Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
to 3–8% of household expenditure. This expenditure drops below 1% for households
in income bracket D. In an attempt to balance the findings from Monitor with the
findings from the The Next 4 Billion, we include bracket E and will leave bracket F
out, to be more conservative 63 .
Table 15: Target population
Brackets A–E, Rural, mm
Population
Africa 49
Asia 579
Eastern Europe 32
Latin America 23
Total 683
Source: WRI
Focus on rural populations, and haircut the penetration rate to target larger villages
Having identified income brackets A – E as our target market, we focus on rural
populations where access to clean water is less readily available (and the business is
more likely to attract customers as a result): This brings us to a target market of 683
million households globally, which is broken down by region in Table 15. As with
many businesses operating in these markets, though, the profitability of these
filtration units will depend on high volume, which can require that they be located in
larger villages 64 . Figure 22 shows Monitor’s analysis of Byrraju's penetration rates by
village size. They note that while smaller villages sustain higher penetration rates
(perhaps due to necessity), a higher proportion of the larger villages are profitable.
As such, we haircut our anticipated penetration rate to accommodate the fact that our
rural population will include smaller villages that may not sustain a profitable
filtration unit. Byrraju has obtained penetration rates of 40–50% in average-size
villages and Water Health is targeting 60%, so we will employ an anticipated
penetration rate of 40% (the lower end of the range) to be conservative. As a result,
our anticipated customer base is 273 million households.
Revenues, margins, capital and profit
As noted in Table 12, reaching 273 million households over the next ten years results
in potential revenues of $29–$71bn. Applying an operating margin of 10% suggests
profit potential of $2.9–$7bn and applying our one-to-one assumption of invested
capital to year 10 revenues suggests required capital of $5–$13bn.
Figure 22: Penetration rates by village size
x-axis: Number of people in the village; y-axis: Penetration rate
120
Small hamlets Av erage v illage Large v illage
100
80
60
40
20
0
0 2000 4000 6000 8000 10000 12000 14000
Source: Monitor Inclusive Markets
63 Monitor confirmed that a significant portion of Byrraju customers earn less than INR 2,000
per month (equivalent to $1,000 in 2005 PPP), putting them in bracket F. If we include bracket
F, we add 150 million households to the target population, and about $20–30bn to the capital
required.
64 With populations between 5,000 and 10,000 according to Water Health
52