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Improving the Lives of Hundreds of Millions of People in India by Accelerating the Growth of BOP Markets in MedTech and Clean Energy. Presented at SOCAP/Europe.
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INCLUSIVE INNOVATION Improving the Lives of Hundreds of Millions of People in India by Accelerating the Growth of BOP Markets in MedTech and Clean Energy
Presented at SOCAP/Europe May 2011
Omidyar Network and the Omidyar Network logo are trademarks of Omidyar Network. Other trademarks are the property of their respective owners. www.omidyar.com
Results to-date
• Raising $50 million early stage MedTech fund
• Investment discussions with 5-6 MedTech opps
• Considering 2-3 specific grant proposals for public health institutions
• Invested in Agni, bio-coal firm
• Investment discussions with 3 Clean Energy entrepreneurs
• Insights on opportunity / model for market dev’t
▪ ON and McKinsey worked together to define and analyze the market landscape, interview over 50 entrepreneurs, and speak to dozens of experts ▪ Got terrific guidance from
great Steering Committee (e.g., Antony Bugg-Levine, Michael Chu, Brian Trelstad) ▪ Focused on specific market
interventions that could accelerate market growth ▪ Discussed issues with key
policy-makers
2
Study approach
▪ How big is the opportunity? ▪ How many / who are the
entrepreneurs targeting the BOP MedTech and Clean Energy markets?
▪ How strong are their business models? Can they really help the poor? Why?
▪ What barriers make it difficult to scale?
▪ How can we best help them?
▪ What resources will be required?
Key issues
STUDY APPROACH FOCUSED ON ENTREPRENEURS AND MARKET ECOSYSTEM FOR MEDTECH AND CLEAN ENERGY
3
INCLUSIVE INNOVATION: IMPROVING LIVES OF HUNDREDS OF MILLIONS IN INDIA AND GENERATING ATTRACTIVE RETURNS BY ACCELERATING THE GROWTH OF BOP MARKETS IN MEDTECH AND CLEAN ENERGY
Many entrepreneurial innovators are seeking to serve India’s vast BOP markets for MedTech and Clean Energy; they have the potential to generate massive social impact and deliver attractive financial returns
Multiple market development efforts (such as early stage financing, industry associations, certification/standards, and specialized training) are required for these entrepreneurial innovators to achieve their full potential and to develop vibrant market ecosystems that create value for all stakeholders
Inclusive innovation – wherein impact investors, commercial investors, philanthropies, development agencies, and governments collaborate to support innovators and invest in market development – can overcome these challenges and accelerate the growth of BOP MedTech and Clean Energy markets
1
2
3
4 SOURCE: McKinsey Global Institute; Global Insight; EIU
INDIA’S BOP REPRESENTS 835 MILLION PEOPLE AND $360 BILLION IN DISPOSABLE INCOME
Household income USD 2010 nominal
Household income USD 1990 PPP
Disposable Income Billion USD 2010 nominal
>$8 >$17.03
$4 - $8 $8.52 - $17.03
$2 - $4 $4.26 - $8.52
$1.25 - $2 $2.45 - $4.26
<$1.25 <$2.45
Population Millions
85
25
419
415
246
101
257
320
241
294
BOP
5
SIGNIFICANT LATENT DEMAND AMONG INDIA’S BOP POPULATION
SOURCE: ESRC report; BP Statistical Review 2008, China Year Book 2009-09, Indian Banks Association, RBI, BIS
Healthcare
Energy
Education
Finance
Communication
1 Latent demand calculated from comparable benchmarks, viz. total demand of China
= Total demand Current demand Latent demand1 +
Tele density per thousand
233
224 (23%)
124 (53%)
Bank Loans / GDP per thousand
1,684
109 (47%)
1,066 (63%)
Youth literacy per thousand (15-24 olds)
988
129 (16%)
764 (77%)
Per capita annual electricity consumption (Mwh/year)
789
618 (37%)
440 (45%)
Per capita healthcare spend (PPP USD 2007)
980 540 (55%)
660 (84%)
100% =
Latent demand (%)
53
63
23
45
16
6 Source: GlobalData; BMI; EIU; Cygnus
BOP 2020 MedTech Market Size USD billion
2020 market (optimistic case)
~10.0
Effect of market development
2.00-3.50
2020 market (base case)
~6.50
