Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Table 12: Water market sizing
Data point Source Water example
Annual household income of target market Case study Brackets A–E, Rural
Target market (# of households, mm) N4B 683
Anticipated penetration rate Case study 40.0%
Anticipated customer base (# of households, mm) 273
Average price of unit Case study $20–$47
Aggregate revenues over 10 years, bn $29–$71
Estimated operating margin Case study 10.0%
Estimated profit opportunity, bn $2.9–$7
Total invested capital, bn $5–$13
Source: J.P. Morgan. Case study indicates the particular case study used for each sector. "N4B” indicates The Next 4 Billion, 2007,
WRI.
Table 13: Household income brackets – India
Average number of people per household = 5.3
India Economic Activity Rate = 69%
Average number of earners per household = 3.7
2005 PPP
(upper bound)
A 11,923
B 9,936
C 7,949
D 5,962
E 3,974
F 1,987
Source: World Resources Institute, UN Statistics Division
Affordability: Income brackets A–E, rural
In testing the affordability of the water produced by these business models, we
reference the price of a 20 liter bottle of water, which should meet the daily needs of
a household 60 . According to surveys conducted by Monitor, over fifty percent of the
Byrraju customers have household incomes less than INR 2,000 a month ($1,000 in
2005PPP, annualized), putting them in the lowest income bracket F. The price that
Water Health charges in Ghana is lower than in India (about $0.07 in Ghana vs.
about $0.11 in India 61 ), so we consider the water to be affordable to the same
population brackets there as well.
To check that this pricing is not far from the current expenditures by BoP households
on water, we contrast this pricing with the expenditures measured by the WRI in The
Next 4 Billion. There, we find that the population in the measured countries spends
an average of 1% of their household income on water 62 . In Table 14 we show how
we calculate which income brackets will fall within our target market based on our
affordability test.
Table 14: Affordability test
Min Max Units/Notes
Daily cost 2.5 6.0 2010 Rs
Annual cost 913 2,190 2010 Rs
Inflation (2005 – 2010) 10% 10%
Annual cost, 2005 558 1,339 2005 Rs
Annual cost, 2005 35 84 2005 PPP
If annual salary = 1,000 1,000 Equiv to INR 2,000 a month in 2010
Then percentage of annual salary = 3.5% 8.4%
If annual salary = 1,987 1,987 Bottom of income bracket E
Then percentage of annual salary = 1.8% 4.2%
If annual salary = 3,974 3,974 Bottom of income bracket D
Then percentage of annual salary = 0.9% 2.1%
Source: Monitor Inclusive Markets, J.P. Morgan. All annual salary figures in bottom half of table are in 2005 PPP.
For the poorest households, those in the middle of bracket F, the pricing range
provided by our case studies of INR 2.5-6 per 20 liters ($0.05–$0.13) would amount
60 While the United Nations considers 20-30 litres per capita per day to be enough to meet
basic human needs (http://www.un.org/waterforlifedecade/factsheet.html), Monitor Inclusive
Markets has interviewed kiosk attendants and 75 customers to determine how much water they
would buy for the household per day.
61 We can draw the same conclusion if we measure in PPP terms as well as USD.
62 If weighted by population, this expenditure drops to 0.3%.
51