Built for Change: INCLUSIVE BUSINESS SOLUTIONS FOR THE BASE OF THE PYRAMID IN PARTNERSHIP WITH ABOUT IFC IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on leveraging the power of the private sector to create jobs and tackle the world’s most pressing development challenges. Working with private enterprises in more than 100 countries, IFC uses its capital, expertise, and influence to help eliminate extreme poverty and promote shared prosperity. WRITTEN BY The writing team included Piya Baptista, Kathleen Mignano, Madeleine Holland, and Anne Elizabeth Johnson, with guidance from Eriko Ishikawa and Toshiya Masuoka. Groff Creative provided the design and Matthew Benjamin provided copywriting support. ACKNOWLEDGEMENTS The authors extend their deepest appreciation to the five inclusive businesses profiled in this report: bKash, Bridge International Academies, MicroEnsure, Nephroplus, and Probiotech. The authors would also like to extend their thanks to the following IFC colleagues who provided valuable input: Nandini Bhatnagar, Martin Reto Buehler, Alejandro Caballero, Silven Chikengezha, Charles William Dalton, Akira Dhakwa, Nazila Fathi, Carlos Numen Ferro, Alexis Geaneotes, Rena Hinoshita, Sumeet Kaur, Pravan Malhotra, Biju Mohandas, Anupa Pant, Shino Saruta, Karthik Tiruvarur, Harsh Vivek, and Shinya Yoshino. RIGHTS AND PERMISSIONS © International Finance Corporation 2016. All rights reserved. The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. Foreword In the fight to end poverty, there are no easy answers. But one thing is clear: By creating innovative business models, Built for businesses both large and small, can benefit their communities while boosting their bottom lines. Change: Over the past decade, IFC has committed over $14 billion to INCLUSIVE companies that work directly with people who live at the base of the economic pyramid—those who lack access to basic goods BUSINESS SOLUTIONS and services or who live on $8 or less per day. These inclusive businesses have integrated the poor into the fabric of their business models—creating new markets, enabling people to FOR THE build their own livelihoods, and providing them with access to goods and services, often for the first time. BASE OF THE Through the five cases featured in this report, IFC seeks to PYRAMID share knowledge gained from working with these successful, driven entrepreneurs. To inspire others to innovate. And to demonstrate that doing good is not only possible—it’s also good business. The stories outlined here are unique, but there are common threads in each company’s success. Each has sought to create a scalable business model and focused on minimizing costs. Each has invested in training and educated their customers. And each has recognized the value of partnerships. Sixty years ago, IFC was created to combine development impact with profitability. The companies described in this report embody that concept. They have been built to create change in their communities and around the world. One by one, they are doing just that. Philippe Le Houérou Executive Vice President & CEO Contents BUILT FOR CHANGE: INCLUSIVE BUSINESS COMPANY CONTRIBUTORS IFC extends its thanks to the following SOLUTIONS FOR THE individuals for sharing their time to provide BASE OF THE PYRAMID insights on the establishment and growth of their companies. This report would not have been possible without their input. Anand Bagaria, Managing Director, INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 5 Probiotech KEY LESSONS . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Lucy Bradlow, Director of Public Relations, Bridge International Academies CASE STUDIES Dr. Dinesh Gautam, Executive Director, bKash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Probiotech Financial services, Bangladesh Peter Gross, Marketing Director, MicroEnsure Bridge International Academies . . . . . . . 21 Education, Africa and India Steve Knight, Global Marketing and Communications Manager, MicroEnsure MicroEnsure . . . . . . . . . . . . . . . . . . . . . . . . . 33 Richard Leftley, Chief Executive Officer, Financial services, Africa and Asia MicroEnsure NephroPlus . . . . . . . . . . . . . . . . . . . . . . . . . 43 Shannon May, Co-Founder and Chief Health, India Strategy and Development Officer, Bridge International Academies Probiotech . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Kamal Quadir, Chief Executive Officer, Agribusiness, Nepal bKash CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . 65 Philippe Sachs, Global Head of Corporate Affairs and Public Sector, Bridge International Academies Kamal Shah, Co-Founder and Director of Patient Services, NephroPlus Vikram Vuppala, Founder and Chief Executive Officer, NephroPlus Introduction “It always seems impossible until it is done.” — Nelson Mandela 4 Imagine a different kind They are inclusive businesses—companies that do business with people who live at the “base of the economic pyramid” of business. (BOP) as suppliers, distributors, retailers, and customers. An agribusiness that facilitates market access for small Some source crops from small-scale farmers who lack poultry farmers in the rural mountain areas of Nepal. resources. Others work with distributors and retailers who Or a company whose business model centers on providing cope with poor infrastructure. And many target risk-averse mobile banking services or affordable insurance to poor customers who have minimal individual purchasing power. people in Africa and Asia. How about a school that puts quality private education within the reach of the poorest For the first time, IFC presents in-depth inclusive business African families? Or a specialized healthcare company case studies of companies that have been built over that provides quality, affordable dialysis treatments to the past 15 years. Developed through interviews and thousands of patients in India who might otherwise input from the companies’ founders, chief executives, go untreated? and senior managers, the cases demonstrate how these companies have evolved and adapted their business as they These businesses already exist. And they are doing all of encountered obstacles, entered new areas of work, and these things and more. expanded into new markets. 5 INTRODUCTION The five IFC clients featured in this report work in four bKash, Bridge, MicroEnsure, NephroPlus, and Probiotech different sectors: agriculture, education, financial services, were founded by business-minded entrepreneurs who and healthcare. They are: are passionate about making a positive impact on society. Each of these founders built upon their deep industry bKash, a mobile financial services company founded experience to identify opportunities and develop a viable in 2010 in Bangladesh that brings the unbanked business solution that would address a pain point among into the formal financial system. It enables 23 those living at the base of the pyramid. It is these leaders’ million people who once dealt only in cash to send deep commitment to their vision that has helped them to remittances, save, and pay for products and services navigate complex and dynamic environments and build using their mobile phones. successful inclusive businesses. Bridge International Academies, an education Taking an idea and turning it into a tangible product organization founded in 2008 in Kenya that or service is a journey that requires patience, creative improves learning outcomes for primary school thinking, and the capacity to learn and adapt. The five children in Africa and India through affordable, low- case studies that follow explore these journeys through cost schools. It serves almost 100,000 students. the different stages of the companies’ development, from discovering a challenge and seeding the initial idea to MicroEnsure, a microinsurance solutions provider piloting, early implementation, scale-up, and replication. founded in 2008 that creates affordable life, health, The cases examine the challenges that emerged along the accident, and other types of insurance for the way across the business value chain: procurement, product poor—a market most insurers consider too difficult and service development, distribution, marketing and sales, to serve. The company reaches more than 40 and customer service. million customers in 15 countries in Africa and Asia. In curating the experiences of these leaders and their NephroPlus, a healthcare services company companies, IFC aims to build the global knowledge and founded in 2010 that provides high quality kidney evidence base on inclusive business. Ongoing learning and dialysis care in underserved cities in 15 states dialogue is key to accelerating the field. IFC for its part in India at prices up to 40 percent below their will continue to analyze and share the experiences of its competitors. It serves more than 6,000 patients inclusive business clients, who now number more than 500 and provides approximately 50,000 monthly across 100 countries worldwide. dialysis treatments each month. Probiotech, an agribusiness founded in 2000 which produces animal feed for small-scale farmers in Nepal, among other lines of work. The company improves the productivity of its 12,000 feed customers by offering training on farm management and by leveraging its extensive distribution network to provide high quality inputs. 6 FIVE KEY LESSONS 5 Key lessons Each company’s path is unique, yet the cases identify common strategies that cut across sectors and geographies. These shared strategies provide essential insights that can spark innovation among future inclusive business entrepreneurs. By thinking about how to scale their business By developing partnerships models from the that have tangible benefits for start, the companies both parties, these companies were able to get on explore new ways of reaching the path to financial people at the BOP. Such sustainability and long- win-win partnerships are term impact. more likely to endure. 1 PLAN FOR SCALE 5 FORGE SMART PARTNERSHIPS 2 FOCUS ON LOW-COST DELIVERY By minimizing delivery costs, these companies By raising awareness, increasing familiarity, 4 have been able to EDUCATE maximize access to and building knowledge and skills, these CUSTOMERS 3 their products and services—including companies help people INVEST IN CAPACITY access for customers at the BOP overcome BUILDING dispersed over vast, doubts and distrust remote, and sometimes about new products difficult terrain— and services that can Several companies overcame talent and through technology and improve their lives. skills shortages by making significant lean staffing. investments in training to improve the knowledge, skills, and productivity of their own staff and others who perform vital functions such as supply or distribution. 7 FIVE KEY LESSONS 1. PLAN FOR SCALE bKash built partnerships with multiple mobile network operators rather than a single company in order to make mobile financial services available to millions of Bangladeshis. Bridge developed a management structure and lesson delivery system that could be easily replicated at a low cost as it expanded; it also leveraged technology to streamline administrative and managerial functions. MicroEnsure worked with multiple partners to build a large enough risk pool of low-income customers, thus reducing the cost of insuring people who can only afford small premiums. 2. FOCUS ON LOW-COST DELIVERY bKash leverages a network of existing commercial distributors rather than build a costly distribution network from scratch. Bridge uses computer tablets to regularly disseminate electronic lessons to teachers, cutting production and physical delivery costs. MicroEnsure uses mobile phones to deliver insurance to poor customers rather than using insurance sales agents who need to be paid a commission. NephroPlus reduces personnel costs for kidney dialysis centers through a lean staffing model, enabling it to build more centers in hospitals and as standalone facilities. Probiotech uses regional depots and a network of dealers for efficient physical distribution of animal feed to customers across remote terrain. 3. INVEST IN CAPACITY BUILDING bKash trains micro entrepreneurs to register and support customers, equipping these entrepreneurs with anti-money laundering, fraud management and other financial protection knowledge. Bridge hires and trains local teachers through its own teacher training institute because it is difficult to attract teachers from cities to move to rural and semi-urban schools. NephroPlus created an independent training institute to develop certified kidney dialysis technicians to fill an industry-wide shortage in India and to support its own expansion. Probiotech welcomes all farmers—regardless of whether they are currently part of the Probiotech supply chain—to gain expertise through the company’s extension services, veterinary helpline and farm management trainings. 8 FIVE KEY LESSONS 4. EDUCATE CUSTOMERS bKash educates customers about mobile financial services, helping to slowly raise awareness about the benefits of shifting from cash to electronic money. This, in turn, increases bKash’s market penetration. Bridge engages local leaders, parents, and teachers through open houses to solicit input on the need for a school in the community, helping to build buy-in before entering a new location. NephroPlus raises awareness about chronic kidney disease as well as treatment options through community events, enabling it to attract new patients. Probiotech educates poultry producers on farm management, helping producers lower production costs and improve livelihoods while building brand loyalty for its products. 5. FORGE SMART PARTNERSHIPS bKash was established through a partnership with BRAC Bank, which enabled it to leverage BRAC’s strong reputation of serving the poor to introduce them to mobile financial services. Bridge is beginning to partner with governments to bring its teaching and management methodologies to public schools in order to continue to improve learning outcomes for children. MicroEnsure partners with telecom firms and other companies that already reach the poor. It adds value to its partners’ products, for example mobile phone airtime, by bundling them with insurance. NephroPlus partners with public and private hospitals to introduce kidney dialysis services in locations where they were not previously provided; it also assumes management responsibilities to improve existing dialysis services at hospitals. 9 10 IFC INCLUSIVE BUSINESS CASE STUDY | bKash Country: Bangladesh Sector: Financial Services $10 million bKash IFC Investment: Access to finance is a challenge in Bangladesh, where only 40 percent of the adult population holds a bank account at a formal financial institution.1 This is a major problem for the working poor, many of whom migrate from villages to towns, cities, and even overseas in search of work, and who have no choice but to use informal options to send money home. Some find an acquaintance willing to carry cash on the journey to their home village; others work with middlemen who charge high fees. But today around 23 million people rely on bKash, a leading bKash is now used by all types of businesses from the mobile financial services company, to safely send money self-employed rickshaw pullers sending money to their over their mobile phones—and even to save money and to families, to small business owners paying workers’ wages pay for products and services. bKash transactions are not directly rather than through intermediaries, to mom-and- only secure but are also simple to conduct and accounted pop shops paying bills remotely and eliminating the need for in the formal financial system. The company was to travel to pay their suppliers in person. The average started by two Bangladeshi-American tech entrepreneurs transaction size is $16. and a local bank. They wanted to leverage mobile phones—which are ubiquitous in Bangladesh—to provide bKash was established in 2010 as a joint venture between a broad array of financial services to millions of unbanked Money in Motion LLC—an American company that invests Bangladeshis, including those in rural areas. in start-ups that advance financial inclusion—and BRAC Bank, a commercial bank in Bangladesh focused on small 11 IFC INCLUSIVE BUSINESS CASE STUDY | bKash and medium enterprises. It has played a major role in A HISTORY OF ENTREPRENEURSHIP building Bangladesh’s mobile financial services industry from scratch and is the country’s leading player, accounting The Quadir brothers grew up in Bangladesh and for 75 percent of the market. bKash operates as a BRAC 2 moved to the United States in the 1970s. Prior to Bank subsidiary and now counts the International founding bKash they had already started a number Finance Corporation (IFC) and the Bill and Melinda Gates of tech-related ventures. Foundation as minority shareholders. In 2005 bKash’s CEO Kamal Quadir created CellBazaar, a first-of-its-kind online classifieds company in Bangladesh that connects buyers and sellers through mobile phones. Within a few 110 million transactions years CellBazaar gained four million users and was acquired by the global telecom company Telenor. are conducted through Iqbal Quadir, Kamal’s older brother, had worked in investment banking before co-founding the bKash every month mobile telephone company Grameenphone in the late 1990s, together with Telenor and Grameen Bank. He later launched Emergence Energy to support small-scale neighborhood plants for electricity generation. JOINING FORCES In 2009, Iqbal and Kamal Quadir together started bKash was launched by two brothers, Kamal and Iqbal Money in Motion. They founded the company with Quadir. Mobile financial services had taken off in the Nick Hughes who led the launch of Africa’s first Philippines, Kenya, and other emerging markets when the major mobile financial services venture, M-PESA, two Quadirs brothers decided to bring it to Bangladesh. in Kenya and Arun Gore, managing director of venture capital firm Grey Ghost Capital. In need of a local partner, the Quadir brothers began to engage BRAC’s founder, Fazle Hasan Abed, in 2008. Abed had a 40-year track record serving the poor with BRAC, one of the largest nongovernmental organizations worldwide. BRAC’s strong presence in Bangladesh and its well-recognized and trusted brand made it attractive as a potential partner. Discussions between the Quadirs and Abed continued over a two-year period. In 2010 they committed to establish a joint venture between Money in Motion and BRAC Bank. 12 IFC INCLUSIVE BUSINESS CASE STUDY | bKash bKash’s Value Chain An Overview of Challenges and Solutions Product Distribution Marketing & Customer Development Sales Service Value Chain • Customers are • Building a • People lack • People fear averse to trying distribution confidence