Click to edit Master title style

Appropriate Irrigation and Financing Solutions
Click to edit Master title
for Smallholde...
Table of Contents
Executive Summary

3

Background

9

Business Model

22

Sales & Marketing

51

Organisational Structure...
Executive Summary
3
Executive Summary
• This report was prepared for International Development Enterprises
India (IDEI) by 23 participants of ...
Executive Summary cont’d
• YLP participants carried out site visits to smallholder farmers in Uttar
Pradesh, held candid t...
Executive Summary cont’d
• A key focus is on improving sales and marketing strategies, which
include farmer-to-farmer mark...
Project Partner
International
Development
Enterprises India (IDEI)

Global Institute For
Tomorrow (GIFT)

• IDEI is a non-...
Global Young Leaders Programme (YLP)
Participants from businesses and civil society worked with IDEI to propose a
profitab...
Background
•
•
•
•
•
•
•
•
•

Overview of India
Agriculture and smallholder farmers
in India
Water and Irrigation in India...
Background

Overview of India
• India is the 7th largest country in the
world, with an area of 3.29 million
km2 and a popu...
Background

Agriculture and smallholder farmers in India
•

•
•

•
•

Agriculture employs over 50% of the
workforce
80% of...
Background

Water and irrigation in India
•

•
•
•

India ranked amongst top ten waterrich countries but increasing
popula...
Background

Existing water lifting methods
Three categories of water lifting
methods are available in India
• Manual: wate...
Background

IDEI’s market based approach
IDEI develops and provides farmers with productivity-enhancing tools at a
price t...
Background

IDEI’s market based approach cont’d
IDEI promotes low-cost technologies under the
Krishak Bandhu brand (KB: ‘F...
Background

The KB Treadle Pump:
Most adequate low-cost low-tech solution

• Made out of steel sheets and foot-operated us...
Background

The KB Treadle Pump: Fact Sheet
• Price 2013: Rs. 750 Rs (pump) + Rs.
1,300 (installation) = Rs. 2,050
(= USD ...
Background

Blue Wealth International:
A platform for treadle pumps

In 2011, IDEI facilitated the creation of a for-profi...
Background

Challenges for IDEI and sale of treadle pumps
Despite the advantages of the treadle pump, IDEI and
BWI face ch...
Background

Challenges for IDEI and sale of treadle pumps
Internally, the structures of IDEI and BWI face challenges to sc...
Background

Questions on existing business model
• Can the existing operating model serve as a basis for a business model
...
Business Model
•
•
•
•
•
•
•
•
•
•
•

Introducing a new business model for
BWI
Business design transformation
Role of Busi...
Business Model

Introducing a new business model for BWI
Objective
• To lift more smallholder farmers out of poverty by
ap...
Business Model

Introducing a new business model for BWI
Key features
• Streamline the supply chain by merging Manufacture...
Business Model

Introducing a new business model for BWI
Develop flexible payment options for
small farmers to remove entr...
Business Model

Introducing a new business model for BWI
Enhance the role of
Business Associates
as Sales Agents

Streamli...
Business Model

Current Business Model
Manufacturer

Order

Manufacturing

Distributor
Logistics

Delivery

Dealer
Order

...
Business Model

Proposed Business Model: Supply chain flow
Manufacturer
Distributor
Manufacturing
Logistics

Delivery
Qual...
Business Model

Business Design Transformation
Phase 1: Focus on restructuring existing operations

Phase 2: Develop new f...
Business Model: PHASE 1

Current role of Business Associates
Current Situation
Buy

Dealer
Pump
Delivery

Business
Associa...
Business
Model:
PHASE 1

Proposed role of Business Associates as
Sales Agents

The success of BWI’s new business model
dep...
Business Model: PHASE 1

(2) Cost-based vs. Value-based approach
Current Situation
Due to farmers’ low purchasing power
an...
Business Model: PHASE 1

(2) Cost-based vs. Value-based approach
Proposal
Instead of a cost-based approach, it is proposed...
Business Model: PHASE 1

(3) Supply Chain – Current
Current Situation
Manufacturer

Distributor

Coordination

Dealer

Cur...
Business Model: PHASE 1

(3) Proposal to streamline the supply chain
Merging the functions of
manufacturer and distributor...
Business Model: PHASE 1

Existing Feedback Mechanism for IDEI
 Current

Current Situation
Business
Associate
and Area
Man...
Business Model: PHASE 1

Proposed Feedback Consolidation via BWI
BWI acts as interface between IDEI
and supply chain opera...
Business Model:
PHASE 2

Introducing Flexible Payments
for treadle pumps

Objectives
•
•
•
•
•

To provide an effective me...
Business Model: PHASE 2

(4) Flexible payment solutions: Details
Background

•

•
•

•

Local dealerships are considered a...
Business Model: PHASE 2

(4) Flexible payment solutions: Details
Key features of the Proposed Payment Scheme
•

•

•
•

St...
Business Model: PHASE 2

(4) Flexible payment solutions: Details
Details of the Scheme
•

The loan to dealers will cover u...
PHASE 2

(4) Introducing Blue Wealth
International Finance (BWIF)

It is proposed that IDEI support the establishment of a...
Business Model: PHASE 2

Proposed Flexible Payment Scheme
Step A: Farmer places order for a Pump (+ pipes and
installation...
Business Model: PHASE 2

Flexible Payment – Win Win Solution
Party

Benefits
•

Farmer

•
•

Dealer
BWI / BWIF

Small upfr...
Business Model: PHASE 2

Payment obligation from Dealer to BWIF
Terms and Conditions
Interest Rate for repayment: 25%
Time...
Business Model: PHASE 2

Payment obligation from Farmer to Dealer
Current

Projected Flexible Payment
Option 1: Cash in fu...
Business
Model:
PHASE 2

Future Opportunities for BWI:
Community-based approach

Lowering the financial impact of the cost...
Business
Model:
PHASE 2

Future Opportunities for BWI:
Expand Product Portfolio

The opportunities for BWI stemming
from w...
Business Model

Revenue Streams for BWI
A phased approach allows BWI to build its product/service portfolio and generate
v...
Business Model

Key partnerships
Strategic alignment and cooperation with partners will be established in BWI key
activiti...
Sales & Marketing
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Summary of Recommendations
Key objectives
Current status: Sales of treadle ...
Sales & Marketing

Summary of Recommendations
Key features

• Shift the Sales and Marketing from IDEI to BWI to be more co...
Sales & Marketing

Key Objectives
1. Scale up the sales of treadle pump from 3% to
over 15% (to a volume of 1M pumps in 5 ...
Sales & Marketing

Current Status: Sales of Treadle Pumps
60000

50000

Sales of Pumps

• In 2012, 20,000 treadle pumps
we...
Sales &
Marketing

•

•

Current Situation:
Efficiency of Business Associates for IDEI

A cut in funding has also
affected...
Sales & Marketing

Gaps and Opportunities
Gaps

Opportunities

Penetration is still low (3%)

Growth potential through dev...
Sales & Marketing

New Sales Channel Strategy: Main Features
• Shift Sales and Marketing from IDEI to BWI to avoid dispers...
Sales & Marketing

Roles and responsibilities of sales agents
Role

Responsibilities

Area Manager (AM)

•
•

Business Ass...
Sales & Marketing

More effective marketing activities
Current marketing activities are carried
out locally, on the road a...
Sales & Marketing

Revised Flyer for BWI
Revise flyer content to include:
- Farmers feedback
- Direct contact number
- Pay...
Sales & Marketing

New Flyer Design for the Treadle Pump
Irrigation Anytime
Water Without Diesel
Women can Treadle
Payment...
Sales & Marketing

Reviving the Village Demonstrations
Re-designing the approach to create a new
interest in the product b...
Sales & Marketing

Projected Outcomes for Sales & Marketing
More engagement from BAs and FAs
and renewed marketing strateg...
Sales & Marketing

Projected Outcomes for Sales & Marketing cont’
Revenue/Pump
The bulk of the revenue
stream for BWI will...
Sales & Marketing

Benefits to Business Associates
A new sales strategy and a
model based on incentives for
BAs is expecte...
Sales & Marketing

Benefits for Field Associates
Field Associates are farmers, mechanics and
other villagers who are encou...
Sales & Marketing

Future Product Developments
Based on grants and funds, IDEI continues with R&D and product development ...
Future Product Developments cont’d
Developing a ‘Mini Kit’ for farmers
to quick start production on their
irrigated field
...
Sales & Marketing

Community-based Storage
Smallholder farmers often lack access to storage facilities during postproducti...
Sales & Marketing

Health and sanitation:
Opportunities for by-products

The need for improved hygienic practices in impov...
Organisational
Structure
•
•
•
•
•
•
•
•
•
•
•

Summary of new organisational structure
Key roles and responsibilities for...
Organisational Structure

Summary of New Organisational Structure
• A new company structure is proposed for BWI which diff...
Organisational Structure

Current IDEI Structure and Activities
IDEI
Employee Welfare Trust (EWT)

Board of Directors
CEO
...
Organisational Structure

Proposed Structures for IDEI and BWI
IDEI EWT
Board of Directors

Board of Directors

★

CEO

CE...
Organisational Structure

Key Roles and Responsibilities for BWI
Position
CEO
VP Sales, Marketing,
Operations

Role & Resp...
Organisational
Structure

Proposed Structure for Blue Wealth
International Finance (BWIF)
BWIF

BWI Board of Directors

★
...
Organisational Structure

Recommended criteria for BWI Board member
• The board for BWI and BWIF to have 5 members:
–
–
–
...
Organisational Structure

Role of the Board
•

Provide unbiased strategic guidance to the
management team to set and meet ...
Organisational Structure

Decision Making Process And Approval
In order to implement all business plan, policies, rules an...
Organisational
Structure

Governance: Strategic Risks and
Mitigating Actions

Strategic Risks

Mitigating Actions

•
•
1. ...
Organisational
Structure

Governance: Operational Risks and
Mitigating Actions

Operational Risks

1. Key partnerships are...
Organisational
Structure

Governance: Operational Risks and
Mitigating Actions cont’

