Social Impact Investing
Social Impact Investing
Social Impact Investing
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
<strong>Impact</strong> Investments:<br />
An emerging asset class<br />
Global Research<br />
29 November 2010<br />
Table 9: Household income brackets – India<br />
Average number of people per household = 5.3<br />
India Economic Activity Rate = 69%<br />
Average number of earners per household = 3.7<br />
2005 PPP<br />
(upper bound)<br />
A 11,923<br />
B 9,936<br />
C 7,949<br />
D 5,962<br />
E 3,974<br />
F 1,987<br />
Source: World Resources Institute, UN Statistics Division.<br />
2. Select a case study and determine the income bracket of the target customer base<br />
In choosing a case study, we focus on finding a business model that makes<br />
products or services affordable to some segment of the BoP market. For the<br />
housing sector, we identified a feasibility-tested business model for affordable<br />
housing in India analyzed by Monitor Inclusive Markets. One of the projects they<br />
analyzed builds buildings with, for example, 5% commercial space and 95%<br />
residential space split into 1,883 flats in urban India. Including commercial space<br />
increases rental income, partially subsidizing the residential space. Since homes<br />
are purchased by households rather than individuals, in Table 9 we translate the<br />
WRI per capita income brackets into per household income brackets 49 , using the<br />
Economic Activity Rate 50 and the average number of people per household. Then<br />
in Table 10 we consider the affordability of the residential flats to the households<br />
in those income segments. Flats in this type of project have been priced as low as<br />
INR 280,000 51 ($6,000), which translates into a required annual household<br />
income of $3,211 52 (2005 PPP). As such, the flats in this price range are<br />
affordable by all but the bottom income segment of our population, so we include<br />
income brackets A through E in our estimation.<br />
Table 10: Affordability testing<br />
Case study: Building Houses, Financing Homes, Monitor Inclusive Markets, July 2010<br />
Line Data type Unit Min Max Calculations Notes<br />
1 Price Rs 280,000 1,000,000<br />
2 Pricing date 2010 2010<br />
3 Avg inflation rate 10% 10% From 2005 — pricing date<br />
4 Price 2005 Rs 171,236 611,558 Line 1/[(1+line 3)^(line 2 – 2005)]<br />
5 Annual interest @ 12% 2005 Rs 20,548 73,387 Line 4 × 12%<br />
6 Annual income required 2005 Rs 51,371 183,467 Line 5 / 40% Assume max payment/income ratio = 40%<br />
7 Annual income required 2005 PPP 3,211 11,467 Line 6 / 16 2005 conversion rate: 16 Rs per int'l dollar<br />
8 Price Current USD 6,000 22,000 Line 1 / 46.5 2010 conversion rate: 46.5 Rs per USD<br />
Source: J.P. Morgan. Minimum price from Monitor Group, referencing Foliage developers.<br />
3. Cut off the top: We are sizing only the BoP market<br />
Since we are focused on only the BoP segment of the population, we consider the<br />
case study pricing that will be affordable to our target population. As such, we<br />
limit our pricing estimates (Line 1 in Table 10) to the maximum amount<br />
affordable by the top of our population bracket. Working backward through our<br />
Affordability Test, we calculate the maximum price affordable by households in<br />
this population – INR 1,000,000. At current exchange rates, our price range is<br />
then $6,000 – $22,000.<br />
4. Limit to urban or rural population, if applicable<br />
As the housing case study is one that applies only to urban customers where<br />
apartment blocks are more suitable, we restrict our target customer base<br />
accordingly. Some sectors will better address rural populations while others will<br />
successfully cater to both rural and urban populations. The restriction to urban or<br />
rural will be applied only where needed. In India, the average percentage of our<br />
46<br />
49 We translate the per capita income brackets into per household income brackets by<br />
multiplying the income by the number of earners per household as implied by the UN<br />
Statistics Division’s Economic Activity Rate – 69% in the case of India.<br />
50 As defined by the UN Statistics Division, Economic Activity Rate refers to the percentage<br />
of the population aged 15 and over which is economically active.<br />
51 Building Houses, Financing Homes, Monitor Inclusive Markets, July 2010.<br />
52 In the table, we assume a maximum payment/income ratio of 40% as per Monitor’s<br />
guidance.