2011-11-10

Co.Exist

Making Clean Water Profitable With The McDonald's Model

If every village had its own local water entrepreneur, maybe they would do a better job providing clean water. That’s the model Sarvajal uses in India--franchising water purification equipment to create a network of successful clean water businesses.

The McDonald’s franchise has served "billions and billions" of people around the world, mostly greasy hamburgers, french fries, and sugar water. What if it could do the same for pure, clean water in places that have none?


Sarvajal, an Indian company that means "Water for All," is turning the franchise model into one of today’s best hopes to deliver clean water to billions of poor people around the world. Just as McDonald’s hands store managers the information and infrastructure to make the same hamburger day after day, Sarvajal provides its entrepreneurs with company-owned water purification technology and an operational process that delivers large amounts of pure, clean water for less than one cent per liter. Sarvajal can monitor and even control water production remotely through its centralized network. Each franchisee provides distribution and an understanding of the community needs he’s serving.

As Sarvajal’s water depots spread throughout India, they are delivering clean water to places where there was only contaminated wells or exorbitantly priced private supplies before. Sarvajal’s secret is both a simple, ingenious technology and easy access to finance for entrepreneurs.


First, the company designed its "Soochak" controller, a remote monitoring and control system that relies on mobile SMS messaging to keep its filtration units in working order from afar. Sarvajal can remotely track water quality, pressure, leaks, production volumes at all of its 131 locations in real time, and even turn them off or assume control if necessary.

Even more important, says Anand Shah, Sarvajal’s CEO, it finances its own franchisees.

"Our dilemma in franchising is that we are a service that installs expensive equipment in a decentralized fashion," writes Shah. "There is no method of rating creditworthiness, and requiring collateral from a franchisee is the quickest way to reduce your potential pool of entrepreneurs to virtually zero." Instead, Sarvajal gives the hardware and business license to a franchisee with almost no down payment or collateral except future cash flow. "This is significantly different from traditional franchising and creates havoc in the psychology of the traditional franchise model. All of the innovation in our business is designed to counter this change, which we believe is critical to reaching scale at the bottom of the pyramid," says Shah.

At first, almost half the company’s first franchisees proved either inept or corrupt. That number has fallen steadily, and now stands below 10%. Today’s "background checks" consist of consulting with village elders, soliciting community members deemed trustworthy, and expanding out from successful villages. Entrepreneurs manage their business, hire local staff, and keep 60% of revenue for their troubles. Sarvajal takes care of almost everything else, from branding to repairs. It’s also deploying the world’s first networked "water ATMs" in the Indian states of Gujarat and Rajasthan. Customers use pre-paid cards or coins to refill water containers at the machines any time of day or night, providing yet more flexibility in obtaining safe water; some ATMs may even be tailored for government programs, furnishing a rich data stream about how welfare programs are faring.


For decades, the sector has been a backwater of innovation and entrenched public bureaucracies. Although clean water has landed at the top of UN mandates and Indian development plans since 1950, it remains the province of failed development programs and checkered experiments with privatization. The World Bank reports that the number of private projects in the water and sewage sector declined by 34% last year compared with 2009, and reached its lowest level in 15 years. No projects at all were launched in Central Asia or Sub-Saharan Africa. At the same time, we still haven’t even addressed the most basic needs of 1 billion people who lack safe water and 2.6 billion without basic sanitation.

Unleashing thousands of homegrown entrepreneurs into the space may be the transformative factor necessary. Shah figures there are 80,000 rural villages in India in need of Sarvajal’s services, yet only 1,500 are being served by a water initiative. When urban slums around cities like Deli are counted, the number of customers more than doubles. Globally, of course, the number may be in the billions.

But Sarvajal has a long way to go. Its 131 rural franchises only serve about 75,000 people; it will need to scale massively to have an impact. The next steps are mass advertising campaigns, and building a brand that people trust. But Shah plans to just follow the path that led them here in the first place.

"We thought we could put a bunch of really smart people on trying to figure out how to enable a business model that would get clean water close to people at a price they could afford and just started trying to expand our initial experiment," says Shah.

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