Operational Risks

Mitigating Action...
Organisational
Structure

Governance: People Management
Risks and Mitigating Actions

People Management Risks

1. Poor per...
Organisational
Structure

Governance: Credit and Financial
Risks and Mitigating Actions

Credit and Financial Risks

Mitig...
Organisational Structure

Governance Framework
The governance framework below will enable BWI to implement the
recommended...
Organisational Structure

Successful Recruitment of Business Associates
Business Associates constitute some of the most
cr...
Job Description for Business Associates
Responsibility

• Visit farmers, mechanics, dealers to discuss the use of products...
Organisational Structure

Talent Management
Business Associates are a core component of BWI’s business model and regular
t...
Organisational Structure

Incentive and Remuneration Packages
Job Category
CEO
Vice-Presidents
Regional Managers

Speciali...
Finance
•
•
•
•
•
•
•
•
•
•

Summary of Business Model
Key Assumptions
Key Assumptions for BWI
Key drivers for a viable bu...
Finance

Summary of Business Model
• BWI requires a start up investment
of Rs.100 million in seed capital to
kick-start it...
Finance

Key Assumptions
Main Revenue Streams
• The bulk of BWI’s revenue to be generated through the sale of treadle pump...
Finance

Key Assumptions cont’d
Investment
• BWI requires a start-up investment of Rs. 100 million in seed capital to
kick...
Finance

Key Assumptions for BWIF
• From the Rs.100 million initial investment, BWI
places Rs.50 million into BWIF
• BWIF ...
Finance

•
•
•
•
•

Key Drivers for a viable business
opportunity for BWI

New business model
Changed cost structure to be...
Finance

Projected BWI Revenue and Profit
Profit after tax for BWI and ROI

INR 600

Millions

Millions

Revenue for BWI (...
Projected Number of BAs and Capital
expenditure for BWI

Finance

Projected Number of Business Associates and Capital Expe...
Finance

Projected Net Income
Millions

Net income BWI and BWIF (year on year)
INR 40
INR 35
INR 30
INR 25
INR 20
INR 15
I...
Finance

Tight control on fixed cost
• Fixed costs for the production of treadle pumps remains low and stable
• Variable c...
Finance

Attractive Investment Opportunity
Cash Flow Statement BWI (Rs.)
Profit Before Tax
Donation to IDEI
Depreciation
T...
Finance

Attractive Investment Opportunity cont’d
Profit after tax BWIF
Dividend payout BWIF
Consolidated Profit after tax...
Finance

Potential Funding Source for BWI
Three key funding options with following conditions and funding patterns:
• Priv...
Community
Benefits
•

•
•

Benefits to individual
farmers
Benefits to the
community and to the
agricultural sector
Benefit...
Community Benefits

Benefits to Individual Farmers
•

•

•

•

The treadle pump is an affordable and year-round
irrigation...
Community Benefits

Benefits to Individual Farmers cont’
•
•

•

•
•

As more farmers acquire treadle pumps, the community...
Community
Benefits
•

•

•

Benefits to the community and to
the agricultural sector

Boost the agricultural sector by
enc...
Community Benefits

Benefits at community and national level
•

•

•

•

Reduce the environmental cost of
economic develop...
Summary of Recommendations
108
Summary of recommendations for BWI
• BWI takes a leading role in providing affordable irrigation solutions to
small holder...
Recommendations to IDEI
• IDEI to focus it grant and donor funded activities on R&D, Product
Development, Brand Management...
Implementation
Plan

111
Implementation Timeline
The proposal has been designed over the course of 5 years for BWI to grow, revamp
existing operati...
Appendix
113
Appendix

Diesel Price
• Diesel price have surged by ~40% in 2.5 years
• Increase in diesel prices penalises both current ...
Appendix

Cost Structure
Current model
Margin (%)
Manufacturer
BWI
Distributer
Dealer
Final price to farmer
New model (cur...
Appendix

Pricing Model
Cost breakdown with diesel irrigation (lease)
Turnover per year
Cost of crop

64,935
19,526
4830
1...
Appendix

Pricing Model cont’
Cost breakdown with treadle pump
Price of treadle pump
Total cost of TP (inclding pipes, ins...
Appendix

BWI and BWIF – Further details on
company relationship

The establishment of BWIF is based on the assumption tha...
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Affordable Irrigation and Financing Solutions for Smallholder Farmers in India, June 2013

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For its 31st YLP, GIFT has partnered with IDEI and engaged 23 executives from 13 countries representing 15 companies and organisations to visit local stakeholders and produce a business plan to attract investment and further promote the sales growth of affordable irrigation solutions across India. The group also made strategic recommendations to IDEI on ways to leverage its existing resources and review its organisational structure to provide greater efficiencies through the organisation. This proposal would give IDEI the opportunity to significantly impact the socio-economic livelihoods of rural communities.

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Affordable Irrigation and Financing Solutions for Smallholder Farmers in India, June 2013