making new services network is in using new mistakes during costly, but technology transactions and Challenges in essential • Old habits are losing money Providing • Customers are hard to change • Customers lose Mobile geographically • Low literacy faith if they dispersed cannot deposit Financial levels or withdraw Services • Limited cash purchasing power • Sequences • Builds multiple • Addresses • Provides in- introduction of distribution existing pain person guidance mobile financial partnerships for points which on transactions services from dense coverage helps customers through agents bKash’s simple to more • Uses existing recognize • Makes mini complex the value of Solutions distribution mobile financial account • Offers infrastructure statements services services that available through low-income • Simplifies the mobile phones customers are process to • Sends virtual most likely to set-up a bKash receipts after use account transactions have • Educates been completed customers • Works with about mobile distribution financial partners to services maintain liquidity • Offers low-cost in system transaction fees 13 IFC INCLUSIVE BUSINESS CASE STUDY | bKash Their timing was favorable, as a government initiative in Gates Foundation granted $10 million in 2010 to consulting Bangladesh to encourage the poor to set up bank accounts firm Shore Bank International to support bKash’s with as little as $0.12 had been facing challenges due to the development. The grant covered strategic and operational cost of conventional banking, unavailability of banks where planning, distribution, and marketing. the poor lived, and the formality of bank transactions. The government was looking for alternatives to expand As bKash refined its business model and expanded rapidly, financial services to the low-income segment and mobile it attracted equity to support further growth. In 2013 IFC financial services emerged as a viable option. took a minority stake in the company through a $10 million equity injection. IFC aimed to advance financial inclusion In 2010 Bangladesh’s government began to develop in Bangladesh by investing in a business with growth regulations to guide the mobile financial services potential and a strong team. The key factors for IFC’s industry and decided that banks, with the oversight investment decision were: of the central bank, should be the lead partner in any mobile financial services venture. To comply with this • The Quadir brothers’ extensive entrepreneurship regulation, Bangladesh Bank, the country’s central bank, experience in technology and their execution capabilities. recommended that BRAC Bank establish bKash as a subsidiary, which would allow it to receive a mobile • The partnership with BRAC Bank. financial services license. BRAC Bank and bKash would jointly manage bKash’s compliance with mobile financial • Bangladesh’s defined regulatory guidelines for mobile regulations: “know your customer” (KYC) and anti-money financial services. laundering and combating the financing of terrorism (AML/CFT). In addition to equity, IFC assisted bKash with its corporate governance, which would be critical for the company DIVERSE INVESTORS to attract private sector investors in the future. IFC also helped bKash expand its network of merchants—a variety To get bKash’s operations off the ground, Money in Motion of service locations and stores including mom-and-pop provided $5 million in seed capital and Kamal Quadir shops that accept bKash payments. In the following year, became chief executive officer, building the business from 2014, the Bill and Melinda Gates Foundation also took an scratch. The company also benefited from grant support: equity stake in bKash. Under a financial inclusion initiative, the Bill and Melinda 14 IFC INCLUSIVE BUSINESS CASE STUDY | bKash TRANSACTING THROUGH bKASH Figure 1: Steps to Opening a To open a bKash account, new customers need only visit a bKash agent who checks their identity papers and sets up bKash Account 3 an electronic wallet (e-wallet) (Figure 1). This is a virtual account linked to the customer’s mobile phone number for unique identification. Customers add electronic money 1 n 1 Customer visits bKash Agent (e-money) to their e-wallets through remittances and salary payments.4 They can also give bKash agents physical cash to convert into e-money, called ‘cash-in.’ Remittances and Customer fills out Know Your Customer cash-in are the most common ways for the unbanked to form prescribed by Bangladesh’s 2 central bank, presents a photo ID and fund their e-wallets. passport photos Per regulation, bKash initially deposited the full value of a customer’s e-wallet balance in a BRAC Bank account monitored by the central bank. Because of the enormous 3 Agent registers customer banking support required in cash management, together with the need to diversify customer deposits, beginning in 2015 the central bank required bKash to deposit customers’ money with multiple banks. To access their Customer receives a text message 4 confirming account opening bKash accounts, customers dial a code on their mobile phones which generates a text menu. Customers then enter information a unique personal identification number (PIN) to access their e-wallets and make transactions. They can withdraw Customer activates account by dialing physical cash or ‘cash out’ from their e-wallets at any time 5 *247# and then a unique 4/5-digit pin by going to a bKash agent’s store. to access the e-wallet For many customers, a bKash agent is the familiar face of the owner of the local grocery store. An agent’s role in Customer can add money to e-wallet providing actual ‘cash-in and cash-out’ services was critical 6 and receive money from the beginning, as Bangladeshis live in a predominantly cash-based economy and would lose confidence in mobile financial services if they couldn’t get cash from their After 3-5 days, customer receives a e-wallets on demand. Agents educate customers and 7 text message to start using all bKash provide step-by-step guidance to making transactions. In services return, becoming a bKash agent is an opportunity for small entrepreneurs to earn additional revenue and increase traffic to their stores. As per regulations for mobile financial services, bKash regularly trains agents on topics such as “know your customer”, anti-money laundering and combating the financing of terrorism, and fraud management. This helps agents to keep abreast with the latest information on financial protection. 15 IFC INCLUSIVE BUSINESS CASE STUDY | bKash PATHWAY TO SCALE and Airtel—over a three year period beginning in 2010.6 bKash focused on scaling rapidly from the outset. It Collectively these companies had access to over 98 percent launched operations in July 2011 and quickly grew from two of Bangladesh’s 100 million mobile phone subscribers. By million customers in 2012 to 10 million by the end of 2013. 2016, bKash had built partnerships with all mobile providers The company made four early strategic decisions to enable in Bangladesh.7 its rapid growth: OFFER LOW-COST TRANSACTIONS. bKash’s DELIVER FINANCIAL SERVICES THROUGH BASIC PHONES. The low-income customers bKash targeted had basic phones and so $ business model was based on low fees and high volume—it charged very low transaction fees and relied on billions of small-size the company built a user interface that transactions to generate revenue. Affordable fees helped would work on any type of phone, including the basic $15 drive the adoption of mobile financial services among low- handsets widely used by the working poor. 5 income customers (Table 1). Unlike some other providers, bKash didn’t charge customers a fee to add money to their PARTNER WITH MOBILE NETWORK e-wallets. Nor did it set a minimum fee for withdrawing OPERATORS. bKash sought partnerships physical cash from an e-wallet. Instead, bKash charged with mobile network operators in order to customers who received a money transfer a flat fee on reach a large number of customers quickly. the amount withdrawn. Transactions fees to institutions Moreover, multiple partnerships would facilitate seamless including businesses and merchants were other sources of transactions between customers regardless of their revenue for the company.8 network. So bKash set up revenue-sharing agreements with four providers—Robi, Grameen Phone, Banglalink, LEVERAGE COMMERCIAL DISTRIBUTORS. bKash built a vast agent distribution network (Figure 2) to serve customers who were geographically dispersed in urban, semi-urban, Table 1: bKash’s Fees and rural locations. Its agents are typically small retailers such as the owners of mom-and-pop shops. They enroll TYPE OF TRANSACTION FEE customers, educate them about mobile financial services, and convert cash or other payments into e-money and vice Account opening Free versa as customers require. Cash-in at an agent Free Cash-out from an agent 1.85% flat fee The company began building its agent network in 2011 with the support of BRAC and Shore Bank International, Person-to-person money BDT 5 ($0.06) selecting 5,400 bKash agents from a pool of small retailers transfer who were BRAC micro finance customers. However, after Bill and merchant payments Free this pilot bKash realized that it would need to explore other (fee to customer) types of partnerships to expand its agent network. Merchant payments 1.3% to 1.8% (cost to merchants) bKash began to work with commercial distribution Business-to-person 0.5% companies that supplied consumer goods, mobile phone disbursement (negotiable) airtime, and household products to the thousands of small (fee to business) stores that had the potential to be bKash agents. 16 IFC INCLUSIVE BUSINESS CASE STUDY | bKash SEQUENCING SERVICES It developed a commission structure that made it profitable for distributors to recruit and manage owners of small As the first major mobile financial services provider in stores as bKash agents. Over time, bKash would come to Bangladesh, bKash played a significant role in driving work with 140 distribution companies. It would also bring adoption of those services among low-income customers. on other types of partners to expand its agent network, One way bKash achieved this was by sequencing its such as the country’s largest courier service that had 5,000 services. This was critical because most Bangladeshis were service locations in Bangladesh. unfamiliar with mobile finance. To get people to switch from cash to e-money, bKash would have to build public trust one service at a time. Since there was no single recipe for introducing mobile As confidence in financial services in a new market, bKash had to identify which services people needed most and then decide on bKash’s services the order of roll-out. The company started with the most grew, the company basic service possible: person-to-person money transfer. This would help migrant workers in cities and towns in introduced more Bangladesh to send money to their families back in the diverse services for villages. bKash also introduced a savings product for customers to save money in their e-wallets, paying interest low-income customers rates of between 1.5 and 4 percent on account balances. This proved to be particularly attractive for unbanked and Figure 2: bKash’s Distribution Network COMMERCIAL DISTRIBUTORS* RUNNERS AGENTS (Master Agents/Aggregators) (Staff of Distributors) (Small Shop Owners) Footprint: 140 in bKash’s network Footprint: ~30 per Footprint: 120,000 in Role: distributor bKash’s network • Find suitable bKash agents in Role: Role: their territory • Visit agents to provide • Register customers • Manage agent liquidity by e-float/cash • Initiate opening e-wallets maintaining float** • Collect cash from • Educate customers • Deposit cash received from agents and send back • Collect cash from and provide cash agents into bank account to distributor to customers*** (BRAC or other banks) Revenue Source: Revenue Source: Earn commissions Salaried employees of Revenue Source: Earn commissions (% of customer transaction value) distributors (% of customer transaction value) *Serve several different companies in the FMCG and telecoms industries ** See footnote 8 for definition of float *** If agents run out of e-float, they cannot take any cash deposits from customers. Similarly, agents need cash on hand so customers can withdraw from their e-wallets 17 IFC INCLUSIVE BUSINESS CASE STUDY | bKash low-income customers, as for many it was their first formal send money instantly to their family members’ bKash opportunity to save and earn interest. The company then accounts in Bangladesh. expanded into more advanced types of services (Figure 3). As confidence in bKash’s services grew, the company After low-income customers gained confidence in bKash’s introduced more diverse services targeted at low-income money transfer service, the company introduced mobile customers. These included collection of deposits for savings phone airtime purchases, which save people a trip to a accounts with microfinance institutions, payment of micro store to buy an airtime card. Within a year of that service’s 9 loans, and disbursement of aid from donor agencies. introduction, over 10 percent of all mobile phone airtime purchases in Bangladesh were made through bKash e-wallets. By 2014 bKash had set its sights on making mobile payments the norm for purchases of products and services By its third year in operation, bKash introduced in Bangladesh. This involved getting merchants such as international remittances through BRAC Bank’s partner restaurants, supermarkets, hotels, hospitals, and retail banks in the United Kingdom and the United Arab stores—including the smallest mom-and-pop shops—to Emirates. Bangladeshi migrants in these countries could accept bKash payments in lieu of cash or credit cards. As of use banks to send money to family and friends back home 2016 people could use bKash at 30,000 merchants in major who would be able to receive the money in their bKash cities, approximately three times the number of shops that e-wallets. The following year, bKash expanded the reach accept credit cards in the country. Small shops found bKash of its international remittance service, partnering with helpful because it allowed them to avoid holding large MasterCard and Western Union, which had a presence amounts of cash which made them vulnerable to robberies. in 200 countries. Now the large Bangladeshi expatriate Over time, bKash believes the number of merchants that market, estimated at 10 million people worldwide, can accept bKash payments in small towns and villages will grow. Figure 3: Key Milestones in bKash’s History Develop idea Saving through Payments and launch e-wallets at 30,000 bKash merchants 2 million 10 million+ customers customers 23 million customers 2008– 2011– 2013– 2015– 2010 2012 2014 2016 Domestic Airtime International remittances; purchases, remittances Payments at salary, wage, merchants & social payments 18 IFC INCLUSIVE BUSINESS CASE STUDY | bKash SOCIAL PAYMENTS BUILDING CUSTOMER CONFIDENCE bKash facilitates disbursement of various Sequencing the introduction of services and pricing them types of financial grants to targeted recipients affordably were critical to getting unbanked individuals on behalf of nongovernmental organizations in Bangladesh to adopt mobile financial services. Just as and other institutions. This reduces the time important was building the confidence of the unbanked in between disbursement and receipt of aid money. conducting financial transactions through mobile phones. This service has been especially helpful during This entailed helping people to cultivate new habits. The emergencies and natural disasters. For example, unbanked would need to stop storing money at home Help Age International Bangladesh used bKash to or paying middlemen high fees to transfer their money, transfer money to senior citizens who used the and instead learn to save and use e-money in a secure organization’s health, emergency, and financial digital system. services. Another organization, Plan Bangladesh, transferred cash-for-work and livelihood grants to bKash knew such new habits would take time to develop, nearly 15,000 households using bKash. Similarly, but could be encouraged through education and hand- Oxfam transferred money via bKash to over 3,300 holding. So the company rolled out a large-scale awareness households in Dhaka for humanitarian relief campaign about mobile financial services. Mass advertising after a flood. The DFID and AusAID-funded Char along with street plays, short documentaries, and interactive Livelihood Program used bKash to reach 26,000 games educated potential customers about the benefits people in extreme poverty in remote islands with of such services and how to conduct transactions. These a $6 stipend per month for over four years. broad-based efforts were supplemented with in-person, step-by-step transaction guidance by bKash’s network of 120,000 agents. The company also added features to its user interface to make the process of conducting an electronic transaction as easy and reassuring as possible since the unbanked were afraid of making a mistake during a transaction and losing money. Customers could select a service by entering a number instead of typing a text message. This eased concerns among those with low literacy levels and no or limited knowledge of English which was the language of bKash’s user interface. Since many customers missed the security of a physical receipt, bKash provided receipts via text messages after transactions were completed. It also made mini-account statements available through the main menu so customers could check their e-wallet balance at any time. All of these efforts reassured customers and helped them progress in their ability to use mobile financial services. 19 IFC INCLUSIVE BUSINESS CASE STUDY | bKash MOVING TOWARD GREATER PROSPERITY Today, the name bKash is synonymous with mobile financial services in Bangladesh. bKash has made great strides in enabling the unbanked to access financial services and the company continues to work toward this goal. In 2015 over $16 billion worth of e-money moved through the bKash system which, at the very least, has increased the efficiency of Bangladesh’s $200 billion economy. Most importantly, bKash has enabled the unbanked to gain a foothold on the ladder to financial inclusion and, ultimately, to bikash—the Bengali word for prosperity and the inspiration for bKash’s name. For more information on inclusive business at IFC, visit www.ifc.org/inclusivebusiness ENDNOTES 1 Parvez, Jaheed, Islam, Ariful, and Woodard, Josh. 2015. Mobile Services in Bangladesh: A Survey of Current Services, Regulations, and Usage in Select USAID Projects. USAID, mSTAR and FHI360. 2 As reported by bKash. 