Effect of frugal innovation
~2.50
Secular growth
~2.75
2010
~1.25
USD 10 billion market equal to entire Indian
pharmaceutical industry in 2007
BOP DEMAND CAN YIELD VAST MARKETS
0
2010 Size Percent of Indian Med Tech Market
0.095 9 0.085 8 0.075 7 0.065 6 0.055 0.005 5 0.045 4 0.035 3 0.025 22 2 0.015 14 1 0
Telemedicine
mHealth
Wound Care
Surgical Equipment
Patient Monitoring
Projected Growth 2010-2015 %
9
8
7
6
5
4
3
16
15
14
13
12
11
10 3. Orthopedic
Ophthalmic
Neurology
6. Nephrology and Urology
5. In Vitro Diagnostics
Hospital Supplies
7. Healthcare IT ENT
Endoscopy
Drug Delivery
4. Diagnostic Imaging
1.Diabetes
Dental
2. Cardiovascular
Anesthesia/ Respiratory
7 PRIORITY AREAS ARE MATERIAL AND FAST GROWING …
SOURCE: Global Data
Priority sectors
8 SOURCE: Global Insight
A THRIVING BOP MEDTECH INDUSTRY WOULD IMPACT HUNDREDS OF MILLIONS OF LIVES
Number of treatments per person per year for total BOP market (N=835 mn)
14X
BOP annual per capita treatments in 2010
Additional treatments due to secular growth
Additional treatments due to frugal innovation
BOP 2020 annual per capita treatments (base case)
Additional treatments due to market development
Effect of product innovation
9
SIMILARLY, CLEAN ENERGY IS A VAST MARKET TOUCHING HUNDREDS OF MILLIONS OF LIVES
Potential market 2020 USD billion
SOURCE: McKinsey analysis 1 Equity capital is roughly one-third to one-half the total capital required
4.5-5.0 ~0.5 ~0.1 0.9-1.0 6.0-6.5
Lives touched Million
~40 ~25
~465
~705
~175
Capital required USD million
~150 ~2,500 ~45 ~250 ~2,900
Fuel sources
Electricity generation and distribution Devices
Community micro grids
Household solutions
10
MedTech– more than 40 Focused on providers & medical devices
MANY ENTREPRENEURIAL INNOVATORS ARE SEEKING TO DEVELOP THESE MARKETS
SOURCE: Discussions with entrepreneurs; web searches
Clean Energy – more than 50 Focused on devices like solar lanterns & community micro grids
11
Microfinance and telecom have successfully penetrated the BOP
The growth was sparked by entry of new entrepreneurs …
Microfinance Microfinance
Telecom
Teledensity Percent
No. of subscribers Millions
Telecom
… who initiated disruptive innovation in the market
Telecom Microfinance
Product design
▪ Small ticket loans, mainly for income generation
▪ Group lending
▪ Differently priced recharge vouchers
▪ Tariff cutters ▪ Minute packs
Distri- bution
▪ Field agents reaching individual households (SKS Microfinance reaches >100,000 villages)
▪ Extensive distribution network – 1 re-seller for 1,000 individuals
Efficiency
▪ Simple replicable models for expansion – Training – Stopwatch-
based method for field operations
– Streamlined information management
▪ Outsourcing of network and IT management
▪ Over the air electronic remote recharging
▪ Sharing of cell towers
Cumulative outreach of MFIs Million clients
LEARNING FROM TELECOM AND MICROFINANCE, ENTREPRENEURS ARE PURSUING DISRUPTIVE INNOVATIONS
2006 2003
6x
2010
*
2000 2010 2000
22x
225x
SOURCE: Expert interviews, Web searches
12
FORUS HEALTH, A SMALL ENTREPRENEURIAL COMPANY, IS DEVELOPING INNOVATIVE DEVICES
SOURCE: Interviews with Forus management; Company website
Forus Health has two product offerings
1. Diagnostic device that can detect 5 major eye ailments that cause 90% of blindness (diabetic retina, cataract, glaucoma, cornea, and refraction problems) called 3nethra which costs 1/10th of existing products
2. Affordable dialysis solution called Renall (USD 7 per session with new membranes compared to existing USD 35 with used membranes)
3nethra’s innovative features: ▪ Single, portable, non-
invasive, non-mydriatic eye pre-screening device
▪ Provides an automated “Normal – Need to See a Doctor” Report
▪ Can send report thru mobile network for remote diagnosis
13
DLIGHT, A PORTFOLIO COMPANY, IS ONE OF THESE ENTREPRENEURIAL INNOVATORS
SOURCE: Company interviews; d.light web site
A day in the life of Monika Singh, 14 year old, UP
“My d.light lamp is much brighter than the kerosene lantern. Because of the good quality light, we are more interested in studying”