  1. 1. Click to edit Master title style Appropriate Irrigation and Financing Solutions Click to edit Master title for Smallholder Farmers in India style Global Young Leaders Programme – June 2013
  2. 2. Table of Contents Executive Summary 3 Background 9 Business Model 22 Sales & Marketing 51 Organisational Structure 71 Finance 90 Community Benefits 103 Summary of Recommendations 108 Implementation Plan 111 Appendix 113 2
  3. 3. Executive Summary 3
  4. 4. Executive Summary • This report was prepared for International Development Enterprises India (IDEI) by 23 participants of GIFT’s YLP (Global Institute For Tomorrow Young Leaders Programme). • It includes recommendations to IDEI to strengthen its market based approach and improve its effectiveness in reaching smallholder farmers with its affordable irrigation solutions • This report investigates the current and prospective sales volume and profitability of treadle pumps. The treadle pump was designed by IDEI and is tailored to smallholder farmers’ irrigation needs • Over 50% of the Indian population is engaged in the agricultural sector and 80% of farmers are smallholder farmers who do not access regular irrigation • IDEI’s existing organisational structure, sales & marketing strategies, and farmers’ lack of cash savings prevent the treadle pump from reaching full market potential 4
  5. 5. Executive Summary cont’d • YLP participants carried out site visits to smallholder farmers in Uttar Pradesh, held candid talks with IDEI staff and stakeholders to understand the issues at stake and realised that the treadle pump is an ideal solution to meet smallholder farmers’ lack of access to irrigation. • The group proposes a restructuring of an existing commercial enterprise facilitated by IDEI - Blue Wealth International – into a new company, a new marketing strategy, and a flexible financing option to farmers through dealers. • These measures are expected to enhance the treadle pump market penetration rate from 3% to 15% in 5 years and increase current treadle pump sales by 10 times above to achieve 1 million units sold in 5 years • The new company is projected to break even and generate profits starting year 3 • This report also recommends the establishment of a new financing entity – Blue Wealth International Finance (BWIF) – to extend purchasing credit to farmers through dealers. This would eliminate the upfront payment hurdle for the purchase of treadle pumps 5
  6. 6. Executive Summary cont’d • A key focus is on improving sales and marketing strategies, which include farmer-to-farmer marketing through incentives, revamped campaigns and more effective sales management • The proposal also seek to optimise the supply chain and place Blue Wealth International (BWI) at the center of the selling process • The group recommends that IDEI’s Sales and Marketing team shift to BWI to increase productivity • A key focus for IDEI will remain its R&D for product development. Through grants and donations, IDEI can continue to focus its product design on technologies linked to irrigation, but also explore opportunities in water- and agriculture-related products, such as water and sanitation/collective selling and buying, etc • The proposed business model is expected to turn BWI into a profitable enterprise – attractive to potential investors and with a portion of its profit redirect to IDEI via a CSR fund 6
  7. 7. Project Partner International Development Enterprises India (IDEI) Global Institute For Tomorrow (GIFT) • IDEI is a non-profit organisation, created in 1991 as a branch office of IDE Canada. IDEI becomes an separate entity from IDE in 2001 • Dedicated to providing long-term solutions to reducing poverty, hunger and deprivation of smallholder farmers • Recipient of numerous international awards for its achievements and supported by national and international grants and donations • Focus on adequate and affordable irrigation technologies to improve the income of smallholder farmers and people at the base of the pyramid (BoP) • An independent pan-Asian think and do tank dedicated to linking business, government and civil society to foster constructive dialogue and address global challenges • Organises the Global Young Leaders Programme (YLP), an executive leadership programme based on real world, real time experiential learning for participants and on tangible and actionable outputs with positive social impacts for partners 7
  8. 8. Global Young Leaders Programme (YLP) Participants from businesses and civil society worked with IDEI to propose a profitable and sustainable business model for BWI to improve the livelihoods of smallholder farmers in India. The group also submitted strategic recommendations for IDEI to increase efficiencies and improve management processes in the future. Companies and organisations represented: 8
  9. 9. Background • • • • • • • • • Overview of India Agriculture and smallholder farmers in India Water and Irrigation in India Existing water lifting methods IDEI’s market based approach The KB treadle pump Blue Wealth International Challenges for IDEI and the sale of the treadle pump Questions on existing business model 9
  10. 10. Background Overview of India • India is the 7th largest country in the world, with an area of 3.29 million km2 and a population of over 1.2 billion people1 • GDP of US$1.94 billion (2012)2 and growth rate of 5.4%3 • High poverty rate with 41.6% of people living on US$1.25 or less per day4 • 2/3 Indian households live on agriculture, yet the agricultural sector only accounts for 17% of total GDP1 *1 *2 *3 *4 Indian Ministry Home Affairs, Annual Report 2011-2012 International Monetary Fund (IMF) CIA, The World Factbook, 2013 riazhaq.com 10
  11. 11. Background Agriculture and smallholder farmers in India • • • • • Agriculture employs over 50% of the workforce 80% of Indian farmers are smallholder farmers and work on landholdings of 2 ha or less Farmers are largely restricted to subsistence farming with low technology, limited access to resources (capital, skills, risk management) and limited capacity of marketing, storage and processing Dependence on family members for labour Often resort to migration to urban areas for temporary employment * 2 ha = 4.9 acre = 41,000 sq feet A majority of farmers are smallholder farmers and constitute some of the most disenfranchised segments of the population 11
  12. 12. Background Water and irrigation in India • • • • India ranked amongst top ten waterrich countries but increasing population and large agricultural sector increases stress on water Reliance of smallholder farmers on fickle monsoon for rain-fed irrigated crops Dependence on costly diesel pumps to irrigate fields during dry season Most irrigation systems designed for large holder farms and inadequate/too costly for a majority of farmers in rural areas * 2 ha = 4.9 acre = 41,000 sq feet India faces extreme conditions, from floods to droughts, increasing farmers’ vulnerability and reducing their coping strategies 12
  13. 13. Background Existing water lifting methods Three categories of water lifting methods are available in India • Manual: water lifting from shallow depth, requires physical energy, low cost, but time-consuming • Animal: water lifting from a depth of 30 meter or more, take up valuable space on small plots • Power operated (use of fuel engine or electric motor): water lifting in large quantity, high set-up and operating cost (e.g. diesel cost) Manual water lifting: most appropriate technology for poor smallholder farmers operating on less than 2 ha of land 13
  14. 14. Background IDEI’s market based approach IDEI develops and provides farmers with productivity-enhancing tools at a price that is affordable for farmers and fair for the main stakeholders of the supply chain. Fast return on investment Low-cost technologies using local materials Manually powered Focus on product development for smallholder farmers Smallholder farmers as customers and entrepreneurs Simple to use and low maintenance 14
  15. 15. Background IDEI’s market based approach cont’d IDEI promotes low-cost technologies under the Krishak Bandhu brand (KB: ‘Farmers’ Friend’) • Water application devices (KB drip and KB sprinkler) distributed by Global Easy Water Products (GEWP), a for-profit entity facilitated by IDEI and specialised in water application systems like drip irrigation • Water lifting (KB treadle pump) to be distributed by Blue Wealth International (BWI) 15
  16. 16. Background The KB Treadle Pump: Most adequate low-cost low-tech solution • Made out of steel sheets and foot-operated using bamboo pedals, locally sourced • Suitable for all type of crops (vegetables, cereals, cash crops, spices, medicinal, aromatic, flowers) • Return on investment within one cropping season • Easy to operate by both men and women • Applicable to areas of up to ½ ha and with high water table (<28 feet deep) • Maximum Flow of 4,500 litres per hour • Durability 8-10 years; low maintenance • No use of fossil fuels, no carbon emissions • Easy installation and immediately transforms farmers’ lives through increased production and income The positive impacts of the KB treadle pump are immediate 16
  17. 17. Background The KB Treadle Pump: Fact Sheet • Price 2013: Rs. 750 Rs (pump) + Rs. 1,300 (installation) = Rs. 2,050 (= USD 38)* • Scope: 9 states in North East India where the water table is high (table water < 28 feet deep) • Units sold by IDEI in 2012: 20,000 • Existing model developed and improved over several years, based on farmer feedback * 1USD = Rs. 54 Source: http://www.ide-india.org/BambooTreadlePump.aspx The treadle pump is the most adequate technology for farmers in Northeast India 17
  18. 18. Background Blue Wealth International: A platform for treadle pumps In 2011, IDEI facilitated the creation of a for-profit entity – Blue Wealth International (BWI) • Mandate to market and distribute the KB treadle pumps and other potential water lifting devices • Operates in partnership with local stakeholders along the supply chain for the manufacture, distribution and installation of the treadle pump • Ownership: 100% IDEI Employee Welfare Trust • BWI currently exists in name and without dedicated staff but has the potential to grow into a profitable enterprise Blue Wealth International (BWI) can be an effective vehicle to realise the opportunities of the treadle pump in providing irrigation to smallholder farmers 18
  19. 19. Background Challenges for IDEI and sale of treadle pumps Despite the advantages of the treadle pump, IDEI and BWI face challenges for treadle pump sales: Awareness • Low penetration of treadle pumps in rural areas • Reluctance of farmers to treadle • Little awareness of benefits of treadle pump • Difficulty to change farmers’ habits from using diesel pump, despite cost Affordability • Small margins required on the sale of treadle pumps given farmers’ low purchasing power • Insufficient savings hinder farmers from making upfront payment • Limited access to credit and adequate financing schemes: small amounts needed 19
  20. 20. Background Challenges for IDEI and sale of treadle pumps Internally, the structures of IDEI and BWI face challenges to scale up the growth of BWI, and raise awareness and sales for the treadle pump: Funding • High dependence on external funding: donations and grants limit IDEI’s capacity to carry out its existing operating model, especially sales and marketing • Hurdles in attracting investment for commercial activities given non-profit nature of IDEI and regulations for non-profit organisations Profitability • Current business model is not economically sustainable and current margins for pump sales are too low • No or little assessment of impact of sales and marketing campaigns • Sales agents are not able to give sufficient focus on commercial activities 20
  21. 21. Background Questions on existing business model • Can the existing operating model serve as a basis for a business model that is attractive to potential and suitable investors? • Are there financial options and methods that are attractive to consumers and viable for financial intermediaries? • Is the proposal for a treadle pump attractive to large manufacturers and distributors? • Can margins be attractive enough to allow the sales team to be incentivised? • Can the model also inspire farmers to sell directly, i.e. from farmer to farmer? Recommended Opportunity: Develop a commercial approach to IDEI’s social mission that leverages and expands on existing products and services and continues to reach out to stakeholders along the supply chain 21
