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Omidyar Network Presents Inclusive Innovation for India BOP


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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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Omidyar Network Presents Inclusive Innovation for India BOP

  1. 1. INCLUSIVE INNOVATIONImproving the Lives of Hundreds of Millions ofPeople in India by Accelerating the Growth ofBOP Markets in MedTech and Clean EnergyPresented at SOCAP/EuropeMay 2011Omidyar Network and the Omidyar Network logo are trademarks of Omidyar Network. Other trademarks are the property of their respective owners.
  2. 2. STUDY APPROACH FOCUSED ON ENTREPRENEURS ANDMARKET ECOSYSTEM FOR MEDTECH AND CLEAN ENERGY Key issues Study approach Results to-date▪  How big is the opportunity? ▪  ON and McKinsey worked •  Raising $50 million early▪  How many / who are the together to define and stage MedTech fund entrepreneurs targeting the analyze the market •  Investment discussions BOP MedTech and Clean landscape, interview over 50 with 5-6 MedTech opps Energy markets? entrepreneurs, and speak to dozens of experts •  Considering 2-3 specific▪  How strong are their grant proposals for business models? Can they ▪  Got terrific guidance from great Steering Committee public health institutions really help the poor? Why? (e.g., Antony Bugg-Levine, •  Invested in Agni, bio-coal▪  What barriers make it Michael Chu, Brian Trelstad) difficult to scale? firm ▪  Focused on specific market▪  How can we best help interventions that could •  Investment discussions them? accelerate market growth with 3 Clean Energy entrepreneurs▪  What resources will be ▪  Discussed issues with key required? policy-makers •  Insights on opportunity / model for market dev’t 2
  3. 3. INCLUSIVE INNOVATION: IMPROVING LIVES OF HUNDREDS OF MILLIONS ININDIA AND GENERATING ATTRACTIVE RETURNS BY ACCELERATING THEGROWTH OF BOP MARKETS IN MEDTECH AND CLEAN ENERGY 1 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 2 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 3 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 3
  4. 4. INDIA’S BOP REPRESENTS 835 MILLION PEOPLE AND $360 BOPBILLION IN DISPOSABLE INCOME Household Household income income USD 1990 USD 2010 Population Disposable Income PPP nominal Millions Billion USD 2010 nominal >$8 >$17.03 25 294 $4 - $8 $8.52 - $17.03 85 241 $2 - $4 $4.26 - $8.52 246 320 $1.25 - $2 $2.45 - $4.26 415 257 <$1.25 <$2.45 419 101SOURCE: McKinsey Global Institute; Global Insight; EIU 4
  5. 5. SIGNIFICANT LATENT DEMAND AMONG INDIA’S BOP POPULATION Current demand + Latent demand1 = Total demand Latent demand (%) 100% = Healthcare Per capita healthcare 53 109 (47%) 124 (53%) 233 spend (PPP USD 2007) Per capita annual Energy electricity consumption 618 (37%) 1,066 (63%) 1,684 63 (Mwh/year) Youth literacy 224 23 Education per thousand 764 (77%) 988 (23%) (15-24 olds) Bank Loans / GDP 45 Finance 540 (55%) 440 (45%) 980 per thousand Tele density 129 16 Communication 660 (84%) 789 per thousand (16%)1 Latent demand calculated from comparable benchmarks, viz. total demand of ChinaSOURCE: ESRC report; BP Statistical Review 2008, China Year Book 2009-09, Indian Banks Association, RBI, BIS 5
  6. 6. BOP DEMAND CAN YIELD VAST MARKETS BOP 2020 MedTech Market Size USD billion 2.00-3.50 ~10.0 ~2.50 ~6.50 ~2.75 ~1.25 2010 Secular Effect of 2020 market Effect of 2020 market growth frugal (base market (optimistic innovation case) development case) USD 10 billion market equal to entire Indian pharmaceutical industry in 2007Source: GlobalData; BMI; EIU; Cygnus 6
