affordable irrigation and financing solutions for smallholder farmers in india, june 2013

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Appropriate Irrigation and Financing Solutions for Smallholder Farmers in India Global Young Leaders Programme – June 2013

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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

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Executive Summary

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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

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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

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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

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Project Partner

• 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

International Development

Enterprises India (IDEI)

Global Institute For Tomorrow (GIFT)

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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:

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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

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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 Indian Ministry Home Affairs, Annual Report 2011-2012 *2 International Monetary Fund (IMF) *3 CIA, The World Factbook, 2013 *4 riazhaq.com

Background

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• 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

Agriculture and smallholder farmers in India Background

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• India ranked amongst top ten water-rich 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

Water and irrigation in India

Background

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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)

Existing water lifting methods

Manual water lifting: most appropriate technology for poor smallholder farmers operating on less than 2 ha of land

Background

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IDEI’s market based approach

Background

Low-cost technologies

using local materials

Focus on product development for

smallholder farmers

Fast return on investment

Manually powered

Simple to use and low

maintenance

Smallholder farmers as customers and

entrepreneurs

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.


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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)

Background

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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

Background

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The KB Treadle Pump: Fact Sheet

Source: http://www.ide-india.org/BambooTreadlePump.aspx

• 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

The treadle pump is the most adequate technology for farmers in Northeast India

* 1USD = Rs. 54

Background

http://www.ide-india.org/BambooTreadlePump.aspx



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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

Background

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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

Background

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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

Background

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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

Background

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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

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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 agricultural-related products and adequate financing schemes

Introducing a new business model for BWI

• 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

Business Model

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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

Business Model

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• 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

Introducing a new business model for BWI Business Model

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Streamline the supply chain by merging the functions of

manufacturer and distributor

Move from cost-based to value-based pricing to promote the value of

treadle pumps

Enhance the role of Business Associates

as Sales Agents

Leverage IDEI’s R&D for product development

Develop flexible payment options for smallholder farmers

Attract investment from Impact Investors

A platform to coordinate the supply chain and promote the

sales of treadle pumps developed by IDEI

BWI to develop into a more effective and inclusive platform for farmers and supply chain actors

Business Model

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R&D, Quality Control Brand Management

Supply Chain Coordination

Quality Control

Order

Delivery

Business Associate

Sales & Marketing


Sales Promotion

Current Business Model

Manufacturer

Manufacturing

Distributor

Logistics

Dealer

Sales Consumer

Farmer Order

Delivery

Order

Delivery

IDEI currently faces the challenge of keeping sales performance tied to donor fundraising efforts

Installation Maintenance

Mechanic

Installation

Business Model


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Proposed Business Model: Supply chain flow

R&D Quality Control

Brand Management referral

Quality Control

Branding

Feedback & CSR Funding

(2)

(1)

(3)

Order

Delivery

Manufacturing Logistics

Manufacturer Distributor

Dealer

Sales

Farmer

Consumer Order

Delivery

Order

Delivery

Marketing / Promotion Sales Training


Financing Arrangement

New Product Planning

Business Associate

Mechanics Farmer

Field Associate

(1)

(1) BWI places primary focus on pump sales, and managing Business Associates (2) Shift from cost-based to value-pricing approach to increase profitability (3) Supply Chain: Manufacturer and Distributor are combined to free up margin for BWI (4) BWI manages Financing arrangements with separate entity

Installation + Maintenance

Business Model


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Business Design Transformation

Increase awareness, profitability

Increase Affordability

Changes Expected Impact

Phase 1 Focuses on Sales Channel Enhancement Value Pricing + Supply Chain Optimisation

Phase 2 Develop Flexible Payment

Y1 Y2 Y3 Y4 Y5

Phase 1: Focus on restructuring existing operations

Phase 2: Develop new features for the business model

Business Model

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Current role of Business Associates

Dealer

Business Associate

Current Situation

Promotion

Buy

Pump Delivery

Business Model: PHASE 1

• 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

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Dealer

Business Associate

Proposal

Buy

Pump Delivery

Field Associate

Training

Training

Promotion

Promotion

Boosting sales channel and awareness through incentives and referrals

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: - 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


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(2) Cost-based vs. Value-based approach

