling barriers at multiple levels, not just at the firm level. We can only hope that efforts like the sanitation matchmaking event this summer begin to shed light on what the real opportunities are for doing more about the very real challenges affecting the scaling of sanitation in India. Then it may be possible to convert the optimism found in the stories of Umesh, Raghunath, and Mohan, into greater impact.