d.light has revolutionised the life of Monika’s family ▪ With d.light, Monika and her two siblings enjoy
brighter light for studies at night ▪ Shifting from kerosene lamps have saved them
from its smoke and soot ▪ Her father uses another lantern to farm at
night, and her mother uses one for cooking
14
MANY MARKET DEVELOPMENT CHALLENGES INHIBIT GROWTH OF MARKET ECOSYSTEM
End-user support ▪ Product certification ▪ Consumer protection ▪ Education
Productive capacity ▪ Training ▪ Health ▪ Safety
Entrepreneurial ventures ▪ Products and services ▪ Delivery model ▪ Production costs
Consumer wealth ▪ Initial condition ▪ Accumulated wealth
Hard infrastructure ▪ Transport ▪ Fulfillment ▪ Payment services
Capital ▪ Multiple stages ▪ Supplier network
Soft infrastructure ▪ Industry associations ▪ Industry standards ▪ Regulations
BOP Consumer (Demand)
BOP Business (Supply)
Market development challenges
UNCLEAR MARKET STANDARDS
INSUFFICIENT RISK CAPITAL
CONSUMER EDUCATION & DISTRUST
NO ACCESS TO CREDIT AND ERRATIC INCOME LACK OF
TECHNICAL SKILLS
INADEQUATE INFRASTRUCTURE
15 SOURCE: Press reports
Microfinance sector is stalling due to reported malpractices High reported incidence of malpractice… … and regulatory intervention
▪ AP MFI (Regulation of money lending Act) - 2010 – MFI registration mandatory for operation – Cap on number of loans per borrower – Penalties for violation
▪ Malegam Committee recommendations – Min. HH income of Rs.50,000 for giving loans – Ceiling of Rs. 25,000 on individual loans – RBI to draft Customer Protection Code; to be
adopted by all MFIs – Responsibility for monitoring of compliance
shared by MFIs, industry associations, banks & RBI
Similar regulation and monitoring is needed in medical technology and clean energy sectors
Certification of technologies mandatory
Treatment only through standard protocols
Specification of standards for small-scale suppliers of electricity (e.g.,
micro-grid solution providers)
“Unrestrained lending by MFIs”
“Harassment by loan collection officers”
“70 people in AP committed suicide over 6 months to escape payments”
… leading to public backlash…
Outcry
▪ “Do not pay MFI loans”
Defaults ▪ Repayment rates
coming down drastically, in some places down to 10% (vs 90%+ historically)
LACK OF MARKET STANDARDS AND CONSUMER DISTRUST HAS CONTRIBUTED TO A MAJOR CRISIS IN MICROFINANCE IN INDIA
Potential revenue growth
5.25-8.75
0.8-1.8
2.0-4.4
Investment required
Equity2
1.2-2.6
Debt2
SOURCE: McKinsey Global Institute; Global Insight
Investment required
1 Incremental capital to sales ratio is sales growth divided by CapEx, based on average of India and China over past 5-15 years; does not include financial investments to fund operating expenses in early-stage, loss-making companies
2 ~60% equity to assets ratio based on the financial statements of select Indian medical technology plaers
USD billions
Incremental capital to sales ratio of 40-50%1
SUBSTANTIAL EQUITY CAPITAL IS REQUIRED BY 2020 TO GROW THE INDUSTRY – MEDTECH EXAMPLE
17
Early stage financing
Growth capital financing Public market financing
INCLUSIVE INNOVATION IS REQUIRED TO ACCELERATE GROWTH OF BOP MARKET ECOSYSTEM
BOP market size Large highly
competitive ecosystem with substantial capital investment
3
Moderately competitive ecosystem with limited capital investment
2
Small monopolistic ecosystem with minimal capital investment
1
Impact investors (equity & grants)
Commercial capital providers (equity & debt)
3-5 years 5-8 years
Time Gov’t, development agencies, philanthropic capital for dealing with market development challenges ▪ Public goods ▪ Subsidies ▪ Dealing with externalities
18
Market development challenge
Solution
• Conduct social marketing with Public Health agencies – Prioritise health conditions that require increased awareness – Run nation-wide awareness campaigns (for example, TV, radio, print advertising, events) – Partner with local bodies to implement programmes on the ground
Consumer education 1