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

Manufacturing Cost

Manufacturer Margin

Distributor Margin

Dealer Margin

Price to Farmer

Current Situation

Current cost-based pricing does not allow for additional margin to compensate for value-adding activities of BWI


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Proposal

(2) Cost-based vs. Value-based approach

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


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Dealer

Delivery

Buy

Distributor

Manufacturer

Coordination

Current Situation

(3) Supply Chain – Current

Supply chain optimisation to ensure certain level of profitability to each stakeholder is recommended

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


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Dealer

Manufacturer and Distributor Cost Optimisation

Forecasting

Proposal

(3) Proposal to streamline the supply chain

Supply chain optimisation increases profitability and reinforce forecast scheme

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

BWI acts as intermediary business to provide appropriate forecast on sales and demand from dealers and farmers and to drive sales targets


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Existing Feedback Mechanism for IDEI

Current

Mechanic

Current Situation

Feedback from value chain is currently not sufficient to improve products

Business Associate and Area Manager

Distributor

Manufacturer

Dealer

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


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Proposed

Dealer Mechanic

Feedback Mechanism & Consolidation

Proposed

Manufacturer & Distributor

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

By clarifying roles in the feedback process BWI and IDEI can both improve efficiencies and performance


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Introducing Flexible Payments for treadle pumps

Flexible payment solutions is key to realising huge latent demand 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


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Background

• Local dealerships are considered as a one-stop 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 well-known 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

(4) Flexible payment solutions: Details

Treadle pumps

Responsible for several villages

Person of trust Revenue from

other hardware products

Works with village based

mechanics

Local dealer


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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.



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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



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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.

(4) Introducing Blue Wealth International Finance (BWIF)

PHASE 2

BWIF is a new company that facilitates appropriate loans to farmers via dealers

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1 2 3 4

Dealer

Farmer

BWIF

Mechanic

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

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

A

B

C

Co

ntr

act

Agr

eem

ent

Dealers hold the contract with BWIF on behalf of the farmer

Proposed Flexible Payment Scheme Business Model: PHASE 2

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Party Benefits

Farmer

• 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

Dealer • Higher sales volume with flexible payment scheme attracting

new customers

BWI / BWIF • More sales of Treadle Pump • Increase profits

Flexible Payment – Win Win Solution

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%


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Initial down payment and four subsequent installments for the farmer and an opportunity for the farmer to sell other products to farmers

Month 1 2 3 4 5 6 7 8 9 10 11 12

Down Payment

1st Payment

2nd Payment

3rd Payment

4th Payment

Amount paid (balance)

Rs.250 (Rs.2,812)

Rs.141 (Rs.2,671)

Rs.141 (Rs.2,530)

Rs.141 (Rs.2,389)

Rs.2,389 (Rs.0)

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

Payment obligation from Dealer to BWIF Business Model: PHASE 2

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Current Projected Flexible Payment

Payment Method

Cash

Total Amount

Rs.2,200

Option 1: Cash for a total amount of Rs.2,500

Option 2: Loan from Dealer Total amount of Rs.3,120 (Interest Rate 27.5%)

Option 1: Cash in full amount

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

Payment obligation from Farmer to Dealer Business Model: PHASE 2

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Collective buying Collective Selling

Cost saving Increase revenue

Facilitate the collective purchasing of agricultural

inputs (fertilizer, seeds, etc)

Collaborate logistics to transfer goods to market, labour cost for selling, access to higher

price market

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

Future Opportunities for BWI: Community-based approach

Through a more integrated approach, BWI can deliver more services to farmers, help save costs and increase value of products


48

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

Future Opportunities for BWI: Expand Product Portfolio

Flagship product: Treadle pump

Other water lifting devices (solar/hand)

Examples for new future products

Hand-washing device

Mini kits (seeds, bio-fertilizers,

bio-pesticides)

Water purifier

Community-based storage

IRRIGATION

SANITATION

AGRICULTURAL INPUTS / POST-PRODUCTION

BWI has the potential to facilitate a community-based approach to farming and to develop new water- and agri-related products to increase sales


49

A phased approach allows BWI to build its product/service portfolio and generate various revenue streams that lead on from the treadle pump.