3 bKash e-wallets operate on a FUNDAMO VISA technology platform and are fully encrypted to ensure secure transactions. 4 E-Money is stored value held in the accounts of users, agents, and the provider of the mobile money service. Typically, the total value of e-money is mirrored in a bank account so that, even if the provider of the mobile money service were to fail, users could recover 100 percent of the value stored in their accounts. Bank deposits can earn interest, while e-money cannot. Source: GSMA Mobile Money for the Unbanked. 2010. “Mobile Money Definitions.” 5 This interface utilized a global data channel called Unstructured Supplementary Service Data (USSD) which was the popular choice for mobile financial services since it was compatible with any type of mobile phone. USSD is a data channel on the Global Systems for Mobiles network, with a menu form of SMS through which customers receive a text menu on their phones instead of a string of words. USSD transports short messages between mobile phones and the network. It provides interactive dialog between the user and a certain set of applications. Source: FinMark Trust. 2007.” Mobile Banking Technology Options.” http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/06/finmark_mbt_aug_07.pdf. 6 bKash shares 7 percent of the revenue it earns through transactions fees with mobile network operators. 7 bKash works with all mobile network operators that use the Global System for Mobiles, i.e. GSM network. 8 bKash also earns revenue through interest on the float account, which is the balance of e-money, or physical cash, or money in a bank account that an agent can immediately access to meet customer demands to purchase (cash in) or sell (cash out) electronic money. Source: GSMA Mobile Money for the Unbanked. 2010. “Mobile Money Definitions.” 9 As shown in Figure 3, people in some cities could use bKash to pay for their purchases at select retail stores starting in 2011, but these payments became a major focus for the company in 2014. 20 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies Region: Africa, South Asia Bridge International Sector: Education $10 million Academies IFC Investment: From the creation of the United Nations Millennium Development Goals of 2000 to the 2015 Sustainable Development Goals there has been a notable shift in focus on the all-important issue of education. The previous set of goals focused on increasing enrollment. Today the emphasis is on providing an inclusive and quality education. And for good reason: Rising enrollment must be parents and entrepreneurs opened small schools to serve accompanied by better quality education, and often it has the needs of children in their communities. In informal not been. In Sub-Saharan Africa, for example, there was a settlements in Nairobi, it was estimated that 60 percent of 20 percent increase in the net enrollment rate from 2000 children attended schools that were privately-run.⁴ Such to 2015, yet while more children attended school, too often schools charged fees, but those were often lower than or they were not progressing.¹ As of 2011, only three out of ten on par with public school fees. These schools took steps to third year school children in Kenya could do second-year improve quality, but most lacked the resources to invest work.² Public schools were also associated with unofficial heavily in new teaching materials, teaching methods, or payments, including desk, homework, and other fees.³ school management. It is not surprising, then, that parental dissatisfaction with Bridge International Academies was established to the quality and cost of public primary schools pushed change the quality of education available to children in many families to look for other options. In many places underserved, low-income communities. It is the first 21 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies educational organization to address the problem of quality at scale, allowing it to invest heavily in research and technology and to focus relentlessly on learning. Bridge has asked—and tried to answer—a fundamental question about education in low-income countries: How can learning outcomes for children in these regions be radically improved at a very low cost to parents, donors and governments? Bridge has grown from two academies in Kenya with 300 students in 2009 to almost 100,000 students in over 470 locations in Kenya, Uganda, Nigeria, and India. It is also starting a pilot program with the Government of Liberia to run up to 50 schools. May and her future husband Jay Kimmelman began to explore ideas about how to provide children from the most The organization has developed unique systems that tackle marginalized, lowest-income families with a primary education some of the most challenging issues in education. And so that would give them the literacy, numeracy, and other far Bridge’s plan seems to be working. Its first graduating skills necessary for secondary school and for life. Critical to class in Kenya had a 40% higher chance of passing the their approach was that parents should be able to make national primary exit exam than the national average. their own decisions regarding their children’s education. The organization’s own studies show that its students outperform their peers in public schools in basic literacy With a background in computer science and electrical and reading; further independent studies of learning engineering, Kimmelman had co-founded and run Edusoft, outcomes are currently underway. an educational software company in the U.S. which he scaled to serve three million students. Kimmelman and May DEVELOPING AN IDEA outlined the business model for Bridge based on research they conducted in informal urban settlements and villages From 2005 to 2006, Shannon May was a resident across Sub-Saharan Africa. Kimmelman then invited Phil anthropologist on a development project in China and an Frei, a former roommate, to join the team. Frei had a English teacher at the local village school there. May, who consulting background in commercializing new technologies would go on to co-found Bridge International Academies, and had moved to Malawi to apply his background to a witnessed firsthand how a lack of resources and rampant social impact project with smallholder farmers.⁶ teacher absenteeism contributed to an environment in which children were present in school but were not Committed to making data-based decisions, the three learning. She found that only 2-to-4 percent of children friends considered potential countries where they could passed the examinations needed to move on to secondary launch their idea and ranked Kenya the highest. Core school.⁵ Parents in these communities often made the considerations in their assessment were: economically rational decision to send children to work rather than to schools that were not improving their future • Poverty Rate: Countries where more than 50 percent prospects. Unfortunately, with no alternatives to state- of the population lived in poverty were ranked higher, provided education, parents were faced with the painful as they demonstrated a greater need for affordable and realization that their children were likely to grow up with improved diversity of education. less opportunity than they themselves had. 22 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies Bridge’s Value Chain An Overview of Challenges and Solutions Product Distribution Marketing & Customer Development Sales Service Value Chain • Limited • Ensure consistent • Families have • Teacher availability of quality at all limited money absenteeism teachers locations to spend on • Lack of feedback school • Disparate • Efficient loops to engage Challenges implementation communication • Need for schools parents of national with staff to be a part in Providing curriculum of the local • Manage Low-Cost • Traditional modes geographically community Education of learning dispersed locations • Language barriers • Need to scale when scaling quickly and cost- effectively • Trains and • Uses technology • Engages with • Transparent fee supports to track and parents and payment through teachers to monitor classroom community to mobile platforms deliver student- learning raise awareness • Emphasizes centric learning • Delivers and • Hires teachers relationship- Bridge’s • Develops adapts lesson from the local management Solutions custom teacher plans via tablets community with parents and learner (e.g. parent • Decentralizes • Sets price point resources, satisfaction academy manage- on par with including surveys) ment with strong public school teacher guides central support costs • Ensures teacher • Prioritizes oversight by • Embeds quality countries managers and control functions where English tablet feedback in academy is already the management language of structure instruction • Standardizes expansion process for new academies 23 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies • Population: To help ensure adequate demand and In 2008 the three friends moved to Nairobi and launched class size, the population density had to be at least Bridge International Academies. Their goal was to address 125 persons per square kilometer and total minimum a single yet seemingly intractable problem: How to create population had to be at least 30 million. a school or system of schools that ensures children learn but that is still affordable and accessible to all? • Language: English had to be one of the official national languages, enabling the founding team to more easily BUILDING THE MODEL engage in all aspects of developing the academic, technological, and business aspects of the model. The co-founders knew that the success and sustainability of Bridge International Academies would rely on their • Exam Pass Rate: The co-founders looked at countries ability to deliver a world-competitive nursery school where a significant majority of poor children failed and primary education at a cost that a parent living in national or international exams even after completing poverty could afford. To do this, they would need to invest primary school. large sums in research, curriculum development, and technology. And to pay for that, they would need to base • Private School Experience: Where parents had already the model on scale. Through self-funding, they began the opted to take their children to small, community run, research and development phase, asking questions such low-fee private schools, it was clear that there was as: What support does a teacher need to improve learning? demand for improved, affordable education and that a What does a child need to feel engaged in the classroom? market existed. How can we lower costs? Bridge aimed to deliver higher results at a cost that was lower than or equal to government spending per child, and thus spur innovation across the entire system. 24 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies A Typical Bridge Family Sabbir and Taban live with their four children in a one-roomed mud house. Sabbir sells fried bread and Taban runs their small business selling plants that they grow in their yard. Some 62 percent of primary earners in Bridge families run informal businesses like Taban’s and like most Bridge families, they are working hard for a better life for themselves and their children. Two years ago Sabbir and Taban decided to enroll their two younger children into Bridge. As Tabban explained, “The little education I got has helped me get several jobs. I know that if my children can get more than I did then it would really change their lives and that of the whole family.” 4.3 People per household $1.60 Income 62% Bridge per person per day “We did not have Families Parents that are self-employed much education, in the informal but we want that sector 1st Generation to to be different for aim to complete primary school our children.” 25 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies Figure 4: Key Milestones in Bridge International Academies’ History Rolled out customized tablets for teachers 100,000 students reached First academy Uganda and Nigeria locations open opens 2009- 2013– 2016 2012 2015 Academies open in 37 academies in Kenya 213 academies— India and public- makes Bridge the largest over 50,000 private partnership education chain in Africa students reached with Liberia signed The first Bridge International Academy opened in Nairobi’s Core to Bridge’s approach was to train teachers to move Mukuru slum in 2009, offering kindergarten and two years away from the blackboard, using the teacher guide to of primary school. Bridge decided to only engage with provide in-class work according to the student’s level of neighborhoods where per capita income levels were $2 per learning, and prompt teachers to walk around the room, day or less. From the beginning, Bridge knew that close check students’ work for understanding, and ask questions coordination with community leaders was vital. It worked to encourage inquiry. with them to educate families about Bridge and invited members of the community to visit an academy. Bridge Bridge developed its courses based on Kenya’s national built new schools on leased sites using low-cost materials curriculum and government standards, with additional and standardized designs, ensuring cost-effective volume emphasis on reading and critical thinking skills. Bridge procurement and rigorous quality control. students would spend more “time on task”—a total of 47.5 hours from Monday to Friday and an option of five hours GOING BEYOND TRADITIONAL METHODS on Saturday. Learning from a technique it saw in the U.S., Bridge developed teacher guides that To support early childhood development, Bridge used low- provided detailed, step-by-step instructions cost but effective learning tools—repurposed egg cartons, for teachers to use in every subject and learning period. colored plastic rings, and mini chalkboards, for example— The idea was to empower teachers to be fully equipped to reinforce colors, counting, and basic math with custom- to focus on student engagement and comprehension— designed educational toys and workbooks to develop and free them from worrying about content by providing students’ motor skills and reinforce classroom content. factually correct, engaging, and well-paced lessons. At the primary level, students had access to workbooks for phonics, comprehension, and problem-solving, geoboards to practice math, science kits to learn by doing, and maps to learn about their community and the world beyond. 26 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies THE BRIDGE INTERNATIONAL TRAINING All of these tools were designed to help children learn in INSTITUTE more constructive ways than traditional rote methods. At the same time, Bridge also prepared students for national The goal of the Bridge International Training exams and conducted monthly assessments to ensure that Institute (BITI) was to uncover local talent, students stayed on track and to assess the efficacy of their identifying individuals with the potential to pedagogy. become Bridge teachers and developing their teaching skills. The institute’s 235-hour intensive SETTING AN AFFORDABLE PRICE POINT training course focuses on how to manage a As of 2016, the typical household income of classroom and ensure each child is learning, as a Bridge target student was about $1.60 per well as how to use the teachers’ guides. person per day. That income level makes 7 the price point for Bridge tuition an extremely important In order to maintain its affordable fee structure, factor. To set its fees, Bridge conducted extensive surveys Bridge aims for a teacher-to-student ratio of to understand how much parents living in Nairobi’s 45-1, so the institute puts a great deal of focus informal settlements earned and how much they were on classroom management, leadership, and spending each month to educate their children, at both technology. public and private schools. Using an affordability limit of 20 percent of income, Bridge calibrated its fees to be competitive with existing suppliers in order to be cost competitive for parents. Because incomes and education costs vary by area, Bridge fees also vary depending on a students’ grade and the location of the school. On average, a Bridge student in East Africa pays $6.60 per month, which is inclusive of textbooks, homework books, and all learning materials. Parents also pay a one-time registration fee. IDENTIFYING AND DEVELOPING TALENT To identify potential teachers, Bridge engaged community leaders and held open houses. From the beginning, the organization unwilling to relocate. Recruiting within the community was committed to recruiting from the local community for means that Bridge schools are always staffed and open. three key reasons: • Bridge knew it would be vital that its academies be • Bridge wanted its teachers to be able to empathize with community schools, run by members of the community students’ circumstances and wanted students to be able and creating much needed local employment. to identify with teachers. To develop potential teachers Bridge established the Bridge • Bridge operates in marginalized and under served International Training Institute. The qualifications to apply communities, areas in which outside teachers are often to the institute would be the same as for the government 27 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies teacher training college. Beyond these requirements, Bridge team while incorporating the latest developments in looked for individuals with leadership experience in church teaching methods. Other teams were created to facilitate or other community organizations, good communication improvements by filming lessons, identifying and testing skills, and a passion for teaching and children. Many were new learning methods and programs, and performing previously underemployed, working primarily in the quality audits. informal sector without wage security or benefits. TECHNOLOGY AND ANALYTICS ENSURING QUALITY AND In 2011 Bridge deployed smartphones loaded EFFICIENCY with a custom-developed application that connects managers to a central cloud-based Bridge wanted a management structure that would allow server. The app tracks student admissions and billing in for local-level decision making while providing consistent real-time and serves as a financial management tool for support and quality in the classroom. It developed a structure the overall academy, including fee payments, expense that operated at three geographic levels: local, area, and management, and payroll. Two years later Bridge rolled regional (Figure 2). The structure ensures that everything out tablets for teachers, enabling dynamic publishing of from logistics to relationship management is covered. teacher guides and real-time data collection to and from the classroom (Figure 3). Through the use of