  7. 7. 7 PRIORITY AREAS ARE MATERIAL AND FAST GROWING … Priority sectors Projected Growth 2010-2015 % 16 Telemedicine 7. Healthcare IT 15 ENT 5. In Vitro Diagnostics 14 mHealth Dental 13 12 Neurology 11 2. Cardiovascular 10 3. Orthopedic 9 6. Nephrology and Urology Surgical Equipment 8 4. Diagnostic Imaging Patient Monitoring Hospital Supplies 7 1.Diabetes 6 Drug Delivery Anesthesia/ Respiratory 5 4 Ophthalmic Endoscopy Wound Care 3 0 0 0.005 1 0.015 2 0.025 3 0.035 4 0.045 5 0.055 6 0.065 7 0.075 8 0.085 9 0.095 14 22 2010 Size Percent of Indian Med Tech MarketSOURCE: Global Data
  8. 8. 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 Additional Additional BOP 2020 Additional Effect of annual per treatments treatments annual per treatments product capita due to due to capita due to innovation treatments secular frugal treatments market in 2010 growth innovation (base development case)SOURCE: Global Insight 8
  9. 9. SIMILARLY, CLEAN ENERGY IS A VAST MARKET TOUCHING HUNDREDSOF MILLIONS OF LIVES Fuel Electricity generation and Devices sources distribution Community Household micro grids solutions 6.0-6.5 0.9-1.0 ~0.5 Potential 4.5-5.0 ~0.1 market 2020 USD billion ~705 Lives touched ~465 Million ~25 ~40 ~175 Capital required ~150 ~2,500 ~45 ~250 ~2,900 USD millionSOURCE: McKinsey analysis 91 Equity capital is roughly one-third to one-half the total capital required
  10. 10. MANY ENTREPRENEURIAL INNOVATORS ARE SEEKING TO DEVELOPTHESE MARKETS MedTech– more than 40 Focused on providers & medical devices Clean Energy – more than 50 Focused on devices like solar lanterns & community micro gridsSOURCE: Discussions with entrepreneurs; web searches 10
  11. 11. LEARNING FROM TELECOM AND MICROFINANCE, ENTREPRENEURSARE PURSUING DISRUPTIVE INNOVATIONS Microfinance and telecom The growth was have successfully penetrated sparked by entry of … who initiated disruptive innovation in the market the BOP new entrepreneurs … Microfinance Microfinance Microfinance Telecom Cumulative outreach of MFIs ▪  Small ticket loans, ▪  Differently priced Million clients mainly for income recharge vouchers Product design generation ▪  Tariff cutters ▪  Group lending ▪  Minute packs 6x ▪  Field agents ▪  Extensive Distri- reaching individual distribution bution households (SKS network – 1 2003 2006 Microfinance re-seller for 1,000 reaches >100,000 individuals Telecom Telecom villages) 225x * ▪  Simple replicable ▪  Outsourcing of models for network and IT 22x Efficiency expansion management –  Training ▪  Over the air –  Stopwatch- electronic remote based method recharging for field ▪  Sharing of cell 2000 2010 2000 2010 operations towers Teledensity No. of –  Streamlined Percent subscribers information Millions managementSOURCE: Expert interviews, Web searches 11
  12. 12. FORUS HEALTH, A SMALL ENTREPRENEURIAL COMPANY, ISDEVELOPING INNOVATIVE DEVICES 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 3nethra’s innovative features: ▪  Single, portable, non- 2. Affordable dialysis solution invasive, non-mydriatic eye called Renall (USD 7 per pre-screening device session with new ▪  Provides an automated membranes compared to “Normal – Need to See a existing USD 35 with used Doctor” Report membranes) ▪  Can send report thru mobile network for remote diagnosisSOURCE: Interviews with Forus management; Company website 12
  13. 13. DLIGHT, A PORTFOLIO COMPANY, IS ONE OF THESEENTREPRENEURIAL INNOVATORS 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 cookingSOURCE: Company interviews; d.light web site 13