Phase Value Proposition Revenue Stream from farmers/community

Revenue Stream from other partners

1

• Low cost low tech water-lifting device

• Environmentally-friendly technology

• Treadle pump sales • Carbon Credits from not using diesel pumps

(specific revenue from Carbon credits to be defined by IDEI)

2 • Accessibility through

financing • Interest generated

through BWIF

Future Scenario

• Diversified low cost irrigation solutions from IDEI R&D

• Farmers’ income increase through marketing support

• Bundled products related to water and agriculture

• Agriculture product marketing margin

Revenue Streams for BWI Business Model

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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

Key partnerships

BWI links all stakeholders for the effective sale of cost-effective water-related solutions for improving livelihoods for farmers

Business Model

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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

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Sales & Marketing


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

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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

Key Objectives

BWI’s new sales and marketing strategy is focused on revamping existing marketing activities and on incentivising key components of the supply chain

Sales & Marketing

54

0

10000

20000

30000

40000

50000

60000

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Sale

s o

f P

um

ps

Year

Current Status: Sales of Treadle 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

A sharp decrease in sales in 2008 highlights the need for BWI to steer away from grants and donations for sales and marketing

Sales & Marketing

55

• 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

Current Situation: Efficiency of Business Associates for IDEI

Business Associates need to be incentivised to push for more sales

Sales & Marketing

56

Gaps

Penetration is still low (3%)

Decreasing sales efficiency of BAs

Limited products to attract farmers

Loose connections between campaigns and sales

Gaps and Opportunities

Opportunities

Growth potential through development of new business model

Incentivise BAs through revamped sales strategy to increase the sales efficiency

Provide more products (e.g. solar pumps, sanitation devices, low cost storage etc..) to enhance customer life-cycle

Effectively reach potential customers

A new approach to existing sales channels and a fresher communication strategy can reach more potential clients and boost sales

Sales & Marketing

57

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

Field Associate (F.A.)

Farmer1 Farmer2 Mechanic

Each area manager supervises 20 BAs

Each BA is tasked to sign up 100 FAs to push for sales

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

Sales & Marketing

Business Associate

Area Manager

58

Roles and responsibilities of sales agents

Role Responsibilities

Area Manager (AM) • Management of sales channel • Management of sales and marketing budget

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

Increased responsibilities for area managers, business associates and field associates will incentivise actors and boost sales

Sales & Marketing

59

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

Sales & Marketing

60

Revised Flyer for BWI

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

Revise flyer content to include: - Farmers feedback - Direct contact number - Payment Options - Product Bundling - Group discount

Revised flyer designed to showcase BWI and its services

Sales & Marketing

61

New Flyer Design for the Treadle Pump

Treadle Now, Pay Later!

Irrigation Anytime Water Without Diesel Women can Treadle

Payment in 12 months

Visit your KB dealer Today!

123-4567-890 Contact address

Sales & Marketing

62

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

Sales & Marketing

63

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

• 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

50,000 100,000

200,000

300,000 350,000

Y1 Y2 Y3 Y4 Y5

Expected Number of Pumps Sold in the next 5 years

634 682 736 794 859

407 322 336 351 368

Y1 Y2 Y3 Y4 Y5

Sales Cost/Pump

Original Model New Sales Model

Sales & Marketing

64

Rs.1,145 Rs.1,245

Rs.1,354 Rs.1,474

Rs.1,607

Y1 Y2 Y3 Y4 Y5

Revenue/Pump

Projected Outcomes for Sales & Marketing cont’

The bulk of the revenue stream for BWI will be generated through the sale of treadle pumps

A new sales and marketing strategy is expected to generate a 40% increase in revenue/pump sales by Year 5

Sales & Marketing

65

Benefits to Business Associates

70,000 77,000 84,700

93,170 102,487 Rs.75,500

113,300 124,630

137,093 150,802

Y1 Y2 Y3 Y4 Y5

Annual Income for each BA

Original New

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

Adoption of a new sales strategy expected to increase BAs’ annual income by over 40% by Year 5

Sales & Marketing

66

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

Assumption: FAs perceive a commission of Rs.150/pump sold

0

1,500

Original New Sales Model

Annual Income for FA

Incentives and a new sales model will generate entrepreneurship amongst farmers and Field Associates