mobile and To make certain that teachers were supported other technologies, Bridge has been able to: academically, Bridge set up a travelling academic field team to engage with teachers and monitor them in Simplify Operations. Academy Managers are able to classrooms. The organization’s central academic research focus on teacher support and parent engagement instead and development team improved lessons based on of administration. For example, to eliminate fraud and feedback from teachers and from the academic field security risks inherent in collecting cash, Bridge decided to use the popular M-PESA mobile phone application available in Kenya to go cashless. Parents pay school fees either via mobile or by bank deposit and Bridge Figure 2: Field-based Structure parents can see their payment status update in real time. In the other countries where it operates, Bridge uses REGIONAL MANAGER similar cashless payment systems either through mobile Oversees 100 academies payments or bank vendors. Maintains county-level relationships • with stakeholders Oversees recruiting and logistics • Ensure Engagement. Bridge knew that their academies Coordinates with the central office • would only be as strong as the teachers in the classroom. Ensuring teacher attendance was a key part of that. The AREA MANAGER Oversees 10-15 academies teacher tablet rolled out in 2013 allowed Bridge’s central Addresses operational Issues • team to monitor when the teacher checks in and the Engages with community and • pace at which the teacher progresses through lessons, local government helping to ensure that teachers are active in the classroom ACADEMY MANAGER throughout the day. If a teacher fails to check in, Bridge Manages one academy can send a substitute teacher to ensure minimal loss to  chool leader responsible •S lesson time. for overall performance 28 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies Figure 3: Bridge’s Technology Cycle Bridge Central Team Develops, updates, and tests lessons and new approaches Teachers Enter results, attendance, and other metrics into tablets and upload to central team for analysis Teachers Download lessons to tablets using the Academy Managers’ phone as a hotspot Students Assessed using traditional paper and pencil tests Improve Learning Outcomes. The system created a EXPANDING BEYOND KENYA direct link between Bridge’s academic specialists and teachers in the classroom. Uploaded data on the timing ENGAGING NEW INVESTORS of lesson delivery and student comprehension enables By 2013 Bridge had opened 213 academies continuous improvement to lesson guides and teaching across Kenya, reached 57,000 students, methods. For example, if a majority of students across the recruited and trained over 2,000 people, and network are struggling with a lesson, the academic team attracted investments from the Omidyar Network, Learn can revise content and integrate it into future sessions. Capital and NEA. The organization knew it would need When the data shows outlier classrooms either falling additional capital and investors if it wanted to continue to behind or excelling, the academic field team can visit the improve learning outcomes and expand beyond Kenya. So location to further train the struggling teacher or learn Bridge leadership sought investors that shared its goals. from a teacher whose students are outperforming other teachers’ students across the network. 29 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies A LEARNING LAB Bridge approached IFC, a member of the World Bank Group, to become a lead investor with a $10 million As Bridge expanded it found that its growing investment as part of an equity fundraising. Beyond number of academies, together with its real- seed financing, Bridge was also looking for advice in time data collection capabilities, constituted an addressing the regulatory challenges that come with internal “learning lab.” cross-border expansion. In addition to IFC, Bridge brought on other key investors such as the U.K.’s CDC, Novastar, As the academic team identifies new methods PanAfrican Investment, Rethink Education, as well as high or resources they believe can aid learning, they profile individuals like Bill Gates and Mark Zuckerberg.⁸ are able to test them within a small group of Bridge also got a loan from the U.S.’s Overseas Private academies before replicating them academy- Investment Corporation. wide. In this way Bridge can determine how lesson pacing, format, or specific examples LOCAL ADAPTATION lead to more or less comprehension. This has As Bridge began to consider expansion important implications, not only for Bridge, but outside of Kenya, it used many of the same for wider pedagogy. factors it looked at originally—population density, English as the language of instruction, and government support. Bridge identified Uganda as the next logical country due to its many similarities with Kenya and shared border. In February 2015 Bridge opened its first academy in Uganda’s Busoga region. Despite the similarities to Kenya, however, the new environment posed challenges for Bridge including: • Learning levels. Numeracy and literacy levels were lower in Uganda, and levels in Busoga were among the lowest in the country. This had an effect on students and teacher candidates alike. Bridge’s remedy was a cross- age, homogeneous English learning program for two hours every day to enable students to rapidly acquire the level of English language comprehension needed to attend a Bridge school. The next step for Bridge • Payment system. Over time, the M-PESA mobile was to broaden its payment system had become so widespread in Kenya that Bridge no longer had to educate parents on mobile reach, creating more money. In Uganda, Bridge had to again engage with opportunities for parents on how to use a mobile-based payment system. Bridge also launched a partnership with the solar children to learn. lighting company Fenix to provide loans for school fees to parents in Uganda who use Fenix’s solar systems. 30 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies DEVELOPING PARTNERSHIPS MEASURING RESULTS Bridge continued to broaden its reach, both through its established model as well as To quantify its results, Bridge works with an through new modes of delivery. In September external evaluator to conduct commonly used 2015, Bridge opened two nursery and primary academies in early grade reading assessments and early grade Lagos, Nigeria. Both schools had full enrollment and mathematics assessments. The results show waiting lists within a week. Four additional schools learning improvements for children attending opened across Lagos State in early 2016, with another 20 Bridge schools of over 32 percent in core reading expected to open later in 2016. skills and 13 percent in core math skills. Bridge’s expansion to Nigeria was facilitated by a grant In 2015, Bridge graduates in Kenya took the from U.K.’s Department for International Development nationwide exam for the first time. (DFID). Through DFID’s Innovation Fund for innovative Approximately 60 percent of the 2,900 students business models and its Developing Effective Private sitting for the exam passed, demonstrating a 40 Education Nigeria project, Bridge received a grant of percent higher chance of passing the exam than approximately £3.45 million to share the risks associated the national average. The results showed that with entry into the Lagos market.⁹ the longer students had been in the Bridge system the stronger their results. Moreover, Also in 2015 Bridge entered into an agreement with the Bridge students had a 65 percent higher chance government of Andhra Pradesh in India. Bridge agreed of being accepted to national secondary schools to adapt its model in order to meet local needs by in Kenya, and over 100 students were granted rebuilding and expanding decrepit, closed schools into full four-year scholarships for secondary school. model community schools. The first nursery and primary academies opened in June 2016 and include locally A large independent impact evaluation of oriented activities, such as yoga, in the school routine. Bridge is currently underway, led by a team of World Bank research experts and independent Bridge’s first engagement as a school management academics. The evaluation will also look at—and organization for public schools came in 2016 with the deliver data about—the broader context of Liberian government. Bridge agreed to partner with the low-cost private schooling. government in turning around 50 failing public nursery and primary schools in the 2016-2017 academic year. The program is part of a pilot initiative to see how such organizations can help improve education in the West African nation in partnership with the government. Bridge will work in existing schools, with existing teachers and pupils, but will use its own training and lesson delivery models. The schools will ultimately remain under government control and will remain free of charge to students. The government will continue to pay school staff salaries, while the intervention costs of the partnership are being funded by philanthropies, including the Mulago Foundation. 31 IFC INCLUSIVE BUSINESS CASE STUDY | Bridge International Academies MOVING FORWARD The Bridge International Academies of today may not For more information on necessarily be the Bridge of the future. Bridge plans to inclusive business at IFC, visit continue to innovate and expand and will continue to www.ifc.org/inclusivebusiness push toward its goal of reaching millions of children across the world. For example, Bridge sees the potential to sell resource materials to other schools, to use its teacher training methods for other organizations and governments, and to enter into additional public-private partnerships. Bridge is also focused on transitioning children to secondary school. Bridge sees itself as one of many organizations that refuses to accept the status quo in education and one that is pushing the boundaries of how we teach and learn. Bridge will continue to innovate and strive for radical change in order to create the level of access and quality that all children deserve. ENDNOTES 1 UN, MDG Report 2015, http://www.un.org/millenniumgoals/2015_MDG_Report/pdf/MDG%202015%20rev%20(July%201).pdf 2 UWEZO, 2011, “Are Our Children Learning? Annual Learning Assessment Report.” Available at: http://www.uwezo.net/wp-content/uploads/2012/08/ KE_2011_AnnualAssessmentReport.pdf 3 The Economist, Classroom Divisions, 22 February 2014, http://www.economist.com/news/middle-east-and-africa/21596981-paid-private-schools- are-better-value-money-free-sort-classroom 4 African Population and Health Research Center, Quality and Access to Education in Urban Informal Settlements in Kenya, October 2013, http://aphrc. org/wp-content/uploads/2013/11/ERP-III-Report.pdf 5 Company data 6 Harvard Business School Case Study, 2010, “Bridge International Academies: A School in a Box”. Available at: http://www.bridgeinternationalacademies. com/wp-content/uploads/2013/01/2010-Harvard-Business-School.pdf 7 Calculated using World Bank methodology, based on a sample size of 17,986 Bridge households across Kenya. Median income of Kshs 12,000 per month was equivalent to $136 per month or $4.53 per day at the time of calculation. From the same periodic data, Bridge families consists of 2.01 adults and 2.26 children. The OECD equivalence scale of (ES) = 1 + 0.7 (Nadults − 1) + 0.5 Nchildren = 2.837 family members the Daily Per capita=Daily Household income/ES = $4.53/2.837 estimates that Bridge family members live on $1.60 per day. See: http://www.oecd.org/statistics/OECD-ICW- Framework-Chapter8.pdf Simple calculations used by James Tooley of the University of Newcastle find the daily household income to be more like $1.25 per person, per day. 8 IFC, New Horizons in African Finance, 2016. Available at: http://www.ifc.org/wps/wcm/connect/6c338c804c128a5e989abed8bd2c3114/New+Horizons- English-Web.pdf?MOD=AJPERES 9 DFID, Developing Effective Private Education Nigeria Annual Review 2014. https://devtracker.dfid.gov.uk/projects/GB-1-202678/documents 32 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Region: Africa and Asia Sector: Insurance IFC Investment: $2.2 Million MicroEnsure The insurance industry has long been perplexed by the economic realities of insuring the world’s poor. As a group they represent a $40 billion market opportunity,1 yet they also present greater risks than typical insurance customers and are able to afford only miniscule premium payments. How, then, can this group of four billion people become a viable business opportunity? One company, MicroEnsure, has found solutions. MicroEnsure has developed pioneering insurance solutions MicroEnsure bundles insurance with products that for low-income people in Africa and Asia living on less than potential customers already use, including micro loans $4 per day. The company is a microinsurance solutions and mobile phone airtime. provider and, in some countries, an insurance intermediary— an agent or broker that matches the needs of potential The company currently operates in 15 countries, including customers to appropriate insurance options and that 10 in Africa. Its customer base has grown from two million receives a commission from insurers for each policy sold. 2 in 2008 to more than 40 million today, and to date it has paid more than $20 million in claims. Its distribution MicroEnsure has introduced over 200 types of insurance network includes 17 mobile network operators, 90 including for life, health, and accidents (Table 1). Since microfinance institutions, and a wide array of other low-income customers are often new to insurance, partners such as agricultural suppliers, health clinics, the company distributes its products through mobile nongovernmental organizations, faith-based networks, network operators, microfinance institutions, and and associations. The International Finance Corporation, other organizations that low-income customers trust. global insurance company AXA Group, the impact investor 33 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Omidyar Network, and Sanlam Emerging Markets are First, MicroEnsure analyzes a country’s market for MicroEnsure’s backers. The company is headquartered in microinsurance. It then identifies insurance and reinsurance the United Kingdom with offices in nine countries. companies and brings them on board to bear the risk of insuring customers. The idea for MicroEnsure originated in 2002 as a program within the microfinance institution Opportunity International; Second, MicroEnsure mobilizes distribution partners— by 2005 it had grown large enough to become a separate companies and organizations with high levels of trust nonprofit known as the Micro Insurance Agency (MIA); it was among the poor—to get insurance into the hands of re-launched in 2008 as the for-profit company MicroEnsure. customers. THREE CRITICAL ROLES TO Third, MicroEnsure provides integrated back-office services to its insurance and distribution partners, including product INSURE THE POOR design and marketing, risk selection, underwriting, and MicroEnsure works with partners across the insurance pricing. In most cases, MicroEnsure also collects premiums value chain to develop and deliver affordable insurance from customers and facilitates claims payments on behalf solutions. It tailors its role depending on the needs of its of insurers. It also collects and analyzes customer data, partners, but broadly plays three key roles. enabling it to develop new insurance products. Table 1: A Selection of MicroEnsure’s Products INSURANCE TYPE INDICATIVE COVERAGE OPTIONS • Payment of a borrower’s outstanding loan amount plus interest • Fixed payment to cover funeral costs for a borrower/bank customer and his/her family Life • Basic coverage at no direct cost to customer, but linked to the amount of mobile airtime purchased each month or the amount of money held in a savings account at a bank or micro finance institution • Covers the total or a part of the borrower’s outstanding loan payment installments after Credit Health hospitalization • Payment of a fixed amount to cover cost of hospital stay and/or for any type of expense per day Hospitalization of hospitalization based on monthly mobile airtime purchase Disability • Benefits for disability through illness or accidents, with simple and clear definitions • Payment of an unemployed person’s outstanding loan amount plus interest or a multiple of his/ Redundancy her bank deposit amount in the event of an employer downsizing or similar redundancy Political Violence • Payment of outstanding loan amount plus interest if a borrower’s business is destroyed • Payment of a borrower’s outstanding loan amount in the event of fire, flood, or damage from Property another catastrophic event3 Note: Insurance premiums are paid by different parties. They can be embedded within loans and paid by borrowers as an upfront fee. A microfinance institution, bank or mobile network operator may cover premiums for basic insurance to incentivize customers. For example, these companies may link basic insurance coverage to a certain amount of mobile airtime purchased or the amount deposited in a savings account. 