  22. 22. Business Model • • • • • • • • • • • Introducing a new business model for BWI Business design transformation Role of Business Associates Cost-based vs. value-based approach Supply chain Feedback mechanism Flexible payment option Introducing Blue Wealth Intl Finance Future opportunities for BWI Revenue Streams Key partnerships 22
  23. 23. Business Model Introducing a new business model for BWI Objective • To lift more smallholder farmers out of poverty by applying a market-based approach to the delivery of treadle pumps for year-round irrigation, increased agricultural productivity and income • To be a market creator and support operators through supply chain • To bridge the gap between water supply and demand for farmers by introducing cost-effective water-lifting devices, from treadle pumps to other water and agriculturalrelated products and adequate financing schemes • To offer financing payment options to allow farmers to purchase the treadle pump • To develop and promote solutions with greater social, economic and environmental impact • Redirect a portion of BWI’s profit towards IDEI through a CSR funding scheme • To grow BWI into a scalable and profitable enterprise facilitated by IDEI 23
  24. 24. Business Model Introducing a new business model for BWI Key features • Streamline the supply chain by merging Manufacture and Distribution of the pump to free up additional margin for the BWI company. This requires securing a large manufacturing partner with distribution capabilities • Move from cost-based to value-based pricing, promoting the value of treadle pumps thereby commanding a higher price at sale, while also implementing plans to increase numbers of sales • Enhance the role and improve effectiveness of Business Associates to raise awareness and increase sales through farmer-to-farmer marketing initiatives and incentives schemes • Leverage IDEI’s R&D and generate additional revenue from an expanded products portfolio The primary role of BWI is to coordinate the supply chain and promote the sales of treadle pumps developed by IDEI 24
  25. 25. Business Model Introducing a new business model for BWI Develop flexible payment options for small farmers to remove entry barriers to sales, capture latent demand and meet stated revenue targets • The plan takes a view of increasing current treadle pump sales by 10 times to achieve 1 million units sold in the next 5 years • Attract investment into the new business from “Impact Investors” seeking to drive tangible positive socio economic development benefits as well as acceptable financial returns • 25
  26. 26. Business Model Introducing a new business model for BWI Enhance the role of Business Associates as Sales Agents Streamline the supply chain by merging the functions of manufacturer and distributor Attract investment from Impact Investors Move from cost-based to value-based pricing to promote the value of treadle pumps A platform to coordinate the supply chain and promote the sales of treadle pumps developed by IDEI Leverage IDEI’s R&D for product development Develop flexible payment options for smallholder farmers BWI to develop into a more effective and inclusive platform for farmers and supply chain actors 26
  27. 27. Business Model Current Business Model Manufacturer Order Manufacturing Distributor Logistics Delivery Dealer Order Delivery Order Farmer Consumer Sales Delivery Installation Quality Control Supply Chain Coordination Business Associate R&D, Quality Control Brand Management Supply Chain Coordination Sales & Marketing Sales Promotion Mechanic Installation Maintenance IDEI currently faces the challenge of keeping sales performance tied to donor fundraising efforts 27
  28. 28. Business Model Proposed Business Model: Supply chain flow Manufacturer Distributor Manufacturing Logistics Delivery Quality Control Branding R&D Quality Control Brand Management (1) (2) (3) (4) Order Order Feedback & CSR Funding Dealer Order Consumer Sales Business Associate Marketing / Promotion Sales Training Farmer (1) Delivery Delivery Supply Chain Coordination (2) Financing Arrangement Installation + Maintenance (3) (1) New Product Planning referral Mechanics Farmer Field Associate BWI places primary focus on pump sales, and managing Business Associates Shift from cost-based to value-pricing approach to increase profitability Supply Chain: Manufacturer and Distributor are combined to free up margin for BWI BWI manages Financing arrangements with separate entity 28
  29. 29. Business Model Business Design Transformation Phase 1: Focus on restructuring existing operations Phase 2: Develop new features for the business model Y1 Y2 Y3 Y4 Y5 Changes Expected Impact Phase 1 Focuses on Sales Channel Enhancement Value Pricing + Supply Chain Optimisation Increase awareness, profitability Phase 2 Develop Flexible Payment Increase Affordability 29
  30. 30. Business Model: PHASE 1 Current role of Business Associates Current Situation Buy Dealer Pump Delivery Business Associate Promotion • Currently, the promotion and sales are done exclusively by Business Associates (BAs) • BAs are field agents and interact with farmers on a daily basis and coordinate promotional activities in villages • However, scarce resources dependent on donor funding and few sales channels have limited absolute number of sales • BAs cover large territories and are not leveraging on positive farmer feedback to acquire new customers Targeted farmers are not fully aware of the treadle pump and the significant value it can add to their farm productivity 30
  31. 31. Business Model: PHASE 1 Proposed role of Business Associates as Sales Agents The success of BWI’s new business model depends on increasing the role of BAs by allowing them to: Proposal Promotion - - - - Encourage and support selected dealers to implement sales and promotional activities Work with other farmers (or Field Associates) on promoting the importance of irrigation and value of treadle pumps to new customers Work through an incentive and referral scheme to increase awareness and encourage more sales Collect feedback from farmers and supply chain actors Buy Dealer Pump Delivery Training Business Associate Promotion Training Field Associate Boosting sales channel and awareness through incentives and referrals 31
  32. 32. Business Model: PHASE 1 (2) Cost-based vs. Value-based approach Current Situation Due to farmers’ low purchasing power and the assumption that they will not pay, the treadle pumps pricing has been cost-based (i.e. total of all costs and margins equate to selling price to farmer, for end price to be as low as possible.) This approach ignores product demand, fails to account for perceived value and competitive products and provides no incentive to improve cost efficiency Dealer Margin Distributor Margin Price to Farmer Manufacturer Margin Manufacturing Cost Current cost-based pricing does not allow for additional margin to compensate for value-adding activities of BWI 32
  33. 33. Business Model: PHASE 1 (2) Cost-based vs. Value-based approach Proposal Instead of a cost-based approach, it is proposed BWI manage the marketing of treadle pumps through: value pricing • • • to highlight the features and benefits of the treadle pump in comparison with competing technologies to better position the product on the market and enhance demand through increasing the perception of value to increase overall product margins to provide revenue to BWI, and to provide incentives to sales agents Value-pricing provides multiple benefits: expands margins; allows for sales incentives; enhances customer perception 33
  34. 34. Business Model: PHASE 1 (3) Supply Chain – Current Current Situation Manufacturer Distributor Coordination Dealer Current supply chain model seeks to benefit each operator but fragments profits and leaves no viable margin for BWI , in spite of the important role they will play in promoting and managing sales of the pump Delivery Buy Supply chain optimisation to ensure certain level of profitability to each stakeholder is recommended 34
  35. 35. Business Model: PHASE 1 (3) Proposal to streamline the supply chain Merging the functions of manufacturer and distributor: • Eliminates levels of costs and frees up margins for BWI • Achievable based on anticipated scale of pump sales • Optimises profit allocation • Facilitates negotiations and communication with supply chain actors Proposal Manufacturer and Distributor Dealer Cost Optimisation Forecasting BWI acts as intermediary business to provide appropriate forecast on sales and demand from dealers and farmers and to drive sales targets Supply chain optimisation increases profitability and reinforce forecast scheme 35
  36. 36. Business Model: PHASE 1 Existing Feedback Mechanism for IDEI  Current Current Situation Business Associate and Area Manager Manufacturer Distributor Dealer Mechanic Feedback reaches IDEI from different actors of the supply chain through Business Associates and Area Managers, both employed by IDEI Information is not consolidated. Feedback mechanisms required for: - Product improvement & development - Information on agricultural practices - Supply chain mechanisms - General complaints and recommendations Feedback from value chain is currently not sufficient to improve products 36
  37. 37. Business Model: PHASE 1 Proposed Feedback Consolidation via BWI BWI acts as interface between IDEI and supply chain operators and consolidates all relevant info and feedback for IDEI. Inputs include: • • • • • Improvement of existing products Development of new products/services Feedback on supply chain processes Identification of selected dealers and performance of operators Consumer/farmer behaviour and preferences  Proposed Proposed Manufacturer & Distributor Feedback Mechanism & Consolidation Dealer Mechanic By clarifying roles in the feedback process BWI and IDEI can both improve efficiencies and performance 37
  38. 38. Business Model: PHASE 2 Introducing Flexible Payments for treadle pumps Objectives • • • • • To provide an effective mechanism through which smallholder farmers may overcome the entry barriers of purchase price in order to acquire treadle pumps Facilitate more farmers getting started in using the treadle pump to transform their farming and water management practices, subsequently generating income which can be used in repayment Provide greater flexibility to pump dealers in allowing farmer customers to buy the pumps on installment, allowing them to realize the benefits throughout one or more cropping seasons before paying the balance of the pump price Create a new independent company Blue Wealth International Finance (BWIF) to support BWI sales by offering flexible and ‘nano-financing’ for treadle pump customers “Nano-financing” indicates access to credit which is appropriate to farmer needs, less than the existing micro-finance schemes, and which offers flexible repayments based on cropping cycles not on weekly or monthly interest charges Flexible payment solutions is key to realising huge latent demand for treadle pumps 38
  39. 39. Business Model: PHASE 2 (4) Flexible payment solutions: Details Background • • • • Local dealerships are considered as a onestop shop for farmers to purchase treadle pumps and other required farming tools and equipment and to seek advice and information One dealer is responsible for an area covering several villages and is usually wellknown among the farming communities Village mechanics who install treadle pumps work with specific dealers Farmers run the risk of delayed payments due to crop failures and unexpected weather conditions and therefore require flexibility to pay back over time once income is secured through crop sales Treadle pumps Works with village based mechanics Responsible for several villages Local dealer Revenue from other hardware products Person of trust 39
  40. 40. Business Model: PHASE 2 (4) Flexible payment solutions: Details Key features of the Proposed Payment Scheme • • • • Strong social connections between Farmers and Dealers entails high rates of repayment and low risk of default in the future, as well as effective and efficient locally-based repayment collections Issuing credit to dealers rather than farmers is more reliable (more stable revenue), more straightforward to manage and is most conducive to increasing treadle pump sales Flexible Payment plan can be arranged on a monthly basis for dealers whereas farmers operate according to cropping seasons Extending credit to dealers enables dealers to provide loans to farmers for purchasing treadle pumps – providing added incentives and tools for dealers to sell more pumps in local areas. 40