Sales & Marketing

67

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, bio-

fertilisers, bio-pesticides, etc • Community-based storage for

farmer produce • Hand washing device to promote

health and hygiene practices

Commercialisation of new products through BWI

Sales & Marketing


68

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

Future Product Developments cont’d

69

Community-based Storage Smallholder farmers often lack access to storage facilities during post-production, 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

Sales & Marketing

70

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

Sales & Marketing

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

72

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

Organisational Structure

73

CEO

Operation (Sales &Marketing, HR, Environment)

Chief General Manager/

Regional Head

Board of Directors

Branch Manager (4)

Programme Officer/ Sales Marketing Officer/

Area Manager

Quality assurance Manager/Officer

Accounts Team / Office Coordinators

Sales Marketing Officer/ Area Manager (27)

Finance, Admin, IT

Corporate Comm.& Grant

Compliance

Innovation to Impact, R&D

Programmeme (Promotion)

BA (110)

Current IDEI Structure and Activities

BWI

IDEI Employee Welfare Trust (EWT)

• 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

Total staff: 210

Currently IDEI facilitates all activities including the sales and marketing of treadle pumps



74

Proposed Structures for IDEI and BWI

★ Hiring Required

IDEI EWT

CEO

Board of Directors

Regional Manager(5)

Business Associates(100)

Finance/Acct

IT/Admin

HR

Finance, Administration,

IT

Sales, Marketing, Operations

★

★

★

★

★

★

Shifted from IDEI

Board of Directors

Finance, Admin, IT

Corporate Comm.& Grant

Compliance

R&D, Production

CEO

Total staff: 201 Total staff: 68

Key roles for Sales & Marketing and commercial operations to be transferred from IDEI to BWI



75

Key Roles and Responsibilities for BWI

Position Role & Responsibility

CEO • Responsible for revenue and profit of the BWI • Oversees overall operations of the BWI business

VP Sales, Marketing, Operations

• 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


76

Proposed Structure for Blue Wealth International Finance (BWIF)

• 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

Credit Assessment

BWI Board of Directors

Loan Management

Collection

Accounting

BWIF CEO

★

Finance

★

★

★ Hiring Required

★

BWIF

BWIF will facilitate increased sales by providing flexible payment options

Shared resources


77

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


78

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


79

Decision Making Process And Approval

Key Areas

VP Finance &

Administration

VP Sales &

Operation CEO BOD

Capital Allocation Review Approve

Investments Review Approve

Dividend Policy Review Approve

Annual Budget Review Approve

Pricing of Products Review Review Review Approve

Sales Target & Sales Strategies Review Review Approve

Strategic Business Partnership (BWFI) Review Review Review Approve

Purchase of asset Review Review Approve

Human Recourse Budget Review Review Approve

Appointment of CEO Approve

Internal Policy Review Review Approve

In order to implement all business plan, policies, rules and procedures BWI need very clear decision making process and approval


80

Strategic Risks Mitigating Actions

1. BWI does not achieve profitability (e.g.Sales VP can not deliver targets)

• 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

2. Strategies are not reviewed regularly to address the potential changes in government policies

• 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

Governance: Strategic Risks and Mitigating Actions


81

Operational Risks Mitigating Actions

2. Inefficiency due to unclear definition of roles, e.g. duplication of work

• CEO and HR VP sign off on all job descriptions

• Process procedure and authority flow is clearly documented and signed off by department heads

3. Inadequate inventory supply to meet the demands

• Detailed contract signed with the manufacturer

• Continuously monitor the manufacturer’s performance and regular review of terms and conditions in the contract

1. Key partnerships are not effective in supporting the delivery of benefits outlined, e.g. broken supply chain

• 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

Governance: Operational Risks and Mitigating Actions


82

Operational Risks Mitigating Actions

5. Technical Risk of collapse of an credit management system

• High security check on credit system • Contingent plan in place

4. Distribution network is not able to meet the delivery demands

• 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

6. Reputational risk due to misuse of products by farmers

• 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

Governance: Operational Risks and Mitigating Actions cont’


83

People Management Risks Mitigating Actions

1. Poor performance or behaviour is tolerated

• 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

2. Staff is not properly incentivised to achieve target

• 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

3. Sales staff has inadequate knowledge on products and customers

• Regular training is conducted for all level of sales staff • Hiring criteria is set clearly for recruitment of sales staff