  14. 14. MANY MARKET DEVELOPMENT CHALLENGES INHIBIT GROWTH OFMARKET ECOSYSTEM Market development CONSUMER INADEQUATE challenges EDUCATION & INFRASTRUCTURE DISTRUST End-user support Hard infrastructure UNCLEAR ▪  Product certification ▪  Transport MARKET ▪  Consumer protection ▪  Fulfillment STANDARDS ▪  Education ▪  Payment services Entrepreneurial ventures Soft infrastructure Consumer wealth ▪  Initial condition BOP Consumer ▪  Products and services BOP Business ▪  Industry associations ▪  Accumulated wealth (Demand) ▪  Delivery model (Supply) ▪  Industry standards ▪  Production costs ▪  Regulations Capital NO ACCESS Productive capacity ▪  Multiple stages TO CREDIT ▪  Training ▪  Supplier network AND ERRATIC ▪  Health INCOME ▪  Safety LACK OF TECHNICAL INSUFFICIENT SKILLS RISK CAPITAL 14
  15. 15. LACK OF MARKET STANDARDS AND CONSUMER DISTRUST HASCONTRIBUTED TO A MAJOR CRISIS IN MICROFINANCE IN INDIA Microfinance sector is stalling due to reported malpractices High reported incidence of … leading to public malpractice… backlash… … and regulatory intervention ▪  AP MFI (Regulation of money lending Act) - 2010 “Unrestrained lending Outcry –  MFI registration mandatory for operation by MFIs” ▪  “Do not pay MFI loans” –  Cap on number of loans per borrower –  Penalties for violation “Harassment by loan ▪  Malegam Committee recommendations collection officers” Defaults –  Min. HH income of Rs.50,000 for giving loans ▪  Repayment rates –  Ceiling of Rs. 25,000 on individual loans “70 people in AP coming down drastically, in some –  RBI to draft Customer Protection Code; to be committed suicide over 6 adopted by all MFIs months to escape places down to 10% (vs 90%+ historically) –  Responsibility for monitoring of compliance payments” shared by MFIs, industry associations, banks & RBI Similar regulation and monitoring is needed in medical technology and clean energy sectors Certification of technologies Treatment only through Specification of standards for small- mandatory standard protocols scale suppliers of electricity (e.g., micro-grid solution providers)SOURCE: Press reports 15
  16. 16. SUBSTANTIAL EQUITY CAPITAL IS REQUIRED BY 2020 TO GROW THE INDUSTRY – MEDTECH EXAMPLE Investment required USD billions 5.25-8.75 Incremental capital to sales ratio of 40-50%1 2.0-4.4 0.8-1.8 1.2-2.6 Potential revenue Investment Debt2 Equity2 growth required1 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 companies2 ~60% equity to assets ratio based on the financial statements of select Indian medical technology plaersSOURCE: McKinsey Global Institute; Global Insight
  17. 17. INCLUSIVE INNOVATION IS REQUIRED TO ACCELERATE GROWTH OFBOP MARKET ECOSYSTEM Early stage Growth capital Public market financing financing financingBOPmarket Impact Commercial capitalsize 3 Large highly investors providers (equity & debt) competitive ecosystem (equity & with substantial capital grants) investment 2 Moderately competitive ecosystem with limited capital investment 1 Small monopolistic ecosystem with minimal capital investment 3-5 years 5-8 years Gov’t, development agencies, philanthropic capital Time for dealing with market development challenges ▪  Public goods ▪  Subsidies ▪  Dealing with externalities 17
  18. 18. GOVERNMENTS, DEVELOPMENT AGENCIES AND PHILANTHROPISTSPLAY KEY ROLE IN OVERCOMING CHALLENGES – MEDTECH EXAMPLE Market development Solution challenge •  Conduct social marketing with Public Health agencies Consumer –  Prioritise health conditions that require increased awareness1 education –  Run nation-wide awareness campaigns (for example, TV, radio, print advertising, events) –  Partner with local bodies to implement programmes on the ground •  Set up academic and vocational institutes for training of health workers Lack of –  Coordinate with emerging BoP healthcare providers to develop modular health worker2 technical curricula skills –  Match health workers with job or franchise