  41. 41. Business Model: PHASE 2 (4) Flexible payment solutions: Details Details of the Scheme • The loan to dealers will cover up to Rs. 3,062 an amount which covers the cost of a pump, all necessary pipes and additional pieces, and mechanics’ installation fee. This is the total cost of an installed treadle pump to farmers. • Through the Flexible Payment Option, the payment obligation from farmer to dealer is Rs.3.120 • Rather than pay the full amount upfront, farmers can: - Pay a down payment of Rs. 250 - Pay back the balance through installments based on one or more crop seasons • This solution does not translate into any cash advances to farmers and thus minimises the risk of debt/mismanagement/failure to repay • Dealers will manage the specific repayment solutions made available to their farmer customers according to their desired down payment and expected cropping incomes. • At present, some dealers are already offering flexible repayment for small amounts if farmers cannot pay the entire pump costs up front – this scheme formalises the process 41
  42. 42. PHASE 2 (4) Introducing Blue Wealth International Finance (BWIF) It is proposed that IDEI support the establishment of a new independent company – Blue Wealth International Finance (BWIF) to manage the new Flexible Payment scheme. • BWIF will be the central financing vehicle extending loans to dealers and monitoring collections from dealers. • It is projected that BWIF’s total assets will amount to Rs. 500 million after 4 years. (See appendix for breakdown). • BWIF will also be in charge of training dealers and related personnel regarding the execution of the new Flexible Payment plan. • According to Indian regulation it is necessary to set up a new entity separate from BWI to manage money lending to dealers. They can then determine how to manage installment payment options offered to farmers, on a case by case basis. BWIF is a new company that facilitates appropriate loans to farmers via dealers 42
  43. 43. Business Model: PHASE 2 Proposed Flexible Payment Scheme Step A: Farmer places order for a Pump (+ pipes and installation) and enters into an agreement with Dealer for payment. Farmer makes a down payment to Dealer Step B: After installation, Dealer pays Mechanic all installation costs Step C: Farmer pays Dealer in installments after each crop season according to the agreement Mechanic B Agreement Farmer A C Contract Dealer 1 2 4 BWIF 3 Step 1: Dealer sends payment application to BWIF. The amount includes the cost of pump, pipe and installation Step 2: BWIF evaluates Dealer’s credit standing. Upon approval, BWIF and Dealer establish loan contract Step 3: Dealer send “Purchase Order” to BWI Step 4: Dealer pay down payment and after pay the due amount according to the contract Dealers hold the contract with BWIF on behalf of the farmer 43
  44. 44. Business Model: PHASE 2 Flexible Payment – Win Win Solution Party Benefits • Farmer • • Dealer BWI / BWIF Small upfront payment to purchase a new Treadle Pump which can be installed within hours Repayment scheme based on cropping seasons rather than on repayment fixed terms and conditions Interface with dealer and with person of trust in the village • Higher sales volume with flexible payment scheme attracting new customers • • More sales of Treadle Pump Increase profits It is expected that the use of the Flexible Payment Option by farmers will account for 50% of total sales Total Asset Size will Reach Rs.500 Million in after Year 4 Return on Assets of 4% and Return on Equity of 20-30% 44
  45. 45. Business Model: PHASE 2 Payment obligation from Dealer to BWIF Terms and Conditions Interest Rate for repayment: 25% Timeframe for repayment: 12 months Total Amount paid by dealer to BWIF with Payment Option = Rs.3,062 Month 1 Down Payment Amount Rs.250 paid (Rs.2,812) (balance) 2 3 4 5 6 7 8 9 10 11 12 1st Payment 2nd Payment 3rd Payment 4th Payment Rs.141 (Rs.2,671) Rs.141 (Rs.2,530) Rs.141 (Rs.2,389) Rs.2,389 (Rs.0) Initial down payment and four subsequent installments for the farmer and an opportunity for the farmer to sell other products to farmers 45
  46. 46. Business Model: PHASE 2 Payment obligation from Farmer to Dealer Current Projected Flexible Payment Option 1: Cash in full amount Payment Method Total Amount Cash Option 2: Loan from Dealer Down Payment in Rs.250 and pay back the in rest consecutively in small amount over a time period agreed by farmer and dealer Option 1: Cash for a total amount of Rs.2,500 Rs.2,200 Option 2: Loan from Dealer Total amount of Rs.3,120 (Interest Rate 27.5%) 46
  47. 47. Business Model: PHASE 2 Future Opportunities for BWI: Community-based approach Lowering the financial impact of the cost the treadle pump through the flexible payment option could also facilitate the formation of a community-based approach to farming Collective Selling Collective buying Collaborate logistics to transfer goods to market, labour cost for selling, access to higher price market Facilitate the collective purchasing of agricultural inputs (fertilizer, seeds, etc) Cost saving Increase revenue Through a more integrated approach, BWI can deliver more services to farmers, help save costs and increase value of products 47
  48. 48. Business Model: PHASE 2 Future Opportunities for BWI: Expand Product Portfolio The opportunities for BWI stemming from water lifting are numerous, with applications for farming communities in India, but also globally. New areas for product development include: - New water lifting devices (solar pump, hand pump, etc) - Water / Sanitation / Healthcare - Agricultural inputs BWI can also build on the momentum gained from treadle pump sales to generate data/information on farmer behaviour and needs and feed this into IDEI’s R&D Examples for new future products IRRIGATION Flagship product: Treadle pump Handwashing device SANITATION Other water lifting devices (solar/hand) Water purifier AGRICULTURAL INPUTS / POST-PRODUCTION Mini kits (seeds, biofertilizers, biopesticides) Community -based storage BWI has the potential to facilitate a community-based approach to farming and to develop new water- and agri-related products to increase sales 48
  49. 49. Business Model Revenue Streams for BWI A phased approach allows BWI to build its product/service portfolio and generate various revenue streams that lead on from the treadle pump. Revenue Stream from farmers/community Phase Value Proposition • Treadle pump sales 1 • Low cost low tech waterlifting device • Environmentally-friendly technology 2 • Accessibility through financing Revenue Stream from other partners • Interest generated through BWIF • Diversified low cost irrigation solutions from Future IDEI R&D Scenario • Farmers’ income increase through marketing support • Carbon Credits from not using diesel pumps (specific revenue from Carbon credits to be defined by IDEI) • Bundled products related to water and agriculture • Agriculture product marketing margin 49
  50. 50. Business Model Key partnerships Strategic alignment and cooperation with partners will be established in BWI key activities to create and deliver value to the farmers. Partners Partner’s Task BWI’s Task Phases IDEI R&D for appropriate solution Feedback and data from the field 1+2 Manufacturer Distributors Manufacture, distribution and storage Sales forecast Generate sales 1 Dealers Outlet and sales Product supply After sale services 1+2 Mechanics Installation and Promotion Training 1 BWIF Develop Flexible Payment Connect to farmers 2 Cooperatives Promotion and Sales Consolidate farmers Training and Product supply After sale services Market facilitation Future Scenario BWI links all stakeholders for the effective sale of cost-effective waterrelated solutions for improving livelihoods for farmers 50
  51. 51. Sales & Marketing • • • • • • • • • • • • • • Summary of Recommendations Key objectives Current status: Sales of treadle pumps Current situtation: Efficiency of Business Associates Gaps and opportunities New sales channel Roles and responsibilities of sales agents More effective marketing activities Revised flyer Reviving village demonstrations Projected outcomes Benefits to Business Associates Benefits to Field Associates Future Product developments 51
  52. 52. Sales & Marketing Summary of Recommendations Key features • Shift the Sales and Marketing from IDEI to BWI to be more cost-effective and incentives-based • Revamp the Sales and Marketing strategy by developing new sales channels which involve Business Associates (BA) and Field Associates (FA) through incentives and referral schemes • Train BAs and FAs on the various facets of BWI, including treadle pumps and new product portfolio, financing options, benefits of irrigation, as well as teaching them selling skills to raise awareness about BWI and boost sales • Enhance existing marketing activities to be more impactful and creative • Leverage on IDEI’s R&D and on the development of new products to upsell to existing customers and retain BWI’s customer base The primary role of BWI is to coordinate the supply chain and promote the sales of treadle pumps developed by IDEI 52
  53. 53. Sales & Marketing Key Objectives 1. Scale up the sales of treadle pump from 3% to over 15% (to a volume of 1M pumps in 5 years) 2. Increase the margin for key actors of the supply chain (BWI, BAs, dealers, FAs) 3. Provide farmers with an opportunity to become entrepreneurs 4. Provide incentives to farmers to increase sales and raise awareness on value of treadle pump 5. Upsell to existing customers by promoting new products and services to retain a strong customer base BWI’s new sales and marketing strategy is focused on revamping existing marketing activities and on incentivising key components of the supply chain 53
  54. 54. Sales & Marketing Current Status: Sales of Treadle Pumps 60000 50000 Sales of Pumps • In 2012, 20,000 treadle pumps were sold • Sales and Marketing activities are currently carried out by IDEI • A sharp decrease in 2010-2011 corresponds with a drop in funding, highlighting the need to move away from IDEI’s dependence on grants and donations for promotional activities 40000 30000 20000 10000 0 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Year A sharp decrease in sales in 2008 highlights the need for BWI to steer away from grants and donations for sales and marketing 54
  55. 55. Sales & Marketing • • Current Situation: Efficiency of Business Associates for IDEI A cut in funding has also affected the number of BAs and their efficiency to reach more farmers and sell more pumps Efficiency (# pumps sold per BA) has decreased by over 50% in the last 2 years Business Associates need to be incentivised to push for more sales 55
  56. 56. Sales & Marketing Gaps and Opportunities Gaps Opportunities Penetration is still low (3%) Growth potential through development of new business model Decreasing sales efficiency of BAs Incentivise BAs through revamped sales strategy to increase the sales efficiency Limited products to attract farmers Provide more products (e.g. solar pumps, sanitation devices, low cost storage etc..) to enhance customer lifecycle Loose connections between campaigns and sales Effectively reach potential customers A new approach to existing sales channels and a fresher communication strategy can reach more potential clients and boost sales 56
  57. 57. Sales & Marketing New Sales Channel Strategy: Main Features • Shift Sales and Marketing from IDEI to BWI to avoid dispersion of resources, improve cost management and increase sales through incentives • Leverage on farmers and mechanics connections and association to the treadle pump to be part of the selling channel. Their role, as Field Associates (FAs) is to enhance on-site sales channels and promote awareness amongst the community Business Associate Area Manager Each area manager supervises 20 BAs Each BA is tasked to sign up 100 FAs to push for sales Field Associate (F.A.) Farmer1 Farmer2 Mechanic Both BAs and FAs need to gain support, knowledge and training on: - Treadle pump and other bundled products - Selling skills and income opportunity - Details of payment options - How to sign up new FAs and how to retain existing customers 57
