NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Globally, an estimated 780 million people live without clean drinking water and a staggering 2.5 billion lack access to sanitation. Annually, more than 800,000 children below age five, mostly in the developing world, lose their lives because of diarrhea. Improving access to these basic human necessities is an integral part of the United Nations’ Millennium Development Goals.

While considerable progress has been made over the past few decades, nearly 100 million people in India alone lack access to safe drinking water and more than 700 million continue to defecate in the open. While the government has sponsored several programs to address this issue, gaps in provision of services as well as their maintenance and usage persist.

Given the enormity of the challenge, there is clearly an opportunity for private players and a number of market-based organizations have entered the space over the past few years.

In the context of clean water and sanitation, market dynamics is about facilitating access to basic services for those who need it the most in a scalable and sustainable manner.

Having collaborated with a number of these players and keenly observed the progress made by others, here are some of the lessons I have learned:

1. Customer centricity is key

Water and sanitation are among the most fundamental of requirements for human beings; however, the reasons for demanding these services vary considerably. While for some people the driver is better health, for the majority, convenience, dignity, privacy, social prestige and safety of women and children are far bigger motivations. Also, while some families are willing and able to pay for these facilities, others need support, in the form of government subsidies, for instance.

It is therefore crucial that organizations have a detailed understanding of their customer base and segment it according to motivations, preferences and financial capacity. This will help with developing tailored marketing strategies and ultimately generating sufficient demand for sustaining the business. Sarvajal, a social enterprise that sets up community water purification plants in villages and slums across India, segments its user base to distinguish regular customers from those who purchase drinking water occasionally (e.g. when they have guests at home) or seasonally (e.g. during the summer and monsoon).

2. Balance quality, acceptability and affordability

Free toilets constructed under government programs often fall into disrepair, partly due to lack of ownership but also on account of poor quality. The latter is especially important in areas which are prone to hostile weather conditions like floods. Also, a number of government schemes have inflexible toilet designs which cannot necessarily cater to the varying requirements of families. It is therefore important that private enterprises in the space offer a range of options to customers, taking into account their differing preferences as well as affordability levels. While some families are content with a basic toilet design, others want a more elaborate structure (e.g. bathing area with a partition) and are willing to pay for it.

Saraplast Pvt Ltd., which is a commercial company that installs and maintains portable toilets in slum areas across India on a fee-based model, modified the design of its toilet cabins to ensure that they are more culturally acceptable (e.g. squatting units). Similarly, operators of community water purification plants like Waterlife, Sarvajal and Saathi have a menu of options for delivery of purified drinking water that customers can choose from (e.g. while some users prefer to collect water from the plant, others opt for home delivery of ice-cold water for a surcharge).

(Portable toilets provided for schoolchildren by Saraplast, left. Photo courtesy of Saraplast Pvt. Ltd.)

Sarvajal, which has designed automated teller machines (ATMs) for dispensing purified water at a nominal charge through prepaid cards in space-constrained slum environments, adapted the design of the machines to ensure that they are more resistant to vandalism and theft.

3. Build partnerships with government and non-governmental organizations (NGOs)

While there are problems with the government system (e.g. delays, inefficiencies), it is unrealistic for organizations to harbor ambitions of scaling up without securing government buy-in. Not only do they require permissions to operate (e.g. in slums) but they are often dependent on the government for resources (e.g. land, water connection, electricity) as well, especially during the early stages of establishing their businesses. In fact, governments themselves are recognizing that they cannot address these challenges singlehandedly and are increasingly entering into public-private partnerships (e.g. maintenance of public toilets by private operators for a fee).

NGOs are another important stakeholder and can provide vital support for understanding the needs of local communities, building trust and tackling any opposition from vested interests. Collaboration, in any case, is good practice because no single organization can meet the multiple needs of a community and functioning in a silo can be detrimental to an organization’s own business prospects. For instance, if a community perceives drinking water to be their greatest need, they are unlikely to prioritize sanitation services until the former is met.

4. Be patient and look beyond the profit motive

When Saraplast began experimenting with a portable sanitation model for slums it realized that while the potential business opportunity was huge (more than 100 million people live in slums in India), making the business commercially viable would be time-consuming and challenging. In fact, the initial pilot in one slum in Delhi took more than two years of planning before it could be launched. It is therefore imperative that organizations do not put all their eggs in one basket, but pursue a mix of opportunities (e.g. toilet installation plus maintenance; toilet installation followed by handover to local entrepreneurs for maintenance; operation and maintenance contracts for public toilets).

This would enable cross-subsidizing of the less profitable and more challenging business segments by the more profitable ones. For instance, Sarvajal’s recently launched pilot program, which aims to provide clean drinking water to children in government schools, can be subsidized by water sales made in neighboring communities, until such time that a financially viable model can be worked out for schools. Also, while some opportunities might never be highly profitable (e.g. provision of drinking water and sanitation in schools), they can help fulfil important social goals that many for-profit enterprises in this space pursue (e.g. improving retention of girls in schools by providing clean toilets) and gain credibility with the government and other stakeholders in the sector.

Of course, market-based enterprises are not the panacea for delivering water and sanitation services at scale. In fact, for every organization that succeeds there are several others that fail. In addition to establishing strategic partnerships with community-based organizations and being customer-centric, the successful ones are able to make markets work for the poor by leveraging relevant subsidies from governments (e.g. subsidized or free land for setting up a water treatment plant) and “patient” capital from private foundations (e.g. funds to cover initial revenue losses). Subsidies and philanthropic capital help these organizations to spend the requisite time understanding their customer base, developing a viable business model as well as offering affordable prices to customers. A combination of these ingredients can certainly enable for-profit players to fulfill the dual objectives of making profits and doing social good by bringing essential services to people who need them the most.

Urvashi Prasad is director of external affairs at Operation ASHA, one of India’s largest tuberculosis control NGOs.