In MBAs Lift Non-Profit Sector, Murray focuses on the shift towards business approaches in the non-profit sector as a whole. This shift, referred to by Matthew Bishop of The Economist as the philanthrocapitalist movement, demands that non-profits operate more and more like businesses – making MBAs a valuable commodity.

Murray’s second article – Practical Skills that Now Support Philanthropy – is actually a profile of our very own Blair Miller, who worked in the non-profit sector for a few years before earning her MBA from the University of Michigan’s Ross School of Business. After graduating from Ross, Blair joined the Business Development team here at Acumen Fund.

Take a look at both articles, which seem commonplace today even as the philanthropic landscape has changed so dramatically in the past five years.

Kashf Foundation is one of Pakistan’s fastest growing microfinance institutions, with a mission of financial inclusion and providing women in Pakistan with access to microfinance products and services. Acumen Fund has been investing in Kashf since 2002 and has seen the organization grow to over 300,000 clients, with plans to reach 1 million by 2010. We have been working with Kashf to expand beyond simple microfinance to second generation products like the Home Improvement Loan (HIL). Kashf is a professionally-run organization, with clear financial reporting systems and processes and we are delighted to see them highlighted on MIX Market for transparency. MIX has also rated Kashf as one of the top 25 MFIs in the world for 2007. Kashf President Roshaneh Zafar has also recently been nominated to the World Economic Forum’s Global Agenda Councils on Financial Empowerment and the Gender Gap.

Visit the Kashf Foundation page on the Acumen Fund website to read more about our investment, view stories and a presentation at our office by Kashf Foundation CEO Sadaffe Abid.

The Acumen Fund India team is spending the day with three of our healthcare investees LifeSpring, 1298 and VisionSpring thinking critically about how to better understand and serve their customers through customer relationship management (CRM) strategies. In this case, the customers we are talking about are diverse — an expectant mother earning daily wages in Hyderabad; an accident victim on the streets of Mumbai who urgently needs medical care; a tailor in rural Andhra Pradesh who can no longer see her thread and, therefore, no longer earn her livelihood. For these social enterprises, understanding and delivering value to their customers is vital not only to achieving profitability, but also to ensuring social impact.

This two-day workshop is being led by Dr. Dipankar Chakravarti, the Ortloff Professor of Business at Leeds School of Business, University of Colorado, Boulder. He has generously dedicated his time and expertise to introducing frameworks for understanding various aspects of customer relationship management to these companies. Today, he led the group in real-time exercises that should result in a more strategic incorporation of CRM into their activities be they maternity & child healthcare, emergency ambulance services and the provision of quality eyecare products for low-income communities. Meanwhile, the Acumen Fund India team is fervently absorbing lessons that may be applicable to our other portfolio companies.

We will have much more to share in a few days, once we have seen the outputs of these CRM exercises. First, let me share a few initial insights:

Marketing Entropy
Dr. Chakravarti began with the provocative notion that, left to themselves, most firms priorities and processes tend to deteriorate toward treating their customers badly. Without even trying, firms put their priorities first and, in return, erect customer acquisition barriers, lower customer exit barriers, and dehumanize relationships. If this is indeed a trend, then our social enterprises need to be aware of this as they scale.

How is CRM different for social enterprises?
Traditional CRM strategy looks to measuring the lifetime economic value of a customer (through the net present value of the profits you will earn from that individual) and prioritize the highest value customers. Dr. Chakravarti challenged us to think about whether this is applicable to social enterprises that may have other priorities beyond profit maximization.

Anant Kumar, the CEO of LifeSpring, emphasized that we need to apply this same level of rigor to social enterprises, but evolve the analysis to think differently about the traditionally unprofitable customer. An expectant mother who cannot afford even the significantly reduced cost of childbirth in LifeSpring may be unprofitable by this analysis, but, has to be cared for by Life Spring and she may even lead to many profitable customers.

Are BoP customers different? Yes and no.
The CRM exercise rests entirely on understanding your customer. At Acumen Fund, we often emphasize that, in many ways, a base of the pyramid (BoP) customer is no different than you and me, in terms of what they value. They are aspirational. They value quality, status, and aesthetics. But, how is consumer psychology different when we are targeting the poor?

A few examples emerged today. First, BoP customers’ time-oriented thinking can be completely different, and he may not be able or willing to pay more today in order to save tomorrow (e.g., buy higher-quality, durable VisionSpring glasses and avoid paying for replacements in the future). Second, in BoP markets, the customer can be different from the person paying for the good/service. For LifeSpring or 1298, payment is often rendered by a husband or the collective family unit, which changes the dynamic of how the company targets its customers. These are two of many examples that should keep us thinking about what is universal to all consumers and what is a result of socio-economic and cultural factors.

In the next 36 hours, as LifeSpring, 1298 and VisionSpring go through rigorous exercises designed to understand and satisfy their customers better, we at Acumen also hope to learn and share some exciting insights. Watch this space for more.

Footage of my co-workers at VisionSpring (formerly Scojo Foundation).

By Shaila Parikh and Biju Mohandas

In the middle of June, Acumen investee LifeSpring opened its second low-cost maternity hospital in a peri-urban area near Hyderabad. They plan to have six hospitals opened by the end of 2008, and by the time this post goes live, they will have launched their third hospital in Nellore, a small town in southern Andhra Pradesh.

As LifeSpring and other Acumen Fