Selling clean water is still a dirty business

Most rural water systems are driven by big hearts rather than sustainable business models. Venture capital funds and impact investors have stayed away from the sector in India due to complexities involved in building a successful water business

Unitus Seed Fund
Updated: Jun 3, 2015 11:05:01 AM UTC

Unitus Seed Fund is a venture seed fund supporting startups innovating for the masses in India. Unitus invests in healthcare, education, mobile commerce & value-added services, marketplaces & e-commerce, retail & distribution, agriculture, and water & energy sectors. Founded in 2012, Unitus Seed Fund is part of the Unitus Group, a financial services group operating in India and other emerging markets since 2000. Unitus Seed Fund is based in Bangalore and Seattle.

Women and children in rural India, spend hours fetching water walking miles, often missing out on education and wasting time that could have otherwise been put to more productive use ( Photo:  Jayanta Shaw / Reuters)
Women and children in rural India, spend hours fetching water walking miles, often missing out on education and wasting time that could have otherwise been put to more productive use ( Photo: Jayanta Shaw / Reuters)

If you’ve travelled across India, it’s likely that you’ve seen groups of women in villages carrying earthen pots of water on their heads. While their colourful ethnic clothes make for pretty pictures in the print media, have you ever thought about the root cause of the problem? Lack of access to a safe drinking water source - that’s what it is.  Women in rural India, and often their daughters, spend hours fetching water from far-flung areas, wasting time that could otherwise be put to more productive use. Government bodies, non-profit organisations, for-profit companies and CSR arms of large corporations are trying to solve India’s drinking water problem. For most of these entities, a rural water project provides a warm feeling and an improved image.

Unfortunately, rural water systems set up by well-meaning organisations rarely work, as they are driven by big hearts rather than sustainable business models. Water is given for free or at very low prices, insufficient to cover costs of installing and, more importantly, operating and maintaining the systems. Due to inadequate ongoing funding and commitments, rural India is littered with non-operational water systems funded by well-intended organisations. Free or subsidised water systems most often fail to deliver long-term, affordable, quality drinking water to Indian villages.

“Charity is the means, it cannot be the end,” says Eric Stowe, founder of Splash, an international development agency and a safe water company focussed on children.  Splash is a social enterprise dedicated to putting itself out of business! Yes, you read that right. Eric and his team firmly believe that: “Charity is fleeting by design and is inherently unstable. It isn’t built to last”. Splash’s radically different approach to charity has ensured that its solutions work towards sustainability. The firm works with local governments and local businesses to create safe water projects in resource-poor cities. Splash works across eight developing countries. In India, they have chosen to focus their efforts on providing clean water to kids in Kolkata. Splash’s goal is to cover every public school, orphanage, children’s hospital and shelter in Kolkata. An ambitious goal? Perhaps. But Splash is armed with the success of providing safe water to 100 percent public schools in Kathmandu (Nepal) and they are confident of achieving this one too. However, attaining full coverage is not enough. Splash believes that in order to be sustainable they need to hand over the reins to others who can take it forward just as efficiently. Coordination with local governments and businesses is a pre-requisite for a long-term sustainable solution.

Handing over the reins to local communities is not the end of the road. Dr M Snehalatha, South Asia advisor for Splash and former country coordinator for WASHCost India, highlights several roadblocks faced by community-based water systems. She has been working closely with local communities in Andhra Pradesh and points out that these communities often lack technical, human, financial and other resources to manage water systems. This lack of adequate operation and maintenance (including capital maintenance) reduces the life span of these water systems, and in turn, increases the investment required. Eventually, this increases the cost of water service delivery especially in areas that can hardly afford to make such an investment. Only a few local communities have proven to be exceptions. There have been small pockets of success by NGOs or pilot projects by companies but most of these have not sustained when scaled up.

While local governments and communities are struggling with these issues, for-profit companies are experimenting with various business models to provide drinking water. A few of these companies are adopting innovative approaches to quench the thirst of India’s masses. For example, lack of access to safe water and the lack of financial resources to get it is a cyclical problem faced by low-income communities. WaterCredit, an innovative programme launched by Water.org addresses this issue by providing small loans to households for the purchase of water filtration systems. The supposedly ‘unbankable’ low-income population has yielded a 99 percent recovery rate for WaterCredit (since 2003).

water_wheel

Wello’s simple yet ambitious goal is to deliver clean water to a thirsty world and its Water Wheel is aimed at doing exactly this. The wheel enables collectors to roll 50 litres of water instead of carrying it on their heads. Wello is also exploring the possibility of purifying water while the wheel is being rolled. Sarvajal’s solar-powered water ATMs dispense clean drinking water at the swipe of a pre-paid smart card. The company extensively uses cloud computing and mobile technology to monitor operations, control quality and minimise costs. The bonus of using technology: Men are now eager to collect water and show off their smart cards!

Although for-profit companies are trying creative approaches, water for the rural population is still a difficult business to crack. Most venture capital funds and impact investors have stayed away from the sector in India due to complexities involved in building a successful water business. Challenges of avoiding the “water mafia” in cities, dodging market distortions caused by unexpected NGO activities, coping with poorly executed public-private partnerships and the fundamental issue of consumers’ unwillingness to pay continue to worry investors. Despite these obstacles, clean water for the Indian masses continues to be a large underserved market waiting to be captured by innovative entrepreneurs. While there have been a handful of commercial investments in the water space - Spring Health, Water Health, Waterlife and Greywater have raised institutional funds - it remains to be seen whether these companies can build truly sustainable businesses by catering to India’s masses and turning a dirty mess into crystal clear profits.

- By Sneha Rajan, Senior Associate, Unitus Seed Fund

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