Governance: People Management Risks and Mitigating Actions


84

Credit and Financial Risks Mitigating Actions

2. Risk that the credit extended from BWIF to dealers is not transferred to farmers

• Regular monitoring of the dealers on the usage of credit extended

• Clear guideline on the use of credits

3. Accounting and financial controls report that fraudulent financial data or reports are produced

• 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

1. Default risk of borrower on debt relating to BWIF, e.g. poor collection/recovery ratio

• 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

Governance: Credit and Financial Risks and Mitigating Actions


85

Effective

Management Compliance Accountability Transparency

Sustainable Operations

Profitable Management : Increase Revenue, Reduce Cost, Maximum Funding Usage

Effective Organisation Structure

The governance framework below will enable BWI to implement the recommended mitigating actions

Governance Framework Organisational Structure

86

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


87

Job Description for Business Associates

Responsibility

Qualification

• 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

• 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

88

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


89

Incentive and Remuneration Packages

Job Category Basic Salary Incentives

Variables Bonus

CEO 3M NA YES

Vice-Presidents 1.5M NA YES

Regional Managers 1M + 30% TR* Rs.5/pump YES

Specialists 0.5M YES

Business Associates 48K + 30%TR* Rs.50/pump YES

(*)Travel Reimbursement

Fair compensation based on basic salary and incentives help achieve high performance


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

91

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

Finance

92

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

Finance

93

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

Finance

94

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

Finance

95

Key Drivers for a viable business opportunity for BWI

• 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

Seed Capital (Investors)

• New business model • Changed cost structure to be more

efficient: from cost-pricing to value-based

• 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

Finance

96

Projected BWI Revenue and Profit

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-INR 10

-INR 5

INR 0

INR 5

INR 10

INR 15

INR 20

INR 25

INR 30

INR 35

INR 40

1 2 3 4 5

Mill

ion

s

Year

Profit after tax for BWI and ROI

Profit after tax BWI ROI (profit basis)

INR 0

INR 100

INR 200

INR 300

INR 400

INR 500

INR 600

1 2 3 4 5

Mill

ion

s

Year

Revenue for BWI (year on year)

Revenue BWI

BWI is profitable in Year 3, with attractive returns on initial investment

Finance

97

Highly scalable business model with low capital intensive requirements

Projected Number of BAs and Capital expenditure for BWI

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

0

50

100

150

200

250

300

350

400

1 2 3 4 5

Nu

mb

er

of

Bas

Year

Projected Number of Business Associates and Capital Expenditure

Number of Business Associates

Capital Expenditure as % of totalsales

Finance

98

-INR 10

-INR 5

INR 0

INR 5

INR 10

INR 15

INR 20

INR 25

INR 30

INR 35

INR 40

1 2 3 4 5

Mill

ion

s

Year

Net income BWI and BWIF (year on year)

Net income BWI Net income BWIF

Projected Net Income

BWIF presents significant upside to consolidated business

Finance

99

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

Finance

100

Attractive Investment Opportunity Cash Flow Statement BWI (Rs.) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Profit Before Tax (10,169,500) (810,325) 15,024,250 32,996,726 49,593,135 Donation to IDEI 0 0 7,512,125 16,498,363 24,796,567 Depreciation 82,500 310,125 616,106 1,033,690 1,561,137 Tax 0 0 1,334,660 10,888,920 16,365,735 Surplus/ (Deficit) (10,087,000) (500,200) 6,793,571 6,643,134 9,991,970

ROI (profit basis) NA NA 13.7% 22.1% 33.2%

Investment Capital expenditure 550,000 1,600,000 2,350,000 3,400,000 4,550,000 as % of total sales 1.0% 1.3% 0.9% 0.8% 0.8%

Seed Capital 100,000,000 0 0 0 0

Bank Borrowing 0 0 0 0 0 Dividend 0 0 2,013,249 4,421,561 6,645,480 Investment in BWIF 50,000,000 0 0 0 0 Cash Surplus/Deficit 39,363,000 (2,100,200) 2,430,321 (1,178,428) (1,203,510)

Beginning Cash 100,000,000 39,363,000 37,262,800 39,693,121 38,514,694 Ending Cash 39,363,000 37,262,800 39,693,121 38,514,694 37,311,184