  58. 58. Sales & Marketing Roles and responsibilities of sales agents Role Responsibilities Area Manager (AM) • • Business Associate (BA) • Fixed salary plus bonus scheme • Encourage BA to sign up 100 FAs to push sales Field Associate (FA) • Commission per pump sold • Aim to sell 10 pumps per year • Trained by BA on different product offerings and on various selling techniques Management of sales channel Management of sales and marketing budget Increased responsibilities for area managers, business associates and field associates will incentivise actors and boost sales 58
  59. 59. Sales & Marketing More effective marketing activities Current marketing activities are carried out locally, on the road and in villages. More emphasis needed on visually impactful and spoken messages as many farmers are illiterate • Placement of ads and illustrations on strategic walls in the FA community • Conduct interactive wall painting campaigns via community engagement • Revise the flyer to focus on key benefits including payment options • Redesign the village demo in a more interactive way Need to revamp promotional activities to increase farmer awareness and keep activities attractive 59
  60. 60. Sales & Marketing Revised Flyer for BWI Revise flyer content to include: - Farmers feedback - Direct contact number - Payment Options - Product Bundling - Group discount Expected Outcomes • Motivate farmers to buy treadle pumps • Enhance Information dissemination • Provide information of dealer’s address and payment options • Make the product more accessible Revised flyer designed to showcase BWI and its services 60
  61. 61. Sales & Marketing New Flyer Design for the Treadle Pump Irrigation Anytime Water Without Diesel Women can Treadle Payment in 12 months Treadle Now, Pay Later! Visit your KB dealer Today! 123-4567-890 Contact address 61
  62. 62. Sales & Marketing Reviving the Village Demonstrations Re-designing the approach to create a new interest in the product by changing location and bringing the demo to the farmers • Seeing and hearing the same campaign message leads to a loss of interest • Need to engage dealers and Field Associates to push sales by adopting new techniques that will create interaction and momentum e.g. using familiar faces such as the FAs in the demo, raffles and prizes etc… • Door-to-door information diffusion • Involvement of opinion leaders to encourage discussion about irrigation and the treadle pump 62
  63. 63. Sales & Marketing Projected Outcomes for Sales & Marketing More engagement from BAs and FAs and renewed marketing strategies and campaigns are expected to increase treadle pump sales: • Sales target to increase by 2.5 times in year 1, and reach 350K (17.5 times) in year 5 Expected Number of Pumps Sold in the next 5 years 300,000 200,000 50,000 100,000 Y1 • 350,000 Y2 Sales cost per pump to decrease with increased sales to an average cost of Rs.357 which is 48% of the original cost/pump model Y3 Y4 Y5 Sales Cost/Pump Original Model 634 407 Y1 New Sales Model 794 859 682 736 322 336 351 368 Y2 Y3 Y4 Y5 63
  64. 64. Sales & Marketing Projected Outcomes for Sales & Marketing cont’ Revenue/Pump The bulk of the revenue stream for BWI will be generated through the sale of treadle pumps Rs.1,145 Y1 Rs.1,245 Y2 Rs.1,354 Y3 Rs.1,474 Y4 Rs.1,607 Y5 A new sales and marketing strategy is expected to generate a 40% increase in revenue/pump sales by Year 5 64
  65. 65. Sales & Marketing Benefits to Business Associates A new sales strategy and a model based on incentives for BAs is expected to increase their annual income by 40% in year 5, with a sharper increase after the first year of implementation Assumption: Annual income based on fixed salary + incentives/commission for every pump sold Annual Income for each BA Original New 150,802 137,093 113,300 124,630 Rs.75,500 70,000 Y1 77,000 Y2 84,700 Y3 93,170 Y4 102,487 Y5 Adoption of a new sales strategy expected to increase BAs’ annual income by over 40% by Year 5 65
  66. 66. Sales & Marketing Benefits for Field Associates Field Associates are farmers, mechanics and other villagers who are encouraged by BAs to raise awareness about BWI and the treadle pump • FAs receive a commission for every pump sold • This incentive to sell pumps provides an extra income for villagers, which can be reinvested in their household, i.e. education, sanitation, other irrigation/agri products, etc Annual Income for FA 1,500 0 Original New Sales Model Assumption: FAs perceive a commission of Rs.150/pump sold Incentives and a new sales model will generate entrepreneurship amongst farmers and Field Associates 66
  67. 67. Sales & Marketing Future Product Developments Based on grants and funds, IDEI continues with R&D and product development for the design of technologies to be commercialised by BWI Develop farmer-related products to increase BWI’s customer life-cycle and upsell to existing farmers to retain customers. Examples include: • Range of water-lifting devices • Product bundling of seeds, biofertilisers, bio-pesticides, etc • Community-based storage for farmer produce • Hand washing device to promote health and hygiene practices Commercialisation of new products through BWI 67
  68. 68. Future Product Developments cont’d Developing a ‘Mini Kit’ for farmers to quick start production on their irrigated field  Designed for land size as small as 0.1 hectare  Consists of approx. 250g vegetable seeds such as pumpkin and bottle gourd  Approx. 2kg of bio-fertilizer  Variety of seeds, including high-value crops 68
  69. 69. Sales & Marketing Community-based Storage Smallholder farmers often lack access to storage facilities during postproduction, which translates into waste. Communal storage facilities can minimise waste and extend lifespan of farmer produce Examples of Activities • Promotion of farmer collaboration by introducing options for communal storage spaces that are shared and maintained locally • Introduction of a “communal fund” to finance low-cost mini-greenhouses for farmers for example, etc. • Activities could be extended to communal buying of agricultural inputs to benefit from bulk order and get a cheaper price BWI has the potential to facilitate a community-based approach to farming with post-harvest services and group selling/purchase 69
  70. 70. Sales & Marketing Health and sanitation: Opportunities for by-products The need for improved hygienic practices in impoverished and rural environments in India is critical and is intimately linked to access to clean water • Inadequate sanitation leads to health issues which impact standards of living, productivity and economic activity • Inadequate sanitation costs India an estimated Rs.2.44 TRILLION a year (equivalent to 6.4% of India’s GDP in 2006) • The national cumulative sanitation market has the potential of Rs.6.87 trillion over the 2007-2020 period Promoting comprehensive hygiene interventions, such as a hand washing device, can result in averting 45% of adverse health impacts 70
  71. 71. Organisational Structure • • • • • • • • • • • Summary of new organisational structure Key roles and responsibilities for BWI Proposed structure for Blue Wealth International Finance (BWIF) Recommended criteria for BWI Board Role of the Board Decision making process and approval Governance: Risks and mitigating actions Governance framework Business Associates: Recruitment and job description Talent management Incentive and remuneration package 71
  72. 72. Organisational Structure Summary of New Organisational Structure • A new company structure is proposed for BWI which differs from the current IDEI non-profit structure • Primary proposed changes will include shifting the sales and marketing functions away from IDEI and into BWI to include Sales & Marketing Officers and Business Associates as well as relevant General Manager and supervisory roles • Total number of Area Manager and Business Associates will be reduced from approximately 140 to 105 to manage costs and enhance productivity incentives through increased responsibilities • Key roles that remain with IDEI include R&D, Product Development, Brand Management, Grant Management and Communications • Relevant administration roles for BWI will include Finance, Accounting, HR, IT and Administrations From non-profit to profit making enterprise 72
  73. 73. Organisational Structure Current IDEI Structure and Activities IDEI Employee Welfare Trust (EWT) Board of Directors CEO Operation (Sales &Marketing, HR, Environment) Finance, Admin, IT Innovation to Impact, R&D Programmeme (Promotion) Accounts Team / Office Coordinators Chief General Manager/ Regional Head BWI Corporate Comm.& Grant Compliance Programme Officer/ Sales Marketing Officer/ Area Manager Branch Manager (4) Total staff: 210 Quality assurance Manager/Officer Sales Marketing Officer/ Area Manager (27) BA (110) • Two board members from EWT sit on board of IDEI • BWI exists in name only and without dedicated staff • R&D and Product Development positions will remain with IDEI and gain increased focus on core activities Currently IDEI facilitates all activities including the sales and marketing of treadle pumps 73
  74. 74. Organisational Structure Proposed Structures for IDEI and BWI IDEI EWT Board of Directors Board of Directors ★ CEO CEO ★ R&D, Production Corporate Comm.& Grant Compliance Finance, Admin, IT Total staff: 68 Finance, Administration, IT ★ Shifted from IDEI Sales, Marketing, Operations Finance/Acct ★ Regional Manager(5) IT/Admin ★ Business Associates(100) HR ★ Total staff: 201 ★ Hiring Required Key roles for Sales & Marketing and commercial operations to be transferred from IDEI to BWI 74
  75. 75. Organisational Structure Key Roles and Responsibilities for BWI Position CEO VP Sales, Marketing, Operations Role & Responsibility • Responsible for revenue and profit of the BWI • Oversees overall operations of the BWI business • Responsible for sales target, promotion effectiveness, and operation efficiency • Oversees the performance of Area Managers and BAs VP Finance, HR, Administration, IT • Responsible for BWI’s financials • Responsible for Administration, Remuneration/Bonus, IT Regional Manager • Responsible for managing BAs Business Associate (BA) • Responsible for execution of promotional Programmes and training Filed Associates (farmers and mechanics) Priority will be given to roles involved in sales and incentives for performance 75
  76. 76. Organisational Structure Proposed Structure for Blue Wealth International Finance (BWIF) BWIF BWI Board of Directors ★ BWIF CEO Collection ★ Loan Management ★ Credit Assessment ★ Accounting Shared resources • Certain roles are to be shared with BWI, such as HR, IT, Administration • Accounting and Finance roles may be concurrently played by the BWI personnel • Management role in BWIF should have lending background ideally with experience in rural business Finance ★ Hiring Required BWIF will facilitate increased sales by providing flexible payment options 76
  77. 77. Organisational Structure Recommended criteria for BWI Board member • The board for BWI and BWIF to have 5 members: – – – – Member from IDEI (non-executive) CEO of BWI (executive) 1-2 investors 1-2 non-executive external board members • The external board members should meet the following requirements: – Be an Indian national – Commercial experience and ideally knowledge of rural sales and marketing – Experienced in one of the core activities of BWI, i.e. water management, agriculture, rural development, etc – Strong relationships with the Indian business community, potential investors (and potentially the government) – Serve on the board of at least one other commercial entity and have a strong understanding of the role and governance of a board of directors 77
  78. 78. Organisational Structure Role of the Board • Provide unbiased strategic guidance to the management team to set and meet mid to long term goals • Create an environment which fosters a socially oriented entrepreneurial spirit within BWI and BWIF • Ensure the company’s values and standards are aligned with IDEI’s vision and mission • Advise on the high-level allocation of human and financial resources to achieve objectives, specifically the sales targets for treadle pumps and the provision of payment options for farmers • Regularly review management performance and design the remuneration packages of the company’s senior management • Ensure the company’s operations meet obligations to both stakeholders and shareholders The BWI Board should provide independent oversight and ensure alignment with IDEI’s vision and mission 78