34 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure MicroEnsure’s Value Chain An Overview of Challenges and Solutions Product Distribution Marketing & Customer Development Sales Service Value Chain • Mainstream • Sales agents • Limited • Large number insurance does increase understanding of documents not address key distribution of insurance needed for needs costs claims • Negative Challenges • Complex terms • High perception • Lengthy claims in Insuring and conditions distribution of insurance process Low-Income are difficult to costs increase companies • Discrimination Customers understand premiums against poor customers • Tailors products • Works with • Creates trust • Simplifies to grassroots partners through word- documents realities that already of-mouth required for a have large marketing claim • Simplifies terms MicroEnsure’s and conditions distribution and customer • Guides customers networks testimonials Solutions • Uses innovative through the • Selects • Insures common claims process approaches distribution events to build to design new • Accepts claims partners that understanding products through mobile have built trust of insurance applications and credibility • Enables • Settles claims • Uses mobile customers to try quickly phones to enroll basic insurance customers with airtime • Uses mobile purchases or wallets to bank deposits facilitate payments to unbanked customers 35 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure Figure 2: Key Milestones in MicroEnsure’s History Micro insurance For-profit MicroEnsure launched incubated at Opportunity Scale-up through mobile International network operators IFC investment 2002– 2005– 2008– 2013– 2004 2007 2012 2016 Gates Foundation grant AXA Group and other private sector Multiple MFI* partnerships investment Transition to independent nonprofit 40 million+ customers *Micro finance institution GETTING AN IDEA OFF THE In 2002 Leftley, who would eventually go on to become GROUND chief executive officer of MicroEnsure, quit his job to join microlender Opportunity International. He set out to The seeds of MicroEnsure were planted in 2001 when design insurance for people living on just a few dollars a Richard Leftley, a 29-year-old broker with reinsurance firm day, convince them to purchase it, and then to find a cost- Benfield Greig in London, took a volunteer trip to Zambia. Leftley encountered a young mother who lost her child because she could not pay $3 for hospital admission and another woman who had fallen into poverty after a death Within four years, the in her family. And while micro loans had helped many women start businesses, some borrowers were unable to initiative expanded repay the loans due to family deaths or illnesses, natural disasters, or other life events, and could be driven to debt from Zambia to the and poverty as a result. Leftley believed insurance could Philippines, Uganda, provide many of these people with a safety net. The evidence was in India, the Philippines, and Uganda, where Malawi, and Ghana, a handful of microinsurance products were already on the reaching 300,000 market. And he saw the gap between supply and demand for insurance in these poor communities as a significant customers. untapped opportunity. 36 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure effective model to distribute insurance on a large scale. SETTING A GOAL: HOW TO SERVE To do so he launched a microinsurance initiative with an FOUR BILLION PEOPLE operational budget of $100,000 for the first year. MIA faced a strategic choice in 2008: Stay small or Opportunity International selected Zambia for its pilot expand to serve a potential multi-million customer base? insurance program because of the country’s dire health The latter path would require access to debt and equity situation. In 2002 one of every four Zambians had HIV/ financing to provide the necessary operational flexibility, AIDS, and the average life expectancy was 36. Working rather than relying on donors who tend to support with ZSIC, a local insurance company, Opportunity clear-cut projects tied to specific outcomes. The choice International rolled out an insurance product called Credit was clear, and in 2008 MIA’s board voted to establish Life that it could offer with its micro loans. A borrower paid MicroEnsure Holdings, Inc., a for-profit company which one percent of the total amount of the loan upfront to get took over MIA’s operations. insurance coverage for the outstanding loan payment in the event of his/her death. The policy reduced the default By 2009, MicroEnsure had reached four million people risk for Opportunity International and gave borrowers through partnerships with more than 30 microfinance reassurance that their death would not leave their institutions, rural banks, and savings and credit families burdened with debt. Within a year, Opportunity cooperatives in seven countries. Its groundbreaking International added funeral coverage, which could cost work was having an effect on the broader market: More between three and six months of a family’s income, to microlenders were linking with insurers and with other Credit Life. insurance intermediaries that had entered the market. The Zambia pilot was a success. Opportunity International The roughly 130 million microfinance borrowers4 around reduced the workload and the costs for insurers to serve the globe were the original target for MicroEnsure’s this relatively low-margin market by tapping into its own products, yet the company was aware that reaching customer base and by collecting insurance premiums beyond that base to the four billion uninsured people living on behalf of insurers. Within four years, Opportunity on less than $4 day was essential to keeping its insurance International’s microinsurance initiative expanded from products affordable in the long run.5 Without a large Zambia to the Philippines, Uganda, Malawi, and Ghana, enough risk pool the costs of insurance products would reaching 300,000 customers. At the same time, it began cease to fall, an essential condition for the company to to offer coverage for disability and for property damage achieve financial sustainability. Also, it was clear that solid from fires and natural disasters. underwriting and operational discipline were necessary but not sufficient to the goal of reaching individuals To expand further, Opportunity International launched without insurance or back accounts; finding the right the Micro Insurance Agency (MIA) in 2005 as a nonprofit distribution channel was also critical. subsidiary, with Leftley as its CEO. MIA developed products for insurance companies in a comprehensive process that MicroEnsure needed a distribution partner with a large ranged from market assessments and product design to geographic footprint, a strong brand that low-income selecting distribution channels and providing back-office customers trusted, easily accessible points-of-sale, and the support. By 2007, MIA had partnered with more than 20 ability to facilitate cash transactions and payments when microfinance institutions in 11 countries. That same year needed. It also needed a partner that wanted to leverage a $24.25 million grant from the Bill and Melinda Gates insurance to help grow its own business, which would Foundation launched a period of rapid expansion for the align incentives and create a beneficial relationship for company. both parties. 37 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure SERVING THE MASS MARKET unique access to millions of customers, including many in remote rural areas. Those customers could be reached Mobile network operators emerged as particularly frequently and cost-effectively through mobile phones. promising partners for MicroEnsure for several reasons. That access could lower the costs associated with Low-income customers were increasingly using mobile marketing insurance products, registering customers, financial services to pay utility bills, send remittances to collecting premiums, and paying claims. Mobile family members, and recharge airtime. Insurance products operators also had large agent networks for face-to-face would be a natural addition to that list of mobile phone- interactions with customers and, perhaps most important, delivered products. the poor often trust their mobile service providers more than other institutions. Also, MicroEnsure believed that mobile operators could use insurance as a way to build loyalty among subscribers. In 2009, MicroEnsure created an innovative “freemium” Mobile phone subscribers in many emerging countries hold product that would provide a certain amount of life or multiple (two to four) subscriber identity module (SIM) health insurance at no cost to a mobile phone subscriber. cards from various providers in order to save money using The insurance amount would be based on the total airtime different airtime and messaging rates. A mobile operator the subscriber purchased each month and would be could stand apart from its competitors by bundling basic communicated to customers by text message. Coverage insurance with airtime. would apply to the subscriber and a designated family member. Mobile operators would pay a fee to MicroEnsure And with mobile phone technology widespread in and the local underwriter for providing basic coverage, and developing countries, mobile network operators have Design for the Local Context. Create Simple Policies. Low-income customers are not It is important to state clearly what homogenous, so insurance products is and is not included in an insurance must be tailored to their particular needs. policy and to have minimal exclusions Rather than designing products in and understandable terms and a boardroom, directly engage conditions. Also, waiting periods, potential customers in interviews age restrictions, and limits on MicroEnsure’s to understand what they need to the type and number of claim Product Design cope with risk. documents must be removed. Principles Cover Likely Events. Think Outside the Box. A low-income customer’s first Insurers need creative solutions inclination is to go without insurance. to address the broad range of So insurers need to focus on designing risks that low-income customers products those customers are likely to use, often experience (see page 41, i.e., products with high potential for a claim “Three for Free” Mobile Insurance). such as those that cover accidents. 38 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure customers could upgrade to premium coverage after six FREEMIUM PRODUCTS FOR HEALTH CARE months for as little as $1 per month. AND SAVINGS MicroEnsure and Tigo Ghana, a subsidiary of the global Medical Freemium: In Kenya, MicroEnsure worked telecom firm Millicom, launched the first “freemium” with Airtel and Pan Africa Life Assurance to offer insurance product in 2010 and MicroEnsure played a hospitalization coverage to Airtel customers. pivotal role in bringing the product to life. It also tested With monthly airtime usage of approximately options for paid insurance and learned that customers $2.40, customers received $9.60 in hospitalization were willing to pay $0.50 to $1.50 per month in premiums coverage and $96 in life and accident coverage. to increase their coverage. The partnership with Tigo soon The more customers spent on airtime, the expanded to Tanzania and Senegal, reaching one million greater their insurance coverage would become. people within 14 months. Customers could earn up to $48 in hospitalization coverage and $960 in life and accident coverage ATTRACTING COMMERCIAL based on their airtime usage. INVESTORS Savings Freemium: MicroEnsure worked MicroEnsure benefited from the backing of a strong and with banks such as Barclays and microfinance diverse but changing group of investors at critical points institutions such as Women’s World Banking in its development. The Gates Foundation grant fueled to incentivize customers to open a savings MIA’s rapid expansion into 10 countries and boosted its account rather than keeping money under their subscriber base from 2 million to 15 million between 2008 mattresses. Financial institutions paid insurance and 2012. It also enabled the company to reach the critical premiums on behalf of their customers, which stage where it could attract commercial investors. enabled them to earn a certain amount of life insurance based on the balance in their savings By mid-2012 MicroEnsure decided that equity financing accounts. Mary Nkenshen, a food vendor in Ghana, would provide it with greater flexibility to rapidly test was paid $329 upon the death of her husband, different approaches and products. Recognizing this need, who had saved $114. Other products provided a Opportunity International—which had maintained a fixed payout of five times the savings account majority stake in the company since its founding—made a balance in the case of a customer’s death or strategic decision to divest and retain only a minority stake disability. in MicroEnsure. This allowed MicroEnsure to attract new investors. IFC, Omidyar Network, and select members of MicroEnsure’s management team became shareholders in 2013. IFC invested $2.2 million in equity and debt to help MicroEnsure attract more commercially-minded investors and support the company’s transition to a financially sustainable, for-profit entity. This was IFC’s first direct investment in an insurance intermediary and presented an opportunity to support innovative approaches in the microinsurance space. 39 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure In addition to financial institutions, MicroEnsure sought THE VALUE OF SIMPLICITY mobile network operators as investors because of their large customer bases. The Norwegian multinational MicroEnsure discovered that, while low-income telecom firm Telenor Group became a strategic partner in customers experience risk in their daily lives, they 2013 and launched MicroEnsure Asia as a joint venture to are often unfamiliar with the potential benefits serve over three million mobile phone subscribers. With of insurance. To remedy this, the company used the capital infusion, MicroEnsure expanded to 15 countries. word-of-mouth to educate potential customers. It also paid claims at public events to increase DRIVING DOWN DISTRIBUTION awareness of and exposure to its products, circulated customer testimonials, and made COSTS rapid claim payments to alleviate commonly held With small insurance premiums, distribution costs had to concerns and doubts about insurance. be minimized in order to generate enough revenue for all parties. As it scaled up its mobile network partnerships, To simplify enrollment through mobile phones, MicroEnsure opted for a low-cost model that allowed MicroEnsure reduced its registration process customers to self-enroll for insurance and pay premiums to a few easy-to-follow steps. Mobile network through a mobile phone instead of more costly models that customers automatically received insurance with required an agent. In the latter model, network operators airtime recharges, but could opt-in for additional would have paid commissions to agents to register coverage through a drop-down menu or a voice customers which would have required agents to quickly response system on their phones, or by contacting register a large number of customers to be cost effective. a call center. Moreover, the Tigo Ghana experience demonstrated that customers purchased insurance based on the perceived value of the insurance and its connection to the network operator’s brand, regardless of an agent’s presence to explain the product. And it became clear that the poor were all too aware of the potential for risks to devastate their lives. So the company decided to expand insurance benefits to address a wider variety of risks rather than spend money on agent-based customer education and enrollment. This strategy included the decision to offer “Three for Free,” another “freemium” product that combined life, accident, and hospital coverage, and also helped mobile network operators attract and retain subscribers. 40 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure GETTING THROUGH CRISES AND “THREE FOR FREE” MOBILE INSURANCE LOOKING AHEAD Funerals in Ghana are costly, and for Cornelius In a crisis, poor customers need money right away to Tetteh’s father, a pastor, there would be hundreds address immediate needs. So MicroEnsure established of guests traveling across the country to pay a 72-hour turnaround time for claim processing. The their respects. Tetteh had little money to pay company found that customers who had a negative claims for the event. Luckily, his father had enrolled experience were more likely to drop coverage altogether. in a life insurance policy over his mobile phone MicroEnsure took several steps to ensure this didn’t through MicroEnsure’s partner Airtel, a giant in happen: telecommunications services in Africa and Asia. • Hand-holding. Because claimants often had difficulty Airtel subscribers can qualify for life, disability and identifying the necessary documents to file a claim, hospitalization insurance designed by MicroEnsure causing delays, MicroEnsure realized it could create based on the amount of monthly airtime they use. powerful visibility for its products by providing assistance. The company established call centers to Tetteh learned about the policy through a text contact customers who submitted claims. In doing so message sent to his father’s phone. As next of MicroEnsure simultaneously raised customer awareness kin, he received the equivalent of $725, enough to about insurance and reduced fraud. properly celebrate his father’s life. “Airtel Insurance comes in handy in Ghana where funerals are • Accepting Simple Documentation. In many remote tremendously expensive,” said Tetteh. areas in emerging countries it is difficult or even Source: MicroEnsure. “Cornelius Tetteh’s Story.” http://www. impossible to get formal documentation for insurance microensure.com/clientimpact-stories.asp?id=309&start=0. claims. In these cases, MicroEnsure created alternative means of identifying claimants. In Kenya, a life insurance claim typically required a government-issued death certificate. Since beneficiaries in remote areas often struggled to obtain that document, MicroEnsure was additional capital to pursue new growth opportunities. willing to accept a letter from an imam or pastor who Existing investors provided $10.4 million in capital in 2014. officiated at the funeral. And that same year French insurance giant AXA Group, which operates in 59 countries, became a shareholder. • Facilitating Claims Payments Through Mobile Wallets. Sanlam Emerging Markets, a financial services group, also Mobile payments enabled customers who lacked bank invested, and both companies brought critical capacity and accounts or proximity to a bank to receive claims skills to help MicroEnsure continue its expansion. payouts on their phones. These payments could then be cashed-out quickly through local mobile money agents. In early 2016, MicroEnsure raised an additional $15 million from existing investors, including IFC, and AXA Group As other insurance intermediaries engaged with became its largest shareholder. mobile network operators and the early growth rates of “freemium” products slowed, MicroEnsure needed 41 IFC INCLUSIVE BUSINESS CASE STUDY | MicroEnsure CONTINUOUS LEARNING In less than a decade MicroEnsure grew from a small For more information on initiative housed in a microfinance institution into a inclusive business at IFC, visit for profit company serving millions of customers. Its “fail www.ifc.org/inclusivebusiness fast” mindset, which looked to constantly innovate and rapidly revise strategies that weren’t working, helped the company learn and adapt along the way so that it could remain responsive to the needs of the low-income customers it aimed to serve. Since the poor largely didn’t value insurance and wouldn’t pay outright for premiums, MicroEnsure found ways to make insurance more palatable and attractive to them. Partners were critical to the endeavor. Microfinance institutions could use insurance to lower the risk of loan default by embedding insurance within a loan at a low fee to the borrower. Mobile network operators paid customers’ premiums for basic insurance coverage as an incentive to attract and build loyalty. MicroEnsure found that once the poor experienced the benefits of insurance at little or no cost, they quickly became willing to pay a small premium to expand their coverage. MicroEnsure has made great strides in insuring the poor, but continues to strive to change perceptions of insurance. The company will maintain an iterative approach to refine its business model as it embarks on the next phase in its evolution. ENDNOTES 1 Figures based on insurance premiums. Swiss Re. 2010. “Microinsurance—Risk Protection for 4 Billion People.” 