Market-led sanitation for rural communities: an innovative approach struggling to reach scale?

The sanitation market in a rural context offers very different challenges to the urban setting. The blog by Simon Brossard of Hystra, outlines the next generation of sanitation businesses, and provides a good overview of both urban and rural models with practical examples.

Having reviewed a range of rural sanitation initiatives, as part of wider work for the World Bank on innovative business models at the BoP, I find the rural sanitation market particularly interesting because of the complex range of value chain elements and activities.

Market activation initiatives to create local value chains for construction of hygienic and affordable toilets in rural homes and communities has emerged as the ‘standard’ model for rural areas. It seems a particularly challenging approach to 'get right' in terms of finding a balance between end-user affordability and commercial viability for the different stakeholders involved in the value chain.

The model is based on a combination of various different elements and innovation:

• Product innovation to create affordable, easy to assemble, high quality products for bulk production.
• Creation of a market based sanitation ecosystem, in which entrepreneurs manage the supply and construction and (in some cases) sale of toilet facilities.
• Availability of consumer financing for household latrine purchase, linking entrepreneurs with microfinance institutions.
• Marketing approaches focusing on aspirational rather than health marketing.

It targets low-income households in rural and peri-urban communities whose existing alternatives commonly include open defecation, low quality government subsidized latrines, or self-build latrines which are likely to be unsafe and for which it can be difficult to purchase materials. However, despite examples across multiple countries that have reached significant scale in terms of households reached, challenges for further growth and scale remain.

Based on interviews conducted with a range of sanitation stakeholders as part of the recent World Bank project, a set of key constraints, interesting lessons and drivers for success of this model have emerged.

1. Sustainability: So far, few, if any, initiatives have identified exit strategies for the grant-funded market facilitation organizations, which means sustainable long-term management by communities and entrepreneurs respectively presents a key constraint. Svadha (also mentioned in Simon's blog) seems to be an exception here.

2. Finance. The roll-out of consumer financing options - a key success factor to enable clients to purchase toilets and shelters of up to $200 - presents another constraint. For example, Gramayala in India sells latrines for $150 including shelters, WaterSHED in Cambodia sells a latrine for $45-50 and $200 with shelter. BRAC's WASH programme in Bangladesh sells latrines depending on income levels and range between $20 and $130, up to $175 including construction.

Many households at the BoP cannot afford this in one lump sum, so credit partnerships seem an obvious way to go. However, regulatory issues can prove a challenge, as some MFIs have a percentage cap for consumer finance. For example, the Reserve Bank of India guidelines mandate that income-generating loans form at least 70 percent of the loan portfolio, meaning a maximum of 30% can be used for consumables and durables, which is a large space with many competing products[i] Smaller MFIs might be more interested in/suitable for the model, however they might face management constraints for roll-out, e.g. deployment of credit officers in remote areas.

3. Reach. Reaching the poorest and hardest to reach (most rural) households presents another challenge for scale. Lessons from the Water and Sanitation Program in Cambodia show that after selling products to the 'early adopters' (i.e. more affluent households), there was little evidence of penetration beyond this market segment and instead project target areas were expanded rather than deepened.[ii] Some of the poorest households are not able to afford the products even with loans available, and hence will need complementary finance options, such as government subsidy, or the opportunity to purchase in stages based on savings (but not through formal loans with interest rates).

4. Engagement. One of the most important drivers for success of this model seems to be the integration of community participation and customer service into all steps in the value chain activation process, from ideation and product design, to financial models and maintenance, and marketing and promotion. The model will only be successful if community wide adoption and use can be achieved.

Ultimately, growth and scale of the model will depend on ways to make the ecosystem self-sustaining. Either based on successful 'exit' of the market facilitator or based on long-term revenue generation, such as the sale of additional products or services.

[i] Agarwal et al. 2013. A market led, evidence based, approach to rural sanitation. London: Monitor Deloitte

[ii] Water and Sanitation Program. 2012. Sanitation Marketing Lessons from Cambodia: A Market-Based Approach to Delivering Sanitation. Washington DC: World Bank. https://www.wsp.org/sites/wsp.org/files/publications/WSP-Sanitation...