  79. 79. Organisational Structure Decision Making Process And Approval In order to implement all business plan, policies, rules and procedures BWI need very clear decision making process and approval Key Areas Capital Allocation Investments Dividend Policy Annual Budget Pricing of Products Sales Target & Sales Strategies Strategic Business Partnership (BWFI) Purchase of asset Human Recourse Budget Appointment of CEO Internal Policy VP Finance & Administration VP Sales & Operation CEO BOD Approve Approve Approve Approve Approve Approve Review Review Review Review Review Review Review Review Review Approve Review Review Review Review Review Review Review Approve Approve Approve Review Review Approve 79
  80. 80. Organisational Structure Governance: Strategic Risks and Mitigating Actions Strategic Risks Mitigating Actions • • 1. BWI does not achieve profitability (e.g.Sales VP can not deliver targets) • • 2. Strategies are not reviewed regularly to address the potential changes in government policies • Staff at strategic positions are appointed with expertise on the work area Quarterly financial performance assessment by senior management Half-yearly management performance review at Board level Bonus/remuneration of senior management are rewarded according to performance Frequent regulatory meeting to review policy changes (especially relating to water and irrigation), assess the impact to BWI’s operation and recommend new actions if/when needed 80
  81. 81. Organisational Structure Governance: Operational Risks and Mitigating Actions Operational Risks 1. Key partnerships are not effective in supporting the delivery of benefits outlined, e.g. broken supply chain 2. Inefficiency due to unclear definition of roles, e.g. duplication of work Mitigating Actions • • • • • 3. Inadequate inventory supply to meet the demands • Key partnerships (manufacturers, dealers etc) are clearly defined and reviewed periodically. Close partnership to coordinate the smooth supply chain Robust governance on CSR Fund to IDEI CEO and HR VP sign off on all job descriptions Process procedure and authority flow is clearly documented and signed off by department heads Detailed contract signed with the manufacturer Continuously monitor the manufacturer’s performance and regular review of terms and conditions in the contract 81
  82. 82. Organisational Structure Governance: Operational Risks and Mitigating Actions cont’ Operational Risks Mitigating Actions • 4. Distribution network is not able to meet the delivery demands 5. Technical Risk of collapse of an credit management system 6. Reputational risk due to misuse of products by farmers • • • • • Accurate forecast on sales volume pipeline and effective communication with the manufacturer Closely follow-up with the manufacturer on their network plan and ensure the coverage is align with sales forecast High security check on credit system Contingent plan in place Training is conducted by BAs to all farmers/dealers on products/financing/etc An acknowledgement form of training is signed by farmers/dealers after the training 82
  83. 83. Organisational Structure Governance: People Management Risks and Mitigating Actions People Management Risks 1. Poor performance or behaviour is tolerated Mitigating Actions • • • • • 2. Staff is not properly incentivised to achieve target 3. Sales staff has inadequate knowledge on products and customers Timely appraisal and feedback on individual performance Sales target is clearly communicated to all staff, accountability mechanisms are clearly defined Bonus/remuneration of staff are awarded according to performance Code of conducts (esp sales staff working at villages) is clearly understood and implemented • Remuneration package with appropriate fixed vs variable components to incentivise senior management and sales & marketing staff Performance assessment and appraisal process is transparent. Bonus calculation criteria (esp for sales staff) is pre-set and clearly communicated • • Regular training is conducted for all level of sales staff Hiring criteria is set clearly for recruitment of sales staff 83
  84. 84. Organisational Structure Governance: Credit and Financial Risks and Mitigating Actions Credit and Financial Risks Mitigating Actions • 1. Default risk of borrower on debt relating to BWIF, e.g. poor collection/recovery ratio 2. Risk that the credit extended from BWIF to dealers is not transferred to farmers 3. Accounting and financial controls report that fraudulent financial data or reports are produced • • • • • Credit risk management is done efficiently at reasonable level with comprehensive understanding on the local village environment Late payment penalty and action plan for collaterals Regular monitoring of the dealers on the usage of credit extended Clear guideline on the use of credits The Annual Report should be communicated to Senior Management on a Monthly basis and to the Board of Directors on a Quarterly basis Upon request, Key Financials should be made available within 3 months from the time of request 84
  85. 85. Organisational Structure Governance Framework The governance framework below will enable BWI to implement the recommended mitigating actions Sustainable Operations Effective Compliance Accountability Transparency Management Profitable Management : Increase Revenue, Reduce Cost, Maximum Funding Usage Effective Organisation Structure 85
  86. 86. Organisational Structure Successful Recruitment of Business Associates Business Associates constitute some of the most critical staff in BWI as they link farmers with dealers and act as an interface for BWI. About 100 BAs are expected to reach out to farmers directly for pump sales and awareness raising, so their selection is fundamental: • Young, dynamic and fresh graduate or with one to two years experience; • Background in engineering and management • Able to communicate in local dialect • Have a good grasp of farmers’ needs, enjoy interacting with the community, and have an awareness of business/income opportunities provided by BWI • Aware and capable of promoting the positive socio/economic/environmental impact of BWI To drive sales performance, BAs should be energetic and highly motivated 86
  87. 87. Job Description for Business Associates Responsibility • Visit farmers, mechanics, dealers to discuss the use of products or deal with any issues related to BWI products • Responsible for the execution of promotional activities and programmes • Train and encourage Field Associates (farmers and mechanics) to increase sales • Consolidate purchase orders from dealers and send them to appropriate manufacturer Qualification • High school completion with basic knowledge of agriculture • Ideally university graduate, background in engineering and business administration • 1 to 2 years of sales experience in rural business Skills • • • • Good communication skills both in verbal and written forms Fluent in Hindi and local dialect. English is preferred Reasonable IT skill to manage customer data Reasonable level of understanding of state legislation related to water irrigation • Some knowledge of fertiliser and pesticide is preferred • Have a good grasp of social conditions and environmental issues • Dynamic, energetic and highly self-motivated 87
  88. 88. Organisational Structure Talent Management Business Associates are a core component of BWI’s business model and regular training and monitoring should be carried out regularly to ensure efficiency and compliance with BWI’s mission. Focus on BAs requirements: • Effective orientation on BWI goals and strategies • Clarity on BA roles and mandates • Training on sales promotion and marketing • Keep them motivated through timely recognition and appropriate incentives • Place adequate reward/penalty provision • Maintain rapport with existing farmers and upsell to these farmers as new products become available and farmers’ income increase As sales volume increase, additional BAs and necessary support staff will be hired accordingly Capacity development for BAs should be continuous 88
  89. 89. Organisational Structure Incentive and Remuneration Packages Job Category CEO Vice-Presidents Regional Managers Specialists Business Associates Basic Salary Incentives Variables Bonus 3M NA YES 1.5M NA YES 1M + 30% TR* Rs.5/pump YES 0.5M 48K + 30%TR* YES Rs.50/pump YES (*)Travel Reimbursement Fair compensation based on basic salary and incentives help achieve high performance 89
  90. 90. Finance • • • • • • • • • • Summary of Business Model Key Assumptions Key Assumptions for BWI Key drivers for a viable business opportunity for BWI Projected BWI revenue and profit Projected number of BAs and capital expenditure Projected net income Tight control on fixed cost Attractive investment opportunity Potential funding source for BWI 90
  91. 91. Finance Summary of Business Model • BWI requires a start up investment of Rs.100 million in seed capital to kick-start its operations • BWI is a low capital intensive business and is expected to be profitable by Year 3 • BWIF is expected to generate additional profit for the consolidated business and represents a significant upside to investors 91
  92. 92. Finance Key Assumptions Main Revenue Streams • The bulk of BWI’s revenue to be generated through the sale of treadle pumps • Pump sale price increase from Rs.750 (current) to Rs.995 (proposed) in the first year. Thereafter, the price of the pump is expected to increase by 10% every year in line with inflation Majors Costs • No inventory holding: Logistics and warehouse costs to be covered by manufacturer at Rs.50/pump • Total cost of treadle pump (pump + pipes + installation) to increase from Rs.2,050 (current) to Rs.2,415 (proposed) • Costs for R&D upheld by IDEI through grants and funding • FAs to perceive a commission of Rs.150/pump sold • Fixed costs are kept low over the first five years and most variable costs arise from incentives paid to BAs and FAs, which help to improve their socio-economic situation and directly benefit the community 92
  93. 93. Finance Key Assumptions cont’d Investment • BWI requires a start-up investment of Rs. 100 million in seed capital to kick-start operations. According to calculations based on assumptions, the company will break-even during the 3rd year Other assumptions • Each pump accounts for 0.5 ton carbon saved/pump/year, based on savings of US$6/ton of carbon. The lifespan of a treadle pump is ~8years • Trainings for new BAs and new staff will be done in house so no additional cost • Each Area Manager currently supervises 20 BAs. This number is due to increase to 25 BAs after the first year • Each BA tasked to handle 100 FAs per year • Rs./USD exchange rate = 0.02 93
  94. 94. Finance Key Assumptions for BWIF • From the Rs.100 million initial investment, BWI places Rs.50 million into BWIF • BWIF pays dividends to BWI which in turn pays dividends to investors • All full cash payment: no liabilities • The loan to dealers will cover up to Rs.3,062 an amount which covers the cost of a pump, all necessary pipes and additional pieces, and mechanics’ installation fee. This is the total cost of an installed treadle pump to farmers. • Through the Flexible Payment Option, the payment obligation from farmer to dealer is Rs.3.120 • To benefit from Flexible Payment Option, farmer to pay a down-payment of Rs.250 94
  95. 95. Finance • • • • • Key Drivers for a viable business opportunity for BWI New business model Changed cost structure to be more efficient: from cost-pricing to valuebased Minimal increase in treadle pump price with added financing options to lower initial cost to farmers New marketing and sales channels to increase community employment Sales-oriented organisation to reduce fixed costs Seed Capital (Investors) • Attractive business opportunity with a commercially viable proposal • Increased market penetration to help more smallholder farmers • Patient capital to yield long-term financial returns and social impact 95
  96. 96. Finance Projected BWI Revenue and Profit Profit after tax for BWI and ROI INR 600 Millions Millions Revenue for BWI (year on year) INR 500 INR 40 INR 35 INR 30 INR 25 INR 400 INR 20 INR 300 INR 15 INR 200 INR 10 INR 5 INR 100 INR 0 -INR 5 INR 0 1 2 3 4 5 1 2 -INR 10 Year Revenue BWI Profit after tax BWI 3 4 5 Year 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% ROI (profit basis) BWI is profitable in Year 3, with attractive returns on initial investment 96