2010. 2 Other sources of revenue are back office support and consultancy fees. 3 MicroEnsure provides property insurance to microfinance and small-business borrowers for their business premises. These borrowers include traders and vendors who operate small stalls or kiosks in markets, mom-and-pop shops that sell a variety of products, and service providers such as small auto repair shops. 4 IFC. 2015. Microfinance. http://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Industries/Financial+Markets/ MSME+Finance/Microfinance/. 5 Based on World Bank statistics, there are around 4 billion people living on less than $4 per day, including 2.6 billion people living on under $2 per day (in 2005 international dollars based on purchasing power parity). Source: Swiss Re. 2010. “Microinsurance—Risk Protection for 4 Billion People.” 2010. 42 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus Country: India Sector: Health Care IFC Investment: $10 million NephroPlus Chronic kidney disease (CKD), which causes people to lose their kidney function over time, affects nearly 12 million Indians.1 Once kidney failure occurs, affected individuals require a kidney transplant or weekly dialysis treatment to stay alive and will live only a few months at most without treatment. Demand for dialysis is growing at a rate of 31 percent stringent regulation, low kidney donation rates, and poor in India, compared to eight percent globally. India’s 2 infrastructure in the country. Moreover, kidney transplants high rates of diabetes and hypertension, as well as can fail. This makes dialysis a critical alternative for people increased awareness of CKD and treatment options, living with CKD. have contributed to rapid growth in demand for dialysis. Despite the importance of dialysis, more than 90 percent Yet dialysis providers have shied away from expanding of the 230,000 Indians newly diagnosed with CKD each services as they struggle to make clinics profitable in a year die within months due to lack of treatment. Services 3 low-margin industry. Industry-wide operational are fragmented and largely concentrated in big cities. inefficiencies, often related to equipment deployment and Also, high prices and the need for frequent treatments organizational structure, keep costs high. A shortage of make dialysis a financial burden for many patients and trained nephrologists, nurses, and technical staff has also unaffordable for others. A kidney transplant is a permanent constrained the expansion of dialysis services. Reaching solution, but availability is extremely limited due to patients in lower income brackets presents a particular 43 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus challenge given the reluctance of providers to reduce prices HOW DOES DIALYSIS WORK? in the face of tight profit margins. All of these challenges have deterred new entrants into the dialysis market, widening The kidney performs the critical the gap between the supply and demand for services. functions of removing waste and extra water from the body. Dialysis artificially NephroCare Health Services Private Limited (NephroPlus), conducts these functions by circulating blood a provider network of dialysis services, entered the Indian outside the patient’s body using an external filter dialysis market in 2010 with the goal of transforming the called a dialyzer. Most NephroPlus patients are entire industry. The company provides the complete range on hemodialysis which is highly time consuming. of healthcare services that kidney failure patients need to Hemodialysis patients visit a clinic two to three lead productive lives, including hemodialysis, peritoneal times a week with each session lasting around dialysis, and kidney transplant services. To deliver these four hours. In the absence of an opportunity for a services NephroPlus designs, builds, and operates low-cost transplant, individuals afflicted by kidney failure centers that provide high quality and affordable dialysis require dialysis for the rest of their lives. services. Centers are established through partnerships with hospitals or as standalone facilities. At roughly $25 per treatment, NephroPlus prices are 30 to 40 percent lower than large hospitals in India—and up to 50 percent lower in some cases. Today, NephroPlus is the Vikram Vuppala, who worked as a healthcare services largest provider network of dialysis services in India with strategy consultant with McKinsey & Company in the 75 centers in 50 cities in 15 states across the country. Its United States and was looking for opportunities to centers are located in large metropolitan areas as well as improve the health sector in India, discovered Shah’s underserved, small cities. Through its presence in smaller blog. Vuppala contacted Shah and proposed the idea for cities, NephroPlus reaches patients who would otherwise a dialysis start-up. Shortly thereafter, Vuppala brought have to travel up to 100 kilometers for dialysis. The company on board Sandeep Gudibanda, whose entrepreneurial served more than 6,000 patients in 2015 and now provides experience with technology start-ups and social approximately 50,000 dialysis treatments each month. enterprises would make him a valuable asset to the team. The three of them founded NephroPlus in 2010. A PERSONAL JOURNEY Through their experiences speaking with nephrologists, In 1997, 21-year-old Kamal Shah, a software developer who dialysis staff, and scores of patients, the three co-founders co-founded a company that developed apps for Apple, identified several areas where NephroPlus could effect was diagnosed with kidney disease and put on dialysis. high-impact, fundamental changes to the sector. These After a year and a half, he experienced a failed kidney included improving the quality of kidney dialysis, reducing transplant and returned to dialysis. For many years, Shah the gap between the demand and supply of services, was on peritoneal dialysis, which allowed him to work particularly in underserved regions, and designing a model with minimal disruption.4 After being caught in the 2004 for centers that would overcome the operational and tsunami, however, he was badly infected and had to switch financial challenges experienced by other providers. to daily nocturnal home hemodialysis. In the years that followed, Shah started a blog to encourage others with kidney disease to lead a full life. 44 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus NephroPlus’s Value Chain An Overview of Challenges and Solutions Procurement Product Distribution Marketing & Service & Sales Development Value Chain • Expensive • Affordability of • Talent shortage • Lack of equipment and dialysis constrains awareness of consumables expansion of kidney disease • Low quality of services and treatment • Inefficient service delivery Challenges deployment of • Inefficient use of options in the Dialysis equipment in nurses Industry public hospitals • Lack of dialysis services outside large cities • Uses demand- • Reduces prices • Builds a skilled • Focuses on based approach by lowering workforce for preventative for distribution operational dialysis industry care of equipment at costs • Implements • Hosts community centers NephroPlus’s • Leverages public a streamlined events to raise Solutions • Purchases in insurance staffing awareness about bulk structure kidney disease • Implements to enable and treatments strict clinical expansion protocols • Establishes • Uses patient- centers in centric approach smaller cities 45 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus MOVING THE NEEDLE ON QUALITY AND PATIENT EXPERIENCE India’s dialysis industry also lagged in patient care, including consideration for patients’ psychological Dialysis services in India were generally of low quality when well-being. Counseling and diet support services were NephroPlus was first launched, due primarily to insufficient used in many countries to address challenges such as regulation and disorganized operations. Negligent clinical stigma, depression, and the impact of dialysis on a patient’s processes and infection protocols caused high rates of professional life. Most dialysis providers in India, however, cross infection, with more than a third of dialysis recipients had not introduced such considerations into their at risk of contracting a chronic viral disease such as care mandates. Hepatitis C, Hepatitis B, or HIV.5 Cross infections occurred when the blood of an infected individual came into contact Having undergone lengthy treatment sessions, Shah with the blood of an uninfected individual. knew that incremental changes to service delivery could go a long way toward making a dialysis patient’s life feel NephroPlus believed that it needed to become a role model more normal. NephroPlus developed a care philosophy in in order to bring about the desired improvements in the which all patients were treated as guests (‘guest care’). industry. The company focused on identifying processes Implementation of the idea entailed the creation of a it could implement in its centers that would ultimately comfortable dialysis experience with safe and painless raise quality standards among all providers. The risks of treatment. The company also offered pick-up and drop- cross infection, for example, could be drastically reduced off transport service, to reduce dependence on family through stringent clinical processes for hygiene. Yet service members, while dietary counseling and patient support providers generally did not take necessary precautions groups promoted mental health. and, in the absence of industry regulation, were not held accountable for negligence. NephroPlus engaged international nephrologists to introduce standardized clinical procedures across all their own centers to eliminate cross-infection. 56-step process NephroPlus Dialysis Index Identifies and eliminates potential Enables the company to track patient sources of infection during dialysis. outcomes on a monthly basis This patent-pending process is NephroPlus’s and compare outcomes across implemented by NephroPlus Measures to patients and centers. It is staff at all centers. Reduce Cross modeled on the “Good Dialysis Infections Index,” which is used to measure Zero infection point kit dialysis performance in many Ensures that separate dialysis kits countries, and is customized to suit are used for each patient to reduce India’s dialysis market. cross-infection risks. 46 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus KEEPING COSTS DOWN Another priority for NephroPlus was achieving and maintaining profitability, which has long been a challenge for Indian dialysis providers plagued by inefficient operations. From its inception NephroPlus kept operational costs low through several measures: LEAN STAFFING. Many hospitals in India mostly used nurses to perform all tasks including lower-skilled, non-medical tasks such as data entry and machine operations. NephroPlus opted to create new staffing categories such as a dialysis therapist for medium value-add tasks and a dialysis assistant for low value-add tasks. Nurses could then be used for very high value clinical care and tasks related to medical complications, reducing the number needed to manage a single clinic. At the same time, NephroPlus trimmed overall staffing costs through a differentiated pay scale commensurate with skill and training level. VIRTUAL SUPERVISION. NephroPlus introduced a centralized patient monitoring system which enabled medical staff at its centers. This ensured optimal distribution of resources and headquarters to monitor patients at service avoided waste. centers through closed-circuit television. The company also created an online portal to collect patient data to support Together these measures became the critical building virtual supervision. Clinical data ranging from a patient’s blocks for NephroPlus’s low-cost service center model, one medical history to their weight and blood pressure was that it would replicate throughout India. entered into the portal during each session. If an issue arose at a center—for example, whether a patient with low To begin operations, NephroPlus raised $200,000 from hemoglobin required medication—an on-site staff member angel investors along with personal savings from Vuppala. could call experts who provided medical advice by instantly They established three centers in the first two years of accessing this data. operation. The first clinic—a small facility with five beds and ten employees—opened in Hyderabad in the state of BULK AND DEMAND-BASED Telangana in South India in 2010. An additional $400,000 PROCUREMENT. NephroPlus purchased from investors funded a second clinic in Hyderabad the consumables and equipment in bulk, allowing same year. A third clinic followed a year later, set-up in a the company to negotiate prices 15 to 20 medical college in a small city about 100 kilometers from percent lower than large corporate hospitals. In addition, Hyderabad. a management information system helped staff share and monitor their use of consumables and equipment across 47 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus MAKING DIALYSIS MORE ALIGNING INTERESTS OF AFFORDABLE PARTNERS In order to serve more low-income people, NephroPlus NephroPlus entered into revenue- needed to both increase the number of service centers and sharing agreements with private hospitals for make dialysis services affordable. Market prices for dialysis its captive centers. The company billed guests were on average INR 20,000 (roughly $310) per month, and split the revenue with the partner hospital. a steep price for the poor. NephroPlus’s low-cost model It also partnered with lead nephrologists at each enabled it to offer services at prices 30 to 40 percent below of its centers, from whom it secured an upfront market prices. Yet despite this significant price decrease minority investment. These arrangements aligned the poor found it difficult to afford treatment. stakeholder interests at each center and helped to ensure consistency in an expansion strategy NephroPlus had to think of additional ways to make its that involved an increasingly diverse group of services accessible to the poor. It began to register its stakeholders. centers with the government, which allowed patients to pay via public insurance plans. The Indian government offered two types of public insurance: Employees’ State Insurance (ESI) for workers earning $230 or less per month and a white-card plan for individuals below the poverty line.6 People using white-card insurance plans paid no out- of-pocket costs for treatment. This enabled NephroPlus to deliver dialysis to those least able to pay for services even at a reduced price point. As of 2015, approximately 25 percent of NephroPlus patients used public insurance to cover their treatment costs.7 But even with no out-of-pocket expenses for treatment many poor Indians faced transportation expenses and foregone income which prevented them from seeking treatment. So NephroPlus introduced other measures, including subsidized travel, to make treatment more accessible for public insurance patients. NephroPlus’s early centers had been set up as standalone facilities to shift their guests’ association with dialysis SHIFTING TO HOSPITAL-BASED away from being “sick” toward being a normal part of life. However, nephrologists and guests wanted proximity to a CENTERS hospital in case anything went wrong during treatment. To By the end of 2011 NephroPlus had grown to five centers, accommodate this NephroPlus reoriented its distribution delivering roughly 10,000 kidney dialysis sessions per year, strategy to establish clinics within private hospitals called and securing $4.25 million in equity from Bessemer Venture “captive centers.” To do so, the company would either Partners, a venture capital firm which invests in enterprise, assume control of an existing dialysis ward or would build consumer, and healthcare technology start-ups worldwide. a new center within a hospital looking to expand into dialysis services. 