opportunities in BOP providers •  Establish institute for Healthcare Excellence Unclear –  Create evidence-based public health guidelines3 market standards I –  Create evidence-based clinical protocol •  Set up Medical Technology Certification Institute Unclear –  Certify emerging medical technologies for Indian conditions4 market Standards II –  Funded by manufacturers to make it self-sustaining •  Agree on standards for micro health insurance No access –  Franchise out semi-standard community health insurance programmes5 to community-based organisations to credit –  Manage the back-end of community-based insurance schemes (for example, reinsurance, quality management)SOURCE: Expert interviews; PATH; Public Health Foundation of India 18
  19. 19. INCLUSIVE INNOVATION HELPED IN GROWTH OF MICROFINANCE ININDIA Key interventions RBI’s ‘project financial ▪  Allowing NGOs to act as MFI agents literacy’ to increases ▪  Permitting composite loan-insurance products financial awareness ▪  Allowing MFIs to act as banking correspondents Social marketing Regulation End-user support Hard infrastructure ▪  Product certification ▪  Transport ▪  Consumer protection ▪  Fulfillment ▪  Education ▪  Payment services Entrepreneurial ventures Soft infrastructure Consumer wealth ▪  Initial condition BOP Consumer ▪  Products and services BOP Business ▪  Industry associations ▪  Accumulated wealth (Demand) ▪  Business model (Supply) ▪  Industry standards ▪  Costs ▪  Entry / exitACCION’s training centre Capital Productive capacity ▪  Multiple stagesfor front-line officers & ▪  Trainingmiddle management ▪  Supplier network ▪  Sa-Dhan: Industry ▪  Health associations forin MFIs ▪  Safety networking, advocacy and Training Crowd in capital capability building ▪  Priority sector lending (for profit) ▪  SMART campaign ▪  Development capital ▪  For profit investment certification for MFIs upholding client protection principles 19
  20. 20. INCLUSIVE INNOVATION REQUIRED IN CLEAN ENERGY A US$6 BN MARKET Key interventions Advocacy BoP clean energy Regulation legal access cell Social marketing End-user support Hard infrastructure ▪  Product certification ▪  Transport ▪  Consumer protection ▪  Fulfillment ▪  Education ▪  Payment services Entrepreneurial ventures Soft infrastructure Consumer wealth ▪  Initial condition BOP Consumer ▪  Products and services BOP Business ▪  Industry associations ▪  Accumulated wealth (Demand) ▪  Business model (Supply) ▪  Industry standards ▪  Costs ▪  Entry / exitTraining institutes for Capital Productive capacity ▪  Multiple stageshandling technicians in ▪  Trainingelectricity generation ▪  Supplier network ▪  Institution to create ▪  Health industry standards certifyunits ▪  Safety product quality Training Crowd in capital Coordinated financing with (for profit) lock in to simultaneously stimulate demand and supply 20
  21. 21. INCLUSIVE INNOVATION – STAKEHOLDERS COLLABORATING TOHELP BUILD OUT THE BOP MARKET ECOSYSTEM Inclusive Innovation benefits What to do•  BOP consumers receive •  Impact investors: focus on early innovative, affordable products stage investments, but demand and services commercial returns•  Members of the BOP are •  Philanthropists and development engaged as producers (i.e., agencies: support, not distort market employees or suppliers) development – need a careful, light•  Entrepreneurs overcome touch market barriers and build great •  Governments: ensure responsive and businesses efficient regulatory regime•  Investors get competitive •  Entrepreneurs: build effective industry returns associations and collaborate to build•  Donors and governments soft infrastructure work together to build sustainable, fair ecosystems 21