  97. 97. Projected Number of BAs and Capital expenditure for BWI Finance Projected Number of Business Associates and Capital Expenditure 400 1.4% 350 1.2% Number of Bas 300 1.0% 250 0.8% 200 Number of Business Associates 0.6% 150 0.4% 100 50 0.2% 0 Capital Expenditure as % of total sales 0.0% 1 2 3 4 5 Year Highly scalable business model with low capital intensive requirements 97
  98. 98. Finance Projected Net Income Millions Net income BWI and BWIF (year on year) INR 40 INR 35 INR 30 INR 25 INR 20 INR 15 INR 10 INR 5 INR 0 -INR 5 1 2 -INR 10 3 4 5 Year Net income BWI Net income BWIF BWIF presents significant upside to consolidated business 98
  99. 99. Finance Tight control on fixed cost • Fixed costs for the production of treadle pumps remains low and stable • Variable costs increase over time and only as a result of increased incentives paid to BAs and FAs. • These incentives directly benefit BWI staff as well as the community, which is in line with the social mission of BWI and IDEI 99
  100. 100. Finance Attractive Investment Opportunity Cash Flow Statement BWI (Rs.) Profit Before Tax Donation to IDEI Depreciation Tax Surplus/ (Deficit) ROI (profit basis) YEAR 1 (10,169,500) 0 82,500 0 (10,087,000) NA YEAR 2 (810,325) 0 310,125 0 (500,200) NA YEAR 3 15,024,250 7,512,125 616,106 1,334,660 6,793,571 13.7% YEAR 4 32,996,726 16,498,363 1,033,690 10,888,920 6,643,134 22.1% YEAR 5 49,593,135 24,796,567 1,561,137 16,365,735 9,991,970 33.2% 550,000 1.0% 1,600,000 1.3% 2,350,000 0.9% 3,400,000 0.8% 4,550,000 0.8% Seed Capital Bank Borrowing Dividend Investment in BWIF Cash Surplus/Deficit 100,000,000 0 0 0 0 0 50,000,000 0 39,363,000 (2,100,200) 0 0 2,013,249 0 2,430,321 0 0 4,421,561 0 (1,178,428) 0 0 6,645,480 0 (1,203,510) Beginning Cash Ending Cash 100,000,000 39,363,000 39,363,000 37,262,800 37,262,800 39,693,121 39,693,121 38,514,694 38,514,694 37,311,184 Investment Capital expenditure as % of total sales 100
  101. 101. Finance Attractive Investment Opportunity cont’d Profit after tax BWIF Dividend payout BWIF Consolidated Profit after tax Consolidated ROI Dividend from operating business (BWI) Dividend from BWIF to BWI Consolidated dividend to investors * Net income BWI Net income BWIF Consolidated Net income Dividend payout ratio Dividend as % of investment YEAR 1 YEAR 2 2,809,813 4,415,183 2,107,359 3,311,387 YEAR 3 6,608,974 4,956,730 YEAR 4 11,454,685 8,591,014 YEAR 5 16,580,130 12,435,098 (7,359,688) 3,604,858 20,298,563 NA 4% 20% 33,562,491 34% 49,807,530 50% 2,013,249 4,956,730 6,969,980 4,421,561 8,591,014 13,012,575 6,645,480 12,435,098 19,080,578 (6,813,565) (542,918) 10,066,247 2,809,813 4,415,183 6,608,974 (4,003,753) 3,872,265 16,675,221 22,107,806 11,454,685 33,562,491 33,227,400 16,580,130 49,807,530 39% 13% 38% 19% 0 0 2,107,359 3,311,387 2,107,359 3,311,387 NA 2% 86% 3% 42% 7% * All dividends paid to shareholders are paid via BWI Consistent cash returns from Year 2 through dividend payout 101
  102. 102. Finance Potential Funding Source for BWI Three key funding options with following conditions and funding patterns: • Private Investor with interest on financial return and in social impact possibly linked to agriculture and rural livelihoods • Social Impact Fund • Bank Funding – priority sector: - Reserve Bank of India (RBI) as Banking Regulator stipulates that 40% of bank credit should be identified to areas such as agriculture - Favorable interest rate compared to market • Recommendation: equity investment by private investor - Secure funding source and keeps business leverage free - Dividend from Year 2 - Exit through takeout by a new investor in Year 5 102
  103. 103. Community Benefits • • • Benefits to individual farmers Benefits to the community and to the agricultural sector Benefits at community and national level 103
  104. 104. Community Benefits Benefits to Individual Farmers • • • • The treadle pump is an affordable and year-round irrigation solution designed to increase farmers’ productivity and income Provides reliable water supply through the year, which enables having 3 crops seasons/year ( increase arable land from 0.4 hectare to 1.2 hectare / year/farmer) as opposed to 1 cropping season linked to the monsoon Encourages entrepreneurship: 10% of successful farmers can gain value-added side businesses (sustainable agricultural practices through bio-fertilisers and bio-pesticides) Generates new income channels for farmers by conducting farmer-to-farmer marketing activities. Assumption: increase pump sale volume by 10% after adopting the farmerto farmer referral marketing strategy 104
  105. 105. Community Benefits Benefits to Individual Farmers cont’ • • • • • As more farmers acquire treadle pumps, the community as a whole can benefit from increased income Boost agricultural output and thus improve the farmers’ nutrition level by allowing for more varied crops and/or for extra income to be spent on more nutritious foods (smallholder farmers produce 41% of country’s food grains ) Impacts are economic, but also social as extra income can be invested into his/her household for education, clothing, healthcare and other safety nets to protect farmers from external shocks such as weather or fluctuating market prices Flexible financing options eliminates the obstacle of farmers’ limited access to cash savings for purchasing treadle pumps Farmer manages the timing of water application by treadle pump and payment timing based on harvests 105
  106. 106. Community Benefits • • • Benefits to the community and to the agricultural sector Boost the agricultural sector by encouraging farmers to work their land all year round rather than migrate to cities for temporary jobs, reducing vulnerability to risk, unemployment and the risk of family fragmentation 200,000 farmers or 20% of farmers using the pump now cultivate their land instead of migrating to cities Increase agricultural sector’s output by increasing the land utility during nonmonsoon seasons (1 million pumps X 0,4 ha X 3 seasons = 1,2 million ha land utility) Assumption: 20% of farmers migrate during the dry season to search for work 106
  107. 107. Community Benefits Benefits at community and national level • • • • Reduce the environmental cost of economic development by replacing diesel pumps with treadle pumps Estimate that the operations of 1 million pumps annually will reduce 477 million kg of CO2 Provide new job opportunities by expanding the functions and operations of BWI and by reaching to more actors along the supply chain Prevent land salinisation resulting from over reliance on fertilisers and pesticides 107
  108. 108. Summary of Recommendations 108
  109. 109. Summary of recommendations for BWI • BWI takes a leading role in providing affordable irrigation solutions to small holder farmers, and contributes to achievement of IDEI's mission • Bolster existing sales channels by implementing an incentive scheme for farmers and BAs • Leverage farmer-to-farmer sales and flexible payment options to scale up to one million units in next five years • New Independent Company to provide Financial Service to Farmers via Dealer contracts and flexible payment options • To explore new opportunities to commercialise water and agriculture related products in areas such as sanitation, storage, drinking water, etc • To provide regular donations to IDEI through a CSR fund Incentives and flexible payment options will deliver sales of one million units within five years 109
  110. 110. Recommendations to IDEI • IDEI to focus it grant and donor funded activities on R&D, Product Development, Brand Management, Grant Management and Communications • IDEI to facilitate the development of BWI as a commercial enterprise and to move its Sales and Marketing activities to BWI • To align R&D activities and product development with farmers’ and community needs, as per the feedback from farmers and other stakeholders which will be consolidated by BWI • Minimise the HR transfer from IDEI to BWI in order to create a more commercially oriented rather than non-profit culture • Leverage IDEI’s corporate partnerships to seek investment into BWI and other future commercial entities IDEI must focus on its strengths to complement BWI’s core activities 110
  111. 111. Implementation Plan 111
  112. 112. Implementation Timeline The proposal has been designed over the course of 5 years for BWI to grow, revamp existing operations and implement new strategies Key Areas Year 1 Year 2 Year 3 Year 4 Year 5 Financial Solution: Flexible Payment (BWFI) Sales Channel Enhancement Expand Product Portfolio Revamp existing sales activities Train Business Associates and Field Associates Annual Budget Strengthen Governance and Organisation Timely implementation would make BWI more competitive and responsive to farmers’ needs 112
  113. 113. Appendix 113
  114. 114. Appendix Diesel Price • Diesel price have surged by ~40% in 2.5 years • Increase in diesel prices penalises both current and potential diesel pump users in farming community, thus expanding the market for treadle pump uptake Increase rate (normalised by Nov 2010) Diesel Price in Lucknow 1.4 60 1.3 50 1.2 45 1.1 40 May-13 Mar-13 Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 May-13 Feb-13 Nov-12 Aug-12 May-12 Feb-12 Nov-11 Aug-11 May-11 1 Feb-11 35 Nov-10 Rs/Ltr 55 114
  115. 115. Appendix Cost Structure Current model Margin (%) Manufacturer BWI Distributer Dealer Final price to farmer New model (current price) Margin (Rs/pump) 90 25 75 70 Price (Rs/pump) 490 580 605 680 750 9% Margin (Rs/pump) 100 50 70 Price (Rs/pump) 530 630 680 750 7% Margin (Rs/pump) 100 365 70 Price (Rs/pump) 530 630 995 1065 12% 10% Margin (%) Manufacturer/Distributer BWI Dealer Final price to farmer New model (new price) Margin (%) Manufacturer/Distributer BWI Dealer Final price to farmer 115
  116. 116. Appendix Pricing Model Cost breakdown with diesel irrigation (lease) Turnover per year Cost of crop 64,935 19,526 4830 14,696 45,409 Of which cost of irrigation (lease + diesel) Of which other cost of farming Net income Cost breakdown with treadle pump (current price) Price of treadle pump Total cost of TP (inclding pipes, installation) 750 2,100 Y1 Turnover per year Cost of crop Of which cost of irrigation (depreciation over 8 years) Of which other cost of farming Net income Additional income from treadle pump model vs diesel 64,935 14,935 263 14,696 50,000 4,591 116
  117. 117. Appendix Pricing Model cont’ Cost breakdown with treadle pump Price of treadle pump Total cost of TP (inclding pipes, installation) 1,065 2,415 Y1 Turnover per year Cost of crop Of which cost of irrigation (depreciation over 8 years) Of which other cost of farming Net income Additional income from treadle pump model vs diesel 64,935 14,998 302 14,696 49,937 4,528 Cost breakdown wthout irrigation Turnover per year Cost of crop Net income Net income from unskilled lbr work Total income 21,645 4,899 0 4,899 16,746 15,000 31,746 Additional income from treadle pump model vs wo tp irrigation 18,191 Of which cost of irrigation Of which other cost of farming 117
  118. 118. Appendix BWI and BWIF – Further details on company relationship The establishment of BWIF is based on the assumption that dealers can sell more pumps if initial payment is not a barrier for farmer customers Dealers can also make additional margin from the interest spread between what they charge to farmers and what they owe to BWIF – thus providing incentive to use the scheme. BWIF will support increased commercial activity of BWI only based on dealers’ willingness to provide financing to farmer customers, thus the need for adequate training of dealers. If the dealer sees an opportunity to sell the KB pump with finance extended to the farmer and decides to use finance from BWIF, then, BWIF shall advance loan to the dealer, and the dealer uses the loan proceeds, based on the financing agreement with his client farmer, (i) to make payment to BWI for KB pump procurement, (ii) to make payment to supplier of pipes and filters, and (iii) payments to the local mechanic for installation cost. Repayment obligation of the dealer to BWIF is recourse only to the dealer, and not to the farmer. The dealer has to make repayment to BWIF regardless of success of his collection from the farmers. Initially BWIF will be 100% owned by BWI, until a time when an alternative ownership structure is preferred BWI will provide initial Rs 50m to BWIF by way of equity at the commencement of the project 118

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