• Set up academic and vocational institutes for training of health workers – Coordinate with emerging BoP healthcare providers to develop modular health worker
curricula – Match health workers with job or franchise opportunities in BOP providers
Lack of technical skills
2
• Establish institute for Healthcare Excellence – Create evidence-based public health guidelines – Create evidence-based clinical protocol
Unclear market standards I
3
• Set up Medical Technology Certification Institute – Certify emerging medical technologies for Indian conditions – Funded by manufacturers to make it self-sustaining
Unclear market Standards II
4
• Agree on standards for micro health insurance – Franchise out semi-standard community health insurance programmes
to community-based organisations – Manage the back-end of community-based insurance schemes (for example, reinsurance,
quality management)
No access to credit 5
SOURCE: Expert interviews; PATH; Public Health Foundation of India
GOVERNMENTS, DEVELOPMENT AGENCIES AND PHILANTHROPISTS PLAY KEY ROLE IN OVERCOMING CHALLENGES – MEDTECH EXAMPLE
19
End-user support ▪ Product certification ▪ Consumer protection ▪ Education
Productive capacity ▪ Training ▪ Health ▪ Safety
Entrepreneurial ventures ▪ Products and services ▪ Business model ▪ Costs
Consumer wealth ▪ Initial condition ▪ Accumulated wealth
Hard infrastructure ▪ Transport ▪ Fulfillment ▪ Payment services
Capital ▪ Multiple stages ▪ Supplier network
Soft infrastructure ▪ Industry associations ▪ Industry standards ▪ Entry / exit
BOP Consumer (Demand)
BOP Business (Supply)
Training
Regulation
Crowd in capital (for profit)
Social marketing
Key interventions
RBI’s ‘project financial literacy’ to increases financial awareness
▪ Allowing NGOs to act as MFI agents ▪ Permitting composite loan-insurance products ▪ Allowing MFIs to act as banking correspondents
▪ Sa-Dhan: Industry associations for networking, advocacy and capability building
▪ SMART campaign certification for MFIs upholding client protection principles
▪ Priority sector lending ▪ Development capital ▪ For profit investment
ACCION’s training centre for front-line officers & middle management in MFIs
INCLUSIVE INNOVATION HELPED IN GROWTH OF MICROFINANCE IN INDIA
20
INCLUSIVE INNOVATION REQUIRED IN CLEAN ENERGY
End-user support ▪ Product certification ▪ Consumer protection ▪ Education
Productive capacity ▪ Training ▪ Health ▪ Safety
Entrepreneurial ventures ▪ Products and services ▪ Business model ▪ Costs
Consumer wealth ▪ Initial condition ▪ Accumulated wealth
Hard infrastructure ▪ Transport ▪ Fulfillment ▪ Payment services
Capital ▪ Multiple stages ▪ Supplier network
Soft infrastructure ▪ Industry associations ▪ Industry standards ▪ Entry / exit
BOP Consumer (Demand)
BOP Business (Supply)
Training
Regulation
Crowd in capital (for profit)
Social marketing
Key interventions
▪ Institution to create industry standards certify product quality
Training institutes for handling technicians in electricity generation units
Coordinated financing with lock in to simultaneously stimulate demand and supply
BoP clean energy legal access cell
Advocacy
A US$6 BN MARKET
INCLUSIVE INNOVATION – STAKEHOLDERS COLLABORATING TO HELP BUILD OUT THE BOP MARKET ECOSYSTEM
21
• BOP consumers receive innovative, affordable products and services
• Members of the BOP are engaged as producers (i.e., employees or suppliers)
• Entrepreneurs overcome market barriers and build great businesses
• Investors get competitive returns
• Donors and governments work together to build sustainable, fair ecosystems
• Impact investors: focus on early stage investments, but demand commercial returns
• Philanthropists and development agencies: support, not distort market development – need a careful, light touch
• Governments: ensure responsive and efficient regulatory regime
• Entrepreneurs: build effective industry associations and collaborate to build soft infrastructure
Inclusive Innovation benefits What to do
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