Creative business solutions to India’s drinking water problems

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Entrepreneurs and big corporates are experimenting with several business models to provide water to India's underserved rural masses.

Entrepreneurs and big corporates are experimenting with several business models to provide water to India’s underserved rural masses

In ‘So many water treatment techniques, So few that truly work’, I shared about how there are a number of water treatment technologies to choose from and yet so few of them have been put to work sustainably and at scale in India.  In an earlier post, I talked about the huge demand-supply gap for safe drinking water in India. In this article, I highlight the some of the key private operators and revenue models in the drinking water sector and discuss some innovative approaches by companies.

Two Choices: Treat water centrally or at point of use

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When you’re purifying drinking water, there are two main choices: you either (a) treat water centrally (at or near source); or (b) treat water at the point of use (e.g. home, office, restaurant).

India’s large cities have centralized water treatment facilities to treat large volumes of water.  These systems are set up by the government, have high initial costs, and require a high degree of maintenance and upkeep.  Such centralized treatment units need to be combined with efficient distribution systems so that water does not get contaminated before it is consumed.  Unfortunately, contamination is rampant during distribution due to poorly maintained pipes and most people in cities still use home filter systems.

Point-of-use water purifiers are designed for small volumes of water.  These systems are usually mounted on a wall, kept on a counter, attached to a faucet, or installed under a sink in homes and offices. Eureka Forbes, Kent, Tata Swach and Hindustan Unilever’s Pureit are some of the common names selling home water filter systems in India.  Prices of these filters range from Rs. 1,500 ($25) to Rs. 15,000 ($250), making them out of the reach to most people at the bottom of the economic pyramid (BoP).  In addition, most home filters require regular maintenance and membrane/filter changes making them more cumbersome and expensive to be used by people in villages.

As point of use systems are expensive to operate and maintain and centralized systems pose a problem of last-mile delivery in rural areas, Indian villages need customized solutions.  Seeking to bridge this gap, community water systems are designed to meet the needs of a village where people do not have access to piped water at their homes or lack financial resources to purchase home water filters.  These systems are set up at a central location from which villagers purchase purified water in jerry cans to be carried home themselves or to be delivered by the water company. Aquasafi, Spring Health, Waterlife and Water Health International are examples of companies that have made significant progress in setting up such community water systems across villages in India.

Most rural water systems are driven by big hearts rather than sustainable modelscharity

A number of operators are trying to solve India’s drinking water problem — government bodies, non-profit organizations, CSR (corporate social responsibility) arms of large corporates and for-profit companies. For most of these entities, a rural water project provides a warm feeling and an improved image.  Rural water systems set up by large organizations rarely work because they are driven by big hearts rather than sustainable models.  Water is given for free or at very low prices, insufficient to cover costs of installing and, more importantly, operating the systems.  Due to inadequate ongoing funding and commitments, rural India is littered with non-operational water systems funded by well-intended organizations. Free or subsidized water systems most often fail to deliver long-term, affordable, quality drinking water to Indian villages.

Private players are experimenting with multiple business models

Companies delivering water to rural India have been experimenting with various business models tailored according to the needs of the local market.   Most water companies adopt one or more of the below models.

  • Outright Sale:  Here the water company sells the water system to the government, NGO or CSR.  Often the village panchayat (local government) owns and operates the plant either directly or through a jointly constituted committee.  Revenue generated through the sale of purified water (typically at INR 2-5 for a 20 liter jerry can) is used to fund operations. Often these systems are maintained poorly as the revenue does not cover the necessary operating costs.
  • Sale and Maintenance:  This model is similar to the previous one in which the system is sold outright, usually to the government.  However, in this case, the water company continues to service and maintain the system for a fee.  Generally, these continue to operate well although the price is higher (e.g. INR 4-7 for 20 liters) because the professional water company is being paid to properly maintain these units.
  • Franchise:  Here the water company identifies a local entrepreneur who contributes part of the initial system cost.  The entrepreneur operates the system and shares part of the profit with the water company.  In this model too water is sold at a higher rate (INR 6-10 for 20 liters) to recover the initial capex cost (most of which is borne by the water company).

Innovative approaches to delivering clean drinking water

While most companies have adopted one or more of the above business models, there are a few companies that have broken the mold and have developed innovative approaches to deliver clean water in India.  Here’s a look at some of them:

  • Microfinance and Water:  Lack of access to safe water and sanitation to the financial resources to secure these necessities is a cyclical problem faced by the rural poor.  WaterCredit, an innovative program 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% recovery rate for WaterCredit (since 2003)Hindustan Unilever too has a similar model where it tied up with Spandana Microfinance to promote sales of its flagship product Pureit. Bundled with a small loan, sales of Pureit increased dramatically- 1% penetration in areas with no loan access to 40% penetration when backed by a microfinance scheme.  In another such initiative, Milaap, a Unitus Ventures portfolio company, tied up with Guardian, a microfinance institution and Yunus Social Business Fund, to provide micro loans people in Tamil Nadu for building water connections and toilets in their homes.wheel
  • 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.  An answer to the problem of women and girls wasting precious time and energy time fetching water, Water Wheel enables collectors to roll 50 liters of water instead of carrying it on their heads.  It is made of high-quality, durable plastic and sold at approximately Rs. 1,500 ($25) per wheel, designed to last for more than five years.  Wello is also exploring the possibility of purifying water while the wheel is being rolled.
  • LifeStraw:  Designed to bring clean water to the poorest of the poor, Vestergaard’s LifeStraw is a simple straw that can filter around 1,000 liters of water, enough to hydrate a person for a year.  It is a portable point-of-use filter that removes microbiological contaminants in water without the use of electricity or batteries.  The family version of the straw includes a tabletop storage tank and can purify 30,000 liters of water, enough to serve a typical family for three to five years.
  • Water ATMs:  Sarvajal’s solar-powered water ATMs dispenses clean drinking water at the swipe of a prepaid smart card.  The company extensively uses cloud computing and mobile technology to monitor operations, control quality and minimize costs. Use of a prepaid system for both the entrepreneur and the customer solves the problems of revenue collection and under-reporting.  Village entrepreneurs pay upfront (for say 100,000 liters of water) each month and that triggers a refill to their machine.  The entrepreneur then sells smaller volumes through the month to customers with prepaid cards that can be easily topped up with a mobile phone.  The bonus of using technology: men are now eager to collect water and show off their smart cards!

“I’ll pass” says the investor

Although companies are trying creative approaches, water for the masses is 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. While there have been a few investments in the space (Spring Health, Water Health, Waterlife and Greywater have raised institutional funds), it still remains to be seen whether these companies can build profitable businesses by catering to India’s low-income populations.  The Unitus Ventures team is seeking to invest in a startup that has a promising solution to this complex problem.  In our next article, we will discuss the math behind a typical water business from an investor’s perspective.

More on the drinking water situation in India:

Quenching the thirst of India’s masses
So many water treatment techniques, so few that truly work

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