Finance

101

Attractive Investment Opportunity cont’d

Consistent cash returns from Year 2 through dividend payout

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Profit after tax BWIF 2,809,813 4,415,183 6,608,974 11,454,685 16,580,130

Dividend payout BWIF 2,107,359 3,311,387 4,956,730 8,591,014 12,435,098

Consolidated Profit after tax (7,359,688) 3,604,858 20,298,563 33,562,491 49,807,530

Consolidated ROI NA 4% 20% 34% 50%

Dividend from operating business (BWI) 0 0 2,013,249 4,421,561 6,645,480

Dividend from BWIF to BWI 2,107,359 3,311,387 4,956,730 8,591,014 12,435,098

Consolidated dividend to investors * 2,107,359 3,311,387 6,969,980 13,012,575 19,080,578

Net income BWI (6,813,565) (542,918) 10,066,247 22,107,806 33,227,400

Net income BWIF 2,809,813 4,415,183 6,608,974 11,454,685 16,580,130

Consolidated Net income (4,003,753) 3,872,265 16,675,221 33,562,491 49,807,530

Dividend payout ratio NA 86% 42% 39% 38%

Dividend as % of investment 2% 3% 7% 13% 19%

* All dividends paid to shareholders are paid via BWI

Finance

102

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

Finance

103 103

Community Benefits • Benefits to individual

farmers • Benefits to the

community and to the agricultural sector

• Benefits at community and national level

104

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 farmer-to farmer referral marketing strategy

Community Benefits

105

• 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

Benefits to Individual Farmers cont’ Community Benefits

106

• 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 non-monsoon 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

Benefits to the community and to the agricultural sector

Community Benefits

107

• 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

Benefits at community and national level Community Benefits

108 108


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

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

111 111

Implementation Plan

112

Implementation Timeline

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

The proposal has been designed over the course of 5 years for BWI to grow, revamp existing operations and implement new strategies

Timely implementation would make BWI more competitive and responsive to farmers’ needs

113 113

Appendix

114

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

35

40

45

50

55

60

No

v-1

0

Feb

-11

May

-11

Au

g-1

1

No

v-1

1

Feb

-12

May

-12

Au

g-1

2

No

v-1

2

Feb

-13

May

-13

Rs/

Ltr

Diesel Price in Lucknow

1

1.1

1.2

1.3

1.4

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Increase rate (normalised by Nov 2010)

Appendix

115

Cost Structure

Margin (%) Margin (Rs/pump) Price (Rs/pump)

Manufacturer 90 490

BWI 25 580

Distributer 12% 75 605

Dealer 10% 70 680

Final price to farmer 750

Current model


Manufacturer/Distributer 100 530

BWI 50 630

Dealer 9% 70 680


New model (current price)


Manufacturer/Distributer 100 530

BWI 365 630

Dealer 7% 70 995


New model (new price)

Appendix

116

Pricing Model

Cost breakdown with diesel irrigation (lease)

Turnover per year 64,935

Cost of crop 19,526

Of which cost of irrigation (lease + diesel) 4830

Of which other cost of farming 14,696

Net income 45,409

Cost breakdown with treadle pump (current price)

Price of treadle pump 750

Total cost of TP (inclding pipes, installation) 2,100

Y1


Cost of crop 14,935

Of which cost of irrigation (depreciation over 8 years) 263


Net income 50,000

Additional income from treadle pump model vs diesel 4,591

Appendix

117

Pricing Model cont’ Cost breakdown with treadle pump

Price of treadle pump 1,065

Total cost of TP (inclding pipes, installation) 2,415

Y1


Cost of crop 14,998

Of which cost of irrigation (depreciation over 8 years) 302


Net income 49,937

Additional income from treadle pump model vs diesel 4,528

Cost breakdown wthout irrigation


Cost of crop 4,899

Of which cost of irrigation 0


Net income 16,746

Net income from unskilled lbr work 15,000

Total income 31,746

Additional income from treadle pump model vs wo tp irrigation 18,191

Appendix

118

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

BWI and BWIF – Further details on company relationship

Appendix

affordable irrigation and financing solutions for smallholder farmers in india, june 2013

Business

smallholder farmers

current treadle pump

sales marketing strategies

ideis sales

idei staff

farmer marketing

farmers lack of cash

new marketing strategy