48 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus To reach more low-income patients, NephroPlus also bid for government contracts to build dialysis centers in public hospitals. As of 2015, the company had four dialysis centers NephroPlus offers at public hospitals in South India. Roughly 500 patients received treatment at these centers with no out-of- services at 30 to 40 pocket costs. A 2016 study found that 67% of NephroPlus’s percent below market prices; Two-thirds of its patients were considered to be living at the base of the pyramid. NephroPlus continued to establish standalone centers, but only as a secondary strategy. patients live at the base ADDRESSING THE SKILLS of the pyramid. SHORTAGE In 2012, NephroPlus created Enpidia, a dialysis training address the shortage of skilled technicians in India’s dialysis institute for technicians and nurses, in Hyderabad. The industry before the company embarked on expansion. institute offered standardized training according to the company’s best practices, ranging from clinical protocol Enpidia offers a two-year program covering technical and technical know-how to the firm’s unique “guest care” training in dialysis, patient care etiquette, and spoken philosophy. The company also trained employees of English. It is the only Indian institution registered with hospital centers it acquired so all staff were sufficiently BONENT, the certification agency for dialysis personnel equipped to implement its practices. The purpose was to in the United States. Enpidia graduates can work at Figure 2: Key Milestones in NephroPlus’s History NephroPlus Five centers, 23 centers, founded 10,000 dialysis 90,000 sessions sessions 2013- 2015- 2010 2011 2012 2014 2016 First center established First center within a public hospital 75 centers, opened in 300,000 Hyderabad Enpidia established sessions 49 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus COMMITMENT TO QUALITY AND PATIENT CARE NephroPlus centers or elsewhere. As of 2015, 60 to 70 percent of BONENT certified dialysis staff in India worked NephroPlus is committed to adapting its with NephroPlus. methods in order to remain current with evolving international best practices. A recently introduced GOING NATIONAL audit mechanism, for example, will ensure that quality standards are met across all facilities. While NephroPlus began in South India, it aimed to expand its services to other parts of the country over time. This Technology: Investments in cutting became a reality in 2013 when the company opened its first edge technology and equipment centers in the North and West, increasing the total number enable improvements in the of facilities from 23 to 40 between 2013 and 2014. The company’s patient monitoring company’s success also led to the creation of several other capabilities and maintain its high standard of dialysis companies, helping to create a healthy ecosystem. treatment. NephroPlus centers use a Reverse Osmosis Remote Monitoring System, for example, NephroPlus’s expansion also stirred interest among new which enhances monitoring of water quality investors. In 2014 the company raised $10 million, including during dialysis. The centers also use the “button $7 million from the International Finance Corporation hole” technique in which blunt needles are (IFC), and an additional $3 million from Bessemer Venture inserted in the same spots every time a patient Partners. This was IFC’s first healthcare venture capital undergoes dialysis. This technique is estimated to investment in South Asia and the first from IFC’s $250 reduce pain during treatment by 90 to 95 percent. million Early Stage Investment Program. IFC was a long- term investor and had the ability to support NephroPlus Patient Surveys: Another quality through future stages of growth. IFC later invested control area is guest care. To an additional $3 million in 2016. The investments in ensure excellence NephroPlus NephroPlus were part of IFC’s broader healthcare sector seeks regular patient feedback strategy, both globally and in India, which aimed to through surveys that identify “pain points.” For overcome obstacles to the development of accessible and example, NephroPlus has installed televisions and affordable healthcare facilities. Internet access at centers in response to patients’ complaints of boredom during treatment. Internet As it grew, NephroPlus further honed its approach to access allows professionals to work during selecting cities for its national expansion. The company treatment. Patients can also opt for nocturnal and first assessed the level of need by examining dialysis daily short dialysis before or after work at select demand and supply in various locations. It then identified locations. key hospitals and nephrologists to approach for partnership in the selected cities. Partner hospitals became key players in NephroPlus’s national expansion. As of 2015, centers established through partnerships with hospitals accounted for 52 centers. Increasingly, NephroPlus leveraged these relationships to achieve efficiencies and better deliver on its mission. In 50 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus late 2015, for example, NephroPlus expanded its hospital- NephroPlus organized the world’s first Dialysis Olympiad, based services to include peritoneal dialysis and kidney for example, a game day attended by 500 patients from transplants. It also hosted community events with partner across India. Importantly, these events were offered free of hospitals in order to raise awareness among a broader charge in order to encourage active participation. population and potential patient base. LEADING CHANGE IN THE INDUSTRY Raising Public Awareness Building a happy community among patients has been a Through its ambition to “change the way dialysis is done in cornerstone of NephroPlus’s holistic approach to “guest India,” NephroPlus’s mission has transcended the walls of care.” Given the low level of awareness of chronic kidney its own treatment centers. Unique standardized processes, disease and treatment options among people in semi- patent-pending innovations to prevent cross-infection, urban and rural areas, NephroPlus has developed education and staff certification and expertise have all served as programs and continues to host community events. Some models for the dialysis sector. Enpidia has benefitted the events provide hands-on support. At NephroPlus Kidney broader industry by producing high-caliber and certified Camps, for example, staff check kidneys and facilitate technicians. follow-up appointments. This event was designed to both identify kidney disease and raise awareness at the pre- By engaging in advocacy work, NephroPlus hopes to diagnosis stage to encourage screening. improve quality standards for dialysis services in India as well as regulation of the industry. The company is working Other events were focused on having fun and promoting with the Indian Society of Nephrology, for example, to the idea that dialysis can become a normal part of life. introduce standardization and accreditation processes and 51 IFC INCLUSIVE BUSINESS CASE STUDY | NephroPlus procedures in order to prevent the ad hoc establishment context, it must consider other factors such as policy of dialysis centers that do not meet clinical quality advocacy, talent acquisition, supply chain development, requirements. and the availability of public insurance programs—all of which have enabled the company to deliver affordable, LOOKING AHEAD high-quality dialysis in India. As it seeks to expand access to the underserved, NephroPlus is focused on countries Over the next five years, NephroPlus aims to reach over that have the greatest need and that can accommodate 40,000 patients and help create 10,000 skilled jobs, affordable prices for dialysis. including doctors, nurses, and dialysis technicians. Almost a third of these jobs will be for women. For more information on NephroPlus is on track to continue its growth in India: The inclusive business at IFC, visit company is planning to establish one clinic in every district www.ifc.org/inclusivebusiness of the country by 2018. Also, half of its future centers will be located in smaller cities to make dialysis services more accessible to lower-income patients. Future clinics will continue to be a mix of hospital-based and stand-alone centers, with an emphasis on increasing the number of centers in public hospitals. Continuing to serve those on public insurance will be key to reaching low-income populations. International expansion is also on the horizon for NephroPlus. The company has set a goal of expanding to five additional countries by 2020 and is planning to open clinics in Africa and elsewhere in Asia. As NephroPlus assesses whether it can apply its model in an international ENDNOTES 1 Pacific Bridge Medical. 2013. “India’s Dialysis Market.” http://www.pacificbridgemedical.com/publication/high-rates-of-chronic-kidney-disease-lead-to- medtech-opportunities-in-india. 2 IBID 3 Narayan, Adi. Bloomberg Businessweek. 2012 “The Big Market for Dialysis in India.” http://www.bloomberg.com/news/articles/2012-01-05/the-big- market-for-dialysis-in-india. 4 In Peritoneal Dialysis, a plastic tube is placed in the stomach via surgery. Cleansing fluid enters and exits the body through this catheter, initiating a filtering process. This form of continuous dialysis allows the patient to control extra fluid more easily and poses fewer restrictions in terms of diet, daily activities, and ability to work. 5 NephroPlus. 2014. “Cross Infections in Dialysis Units.” http://www.nephroplus.com/cross-infections-in-dialysis-units. 6 The Below Poverty Line benchmark is determined using various parameters which vary from state to state in India. In Andra Pradesh, white cards are issued to individuals with a monthly income equal to or below INR 11,000 ($US 166). More information at: http://www.archive.india.gov.in/howdo/ service_detail.php?service=7. While public hospitals accept both insurance plans, private providers must attain government approval in order to accept either form of public insurance. 7 This figure is expected to grow to 30 percent by 2020. 52 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Country: Nepal Sector: Agriculture $1.9 million Probiotech IFC Investment: Agriculture is the economic backbone of Nepal. It contributes more than a third of the country’s gross domestic product¹ and is the primary—and often the only—source of income for Nepalis who live in remote areas. These small farmers typically cultivate less than one acre of land and find it difficult to expand their farms and increase their incomes due to a lack of training, inputs, and finance. Agribusinesses like Probiotech, a leading processor and animal feed products to poultry and livestock producers, producer of animal health and nutrition products in Nepal, with poultry farms accounting for 90 percent of the have a big stake in the success of small farmers. Probiotech company’s total feed sales. Many of Probiotech’s poultry works with these farmers at both ends of its value chain, customers run small-scale operations under constant both of which present unique opportunities and challenges threat from high production costs and other inefficiencies. (Figure 1). Probiotech does more than buy grain from farmers and Upstream, Probiotech sources ingredients for its animal process it into feed to sell to poultry producers. By building feed products from grain farmers. A major input is maize, capacity and facilitating access to input finance across often grown by small farmers who lack the expertise its value chain, Probiotech is bringing about tangible and resources to develop thriving farms.² Downstream, improvements that can have a lasting impact on Probiotech engages small enterprises to distribute its agriculture in Nepal. 53 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Figure 1: The Role of Key Players in Probiotech’s Poultry Value Chain Upstream Downstream Suppliers Aggregators Probiotech Distributors Customers Farmers* Grain Traders Dealers, subdealers Poultry producers and input shops Role: Grow maize Role: Sell maize Role: Procure Role: Sell poultry feed Role: Purchase feed maize and produce and raise chickens poultry feed *Probiotech also procures rice and soya bean for poultry feed The company grew out of NIMBUS Holdings Private such as vitamins and minerals. As Bagaria learned more Ltd., a diversified family-run business founded in Nepal about the animal feed industry—and poultry in particular— in 1998.³ Today, Probiotech sells animal feed to over he discovered several inefficiencies in the domestic 12,000 customers annually, including an estimated 7,200 production of poultry feed that affected the quality of small-scale poultry producers. Its shareholders are the chickens and ultimately the incomes of farmers. International Finance Corporation, the Global Agriculture and Food Security Program (GAFSP), and the founders of First, high quality feed is critical to producing quality NIMBUS. poultry, but the feed industry in Nepal consisted of many small companies that lacked the capacity to meet local DISCOVERING AN OPPORTUNITY demand and produced feed of variable quality. Also, shortages in the supply of raw materials (mostly maize) Founded by J.P. Agarwal, NIMBUS Holdings’ early business inhibited feed production and forced feed producers to rely model centered on the distribution of imported consumer on imports. And second, the absence of strong distribution goods in Nepal. When Agarwal’s son, Anand Bagaria, joined networks meant that many rural poultry producers were the business he brought entrepreneurial experience—he unable to access high quality feed when they needed it and had previously launched several pilot projects including one often used household food scraps and feed mixed by local, focused on selling veterinary enzymes. Noting demand for informal feed providers. quality products in the veterinary sector, Nimbus began to specialize in the import and distribution of animal health Bagaria set out to address these problems. With no large and nutrition products, including vitamins, vaccines, and corporate players in Nepal’s animal feed industry, organized veterinary medicines. feed companies contributed only about 35 percent of all feed. Bagaria saw this as an opportunity for Probiotech to In 2000 Agarwal and Bagaria established Probiotech as a expand from the production of poultry feed supplements to NIMBUS subsidiary to produce animal feed supplements the production of poultry feed itself.⁴ 54 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Probiotech’s Value Chain An Overview of Challenges and Solutions Procurement Distribution Customer & Product Service Development Value Chain • Low productivity • Small poultry • Poor biosecurity and and quality of producers are hard farm practices among locally-grown maize to reach in hilly poultry producers negatively impacts regions • Difficult to train large Challenges in volume and quality • Strikes and road numbers of scattered Providing of poultry feed closures disrupt poultry producers Poultry Feed • Maize farmers lack distribution • Insufficient attention access to training to • Limited credit and to training women improve production logistics resources poultry producers constrain feed • Poultry producers lack dealers access to finance for inputs • Increases long-term • Builds distribution • Trains poultry local maize supply network with producers through by facilitating uptake national reach events, extension of climate-smart staff, and dealer • Uses regional depots Probiotech’s practices among to distribute feed network maize farmers Solutions to dealers • Employs women • Builds maize farmers’ extensionists and • Trains dealers and technical know-how veterinarians to sub-dealers and through demo plots, train women provides working text messaging, and a poultry producers capital finance helpline • Facilitates poultry • Reaches small producers’ access poultry producers to inputs on credit through sub-dealers through dealer network 55 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Figure 2: Key Milestones in Probiotech’s History Probiotech Establishes Creates poultry Trains 4,000 founded animal feed extension unit maize farmers mill with IFC & GAFSP 10,000 feed 12,000 customers feed customers 2000– 2004- 2010– 2014– 2003 2009 2014 2016 Produces feed Partners with IFC & GAFSP supplements IFC & GAFSP invest $3.8M on poultry project Transforming Nepal’s Poultry Feed a leading poultry company in India. A year later, Bagaria Industry consolidated all of NIMBUS’s and Probiotech’s business By 2003, Probiotech was actively exploring the idea of lines for animal health, nutrition, and feed under Probiotech producing poultry feed in Nepal. After consulting with feed (Figure 2). companies in neighboring India, Bagaria concluded that domestically produced feed would have several advantages By producing pellet-based feed, Probiotech’s mill did more over imported feed: than increase the supply of local feed—it also improved the quality. Whereas most domestic feed producers sold • Lower costs: High import duties on poultry feed are loose “mash” feed made of ground grain, Probiotech’s passed on to poultry producers, many of whom already mill produced pellet feed, which is easier to digest and struggle to break even. In addition, feed is a bulky promotes better growth among “broiler” chickens raised commodity that costs less to transport locally. for their meat. This increases revenues and income for poultry producers. • Quality assurance: Feed has a short shelf life—just 45 days, or eight days when opened. Local production Today, Probiotech produces more than 20 varieties of minimizes deterioration in quality, especially in warm animal feed, led by Bagaria as Managing Director of weather. NIMBUS and Probiotech. • Timely supply: Local production enables distributors BUILDING THE INFRASTRUCTURE to regularly procure and supply feed for small poultry FOR EFFICIENT FEED DELIVERY producers who don’t purchase in bulk and need frequent deliveries. With its mill up and running, the next challenge for Probiotech was to determine how to deliver its poultry In 2004 Bagaria established Nepal’s first pellet feed mill, feed products to customers. This was a challenge as Shakti Agro Mills, through a joint venture with Suguna, many poultry producers are located in remote areas over 56 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech hilly terrain. Probiotech sells feed to both large and small network’s reach to small poultry producers. Probiotech poultry producers, but the average customer raises 500 to provides working capital credit on favorable terms to 2,000 chickens, and its smallest customers raise just 100 dealers who, in turn, offer credit to sub-dealers. The chickens at a time. company also trains sub-dealers in financial management and assists them with logistics and product deliveries. Leveraging the dealer network that NIMBUS had built for its import distribution business, Probiotech began to develop its own nationwide distribution network that would eventually cover 68 of Nepal’s 75 districts (Figure Figure 3: Probiotech’s Distribution 3). It found early on that selecting the right people as Network distributors was critical since they would serve as the face of Probiotech for customers. Certain selection criteria were particularly important: people who were trusted in the PROBIOTECH FACTORY local communities, had a good reputation in business, and had a reasonable level of education. Today, Probiotech’s distribution network includes: 8 regional depots Stock ~ 800 MT of poultry feed Depots: Managed by Probiotech, depots are the first link in 110 large dealers  ell 30-600 MT of poultry S feed/month the distribution chain. Located throughout Nepal, depots 500 help the company minimize disruption in feed distribution sub-dealers due to strikes and road closures. Probiotech supplies feed  Sell less than 30 MT of to dealers directly from its factory as well as through depots. poultry feed/month Dealer Network: The next link consists of dealers, 90 7,200 SMALL POULTRY PRODUCERS* Purchase ~ 50 Kgs of feed/month percent of whom work exclusively for Probiotech. Large dealers supply feed to sub-dealers as well as to large commercial poultry producers. Sub-dealers help extend the *Probiotech serves 12,000 large, medium, and small-scale producers of poultry, cattle, swine and fish through its dealer network. Of these, an estimated 7,200 are small poultry producers with 100-300 chickens on average 57 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech POULTRY PRODUCERS IN NEPAL Input stores: Alongside its dealer network, Probiotech leverages NIMBUS’s agri-input stores called NIMBUS Krishi Poultry farming is common in Nepal where nearly Kendras to sell its feed products. Nine stores are currently half of all households raise chickens in small-scale in operation but that is expected to grow to 200 by 2020, backyard farms, largely in rural areas.⁵ Some increasing Probiotech’s visibility among potential customers. households only produce enough for their own consumption while others are able to earn a Together these feed distribution channels have enabled livelihood or supplement income through poultry Probiotech to increase market penetration. Today the farming. company reaches 12,000 customers, including some 7,200 small poultry producers. Nepali broiler farms, which raise chickens for their meat, are also small-scale in comparison to ENABLING SMALL POULTRY similar farms in other countries. About 95 percent PRODUCERS TO SUCCEED of known broiler farms in Nepal have fewer than 2,000 chickens.⁶ Farms of this size are becoming When Probiotech began marketing feed products it found rare in India, where most producers manage that small poultry producers faced a number of challenges 5,000-50,000 birds.⁷ including low quality inputs, limited market linkages, limited access to finance, and insufficient technical knowledge. Addressing these issues was an opportunity for the company to build loyalty among producers and help them grow their operations—and also increase their use of Probiotech products. The company focused on three areas: Provide High Quality Feed. When Probiotech was founded, the Nepali feed market was dominated by low quality mash feed. The high feed conversion ratios associated with mash feed in Nepal indicates that poultry required a large quantity of feed to obtain sufficient nutrition to produce meat or eggs. With feed representing about 80 percent of production costs for small producers,⁸ those using mash feed weren’t achieving optimal returns. Probiotech’s pellet feed, by contrast, achieved improved conversion ratios that could increase producers’ efficiency.⁹ To convince poultry producers of the benefits of its improved feed, Probiotech presented them with a no-lose challenge: Feed mash to half of their chickens and Probiotech’s pellets to the other half. If the chickens that were fed Probiotech products performed poorly, the company would compensate the farmers. If instead the Probiotech feed helped improve profits, farmers were asked to share their experiences with others in their community. 58 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Figure 4. An End-to-End Solution for Small Poultry Producers Dealers Probiotech Pay Probiotech Provides feed balance owed to dealers on feed Dealers Sub-Dealers Provide feed and Sell chickens and pay chicks on credit producers after deducting input costs Pay dealers balance owed on feed Sub-Dealers 7,200 Small Poultry Provide feed and Producers chicks on credit Raise chicks and provide to sub-dealers for offtake Facilitate Access to Finance and Markets. Few pay producers the proceeds after deducting the balance small-scale poultry producers had access to owed for inputs (Figure 4). the relationships and capital necessary to build or expand operations on their own. By Improve Technical Knowledge. Many of advancing feed on credit to its dealers, Probiotech set the Probiotech’s smaller customers do not wheels in motion for many poultry producers to do so. have formal training in farm management and bio-security best practices; one How does this work? At the start of a customer study suggested that 95 percent of Nepal’s small-scale relationship, a sub-dealer typically extends credit to a poultry producers lacked technical training.¹⁰ Improper small poultry producer in the form of chicks and feed. The management of poultry sheds can cause disease and death producer then raises the chicks for a month and a half, among birds. As a result, small producers are often unable and returns fully-grown broiler chickens to the sub-dealer. to cover their production costs and end up abandoning the Sub-dealers sell these chickens on the open market and poultry business. 59 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech Noting that incremental improvements could bring funding provided in part through the Global Agriculture significant savings for its customers, but that the public Food Security Program (GAFSP), a multilateral mechanism sector provided insufficient extension resources, Probiotech that aims to support agricultural investments in the began to educate poultry producers through events that world’s poorest countries, IFC launched a poultry sector often attracted hundreds of participants. improvement project with several companies in Nepal, including Probiotech. Poultry Partnership with IFC and GAFSP In 2010, IFC began to engage with the poultry sector in IFC worked with Probiotech in a number of areas: Nepal given its importance for rural livelihoods and its role in improving food and nutritional security. Utilizing 1. Improving the quality of poultry inputs. IFC provided advisory services to Probiotech to further improve its feed production efficiency and quality. At the same time, IFC worked with hatcheries that supplied chicks to Probiotech’s dealers to address disease management and other factors that could enhance the quality and lifespan of chicks. 2. Training poultry producers. IFC and GAFSP supported Probiotech to train 4,050 poultry producers in shed cleaning, poultry feeding, and record keeping, among other topics. Since many poultry producers in Nepal are women, the project took steps to increase their participation. Childcare was provided at trainings which were scheduled SUPPORTING FOOD AND NUTRITIONAL at convenient times since family responsibilities often SECURITY prevented women from attending events. Female veterinarians were trained to provide extension Probiotech’s work in the poultry sector not only support. Special efforts were also made to link women benefits small-scale poultry producers but also poultry producers to Probiotech distributors for inputs the wider Nepali population. Nepal is among the and offtake. Ultimately, the trainings reached 1,000 poorest 15 percent of countries worldwide and women poultry producers, 85 percent of which adapted over 14 percent of households lack sufficient food. 11 best practices from the training. Among women Poultry products provide the primary source of producers, the cost of production dropped by 18 percent. protein for many Nepali families, so improvements in the poultry sector are critical to improving food 3. Institutionalizing support services for poultry security. In addition, Probiotech is expanding producers. The project helped Probiotech to operations to convert soya-based byproducts systematize and deepen its approach to supporting from its feed production into affordable, high poultry producers. Before the project, Probiotech had quality soy-based nuggets which will provide an held basic educational events from time to time, but alternative source of non-animal protein for the they were not institutionalized into the company’s local market. operations. 60 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech IFC’S ADVISORY SERVICES—PAVING THE WAY During the project, Probiotech established a farm TO AN INVESTMENT extension unit and later embedded it within the company. Probiotech also leveraged helplines, IFC and GAFSP observed Probiotech’s growth veterinarians, and distributors to further engage and potential through this initial engagement in the support poultry producers. The company set up its poultry sector. Building on the success of the helpline in 2011 to provide advice and assistance to advisory project, IFC and GAFSP invested $3.8 farmers. Its vets follow up on these calls with farm million in equity financing in Probiotech in 2014. visits to assess poultry producers’ needs and provide In addition to restructuring the company’s equity emergency assistance. The extension unit also base, the financing is being used to develop works with dealers and sub-dealers to disseminate manufacturing units for value-added products information about the latest poultry management that use Probiotech’s feed byproducts, such as soy methods to small-scale producers across rural Nepal. flour, nuggets, and oil. In the years since the project, Probiotech has developed other initiatives to support poultry producers. Shakti Helping Hand, for example, supports producers whose poultry flocks have been affected by avian flu. In the event that a producer has to slaughter an entire flock, the company provides a grant to help purchase chicks to start a new poultry rearing cycle. These efforts have enabled Probiotech to deepen its relationships and build brand loyalty among producers. 61 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech BUILDING-UP THE MAIZE SECTOR • Low Quality: Probiotech needed high quality maize to maintain the shelf life of its feed products and to Challenges in Supply optimize animal health. Poor quality seeds along with Like many other agribusinesses, Probiotech requires a challenges in soil fertility, irrigation, pest management, steady and high quality supply of raw material to operate and improper storage had resulted in inconsistent quality its feed mill at full capacity. Maize is the predominant grain of locally grown maize. used in poultry feeds worldwide due to its digestibility and energy content, constituting more than half of the raw • Supply Aggregation: Maize is harvested just before the material used in feed. 12 onset of the monsoon season. As a result, many small farmers face pressure to sell their grain immediately at a Over the years it became increasingly clear to Probiotech low price since they lack access to grain storage facilities. that it faced three key issues in securing a reliable and steady supply of maize: Without improvements in the local maize supply, Probiotech knew it wouldn’t be able to significantly • Insufficient Volume: Local supply shortages meant that increase its local procurement in the long run. Probiotech Probiotech had to purchase maize imported from India, faced a key question: How could the company effectively as much as 50 percent in some years, incurring import build the skills of thousands of small maize farmers spread duties and driving up procurement costs. over Nepal’s plains and foothills? 62 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech SMALLHOLDER MAIZE FARMERS The PPCR project works with farmers in Bara, a major Maize farmers in Nepal are located in the “terai,” maize-growing district in the plains, and Parsa, which has or plains, as well as the foothills. They typically a similar climate. The project collaborates with a local cultivate about half a hectare to three hectares nonprofit to train farmers, though they are still free to sell of land. on the open market. The project uses several methods to train maize farmers: The maize growing season lasts four to five months, culminating in June. As such, farmers Demonstration Plots. Set up alongside typically grow maize along with other crops like maize farmers’ own plots, these plots enable rice and vegetables. Their limited access to inputs, farmers to test new practices, tools, and finance, and training reduces the productivity technologies for climate change adaptation of their farms and the quality of maize grown, before they implement them at their own farms. resulting in lower incomes. Awareness-building and training events are often held at these demonstration sites. Face-to-Face Training. Probiotech developed training materials, including a climate-smart practices handbook for farmers. It also hired One commonly used solution is contract farming: In agricultural extension officers to train lead many countries, companies provide training and inputs to farmers who, in turn, shared lessons on climate change contract farmers and commit to purchase their produce at adaptation with other farmers. Training events are timed harvest time. Culturally, this arrangement was infeasible to align with the sowing, growing, and harvesting cycle to in Nepal. Farmers were accustomed to selling to traders ensure farmers get the support they need at the right time. rather than through exclusive contracts with companies, a system that Probiotech was reluctant to drastically disrupt. Mobile Phones. The project uses mobile Moreover, there is no regulatory framework for contract phones to keep farmers informed of market farming in Nepal. A different solution was needed. prices, weather forecasts, and farming practices. Climate-Smart Farming In 2013 Probiotech and IFC joined forces to work on the The company expects that its work with these maize farmers Pilot Program on Climate Resilience (PPCR), a multi- 13 will pay off in the long run as other farmers learn from donor initiative which helps national governments their neighbors. Probiotech is already beginning to see integrate climate resilience into their development plans results, with a 20 percent increase in the volume of local and activities, including through the private sector. One maize the company procures as of 2015. The project has component of the project promoted climate-smart trained approximately 4,000 maize farmers to date, with practices among maize farmers. These practices improve about 70 percent adopting new practices from the the productivity and quality of maize—key issues that trainings. Probiotech has collected data on 2,000 maize constrained Probiotech’s local procurement. farmers plot sizes, the inputs they use, and challenges they face, and the company continues to identify opportunities to support them. 63 IFC INCLUSIVE BUSINESS CASE STUDY | Probiotech NEW ROLES FOR THE PRIVATE For more information on SECTOR inclusive business at IFC, visit www.ifc.org/inclusivebusiness Through a hands-on approach to productivity, quality, and efficiency in Nepal’s agriculture ecosystem, Probiotech demonstrates how the private sector can embrace new roles in development. It was never simple. Probiotech had to work to identify and address the key obstacles that prevent its suppliers, distributors, and customers from maximizing their economic potential. In turn, the company has benefited from the strengthened capabilities of these key players in its value chain. Ultimately, the sustained involvement of businesses like Probiotech, along with government and civil society, is critical to promote sustainable agriculture. Probiotech shows companies how this can be done through their core operations as well as through multi-stakeholder partnerships. ENDNOTES 1 USAID (United States Agency for International Development). 2016. “Agriculture and Food Security.” https://www.usaid.gov/nepal/agriculture-and- food-security. 2 USAID (United States Agency for International Development). 2013. “Hill Maize Research Program Factsheet.” https://www.usaid.gov/nepal/fact- sheets/hill-maize-research-program-hmrp. 3 Operations of the companies under Nimbus Holdings span agribusiness and animal nutrition, poly woven fabrics production, chemicals, and trading and distribution. 4 Probiotech also produces feed for livestock. 5 FAO. 2014. “Poultry Sector: Nepal.” Animal Production and Health Series Livestock Country Reviews, pp: 20; Nepal Central Bureau of Statistics. 2015. “2014 Statistical Pocket Book of Nepal. National Planning Commission.”pp: 139. 6 SMDE (Society for Management and Development). 2010. “Integrated Characterization of Four Cross-Border Areas of Nepal in the Border with India for the Risk Assessment of HPAI: A Socio-economic Perspective.” FAO/ECTAD-RAP, Nepal. 7 FAO. 2003. “Project on Livestock Industrialization, Trade and Social-Health-Environment Impacts in Developing Countries.” http://www.fao.org/ wairdocs/lead/x6170e/x6170e2k.htm#fn58. 8 GAFSP Project Card. “Nepal: Boosting Poultry Productivity & Farmer Incomes.” http://www.gafspfund.org/sites/gafspfund.org/files/Documents/ GAFSP_ProjectCard_Probiotech.pdf 9 While existing poultry feed in Nepal provided a high average FCR of 2.2, Probiotech’s standard poultry feed has an FCR of 2 and its premium offering has an FCR of 1.8. 10 Ryan, O., and A. Pant. 2011. “IFC Builds Farming Capacity in Nepal.” Asian Poultry Magazine, November/ December 2011. 11 Nepal Food Security Monitoring System. Nepal Food Security Bulletin, Issue 43. Ministry of Agricultural Development, 2015. Kathmandu. http://relief- web.int/sites/reliefweb.int/files/resources/wfp273073.pdf 12 Ravindran, Velmurugu. FAO. “Poultry feed availability and nutrition in developing countries.” Poultry Development Review. http://www.fao.org/3/a- al705e.pdf. 13 PPCR is a project of Climate Investment Funds and also works with rice and sugarcane farmers in Nepal. 64 CONCLUSION BUILT FOR CHANGE: INCLUSIVE BUSINESS Conclusion SOLUTIONS FOR THE BASE OF THE PYRAMID As the largest global investor in inclusive business—with The business models and experiences of these five more than $14 billion invested in over 10 years—IFC is companies are quite different yet one element stands committed to helping these companies grow and continue out in all of their stories: The need to be dynamic. Agile to have a positive impact on people living at the base of adaptation has been critical to each company’s success. the economic pyramid. After over a decade of partnership with inclusive businesses, IFC has learned that these clients The ultimate goal of this report is to use the experiences generate financial returns that are similar to IFC’s overall and stories of these five firms to provide global business portfolio and that they push the envelope in a variety leaders with a better understanding of what it takes to of sectors and geographies. Curating the knowledge integrate individuals at the base of the pyramid into their of inclusive business leaders and sharing it with global business models—as suppliers, distributors, retailers, and businesses and the development community is of utmost customers—and grow their business. importance to encourage more firms to replicate and build on these business models. In the future IFC will need more inclusive businesses to share their experiences—the inspirational stories of their The IFC clients depicted in this report demonstrate founders, the challenges they faced and solutions they the perseverance and innovation common to inclusive found through different stages of growth, the key decisions businesses worldwide. These five firms created new and pivot points in their expansions, and most of all the solutions in agriculture, where Probiotech works with lessons they learned. Collectively these will provide a small-scale farmers as both suppliers and customers; in robust knowledge base from which other businesses can education, where Bridge Academies provides affordable, benefit. high quality curricula; in financial services, where bKash expanded mobile banking services to the unbanked and MicroEnsure found a way to insure them; and in healthcare, where NephroPlus provides low-cost dialysis services to patients in India. 65 Inclusive Business Models International Finance Corporation 2121 Pennsylvania Ave, NW Washington, DC 20433 inclusivebusiness@ifc.org ifc.org/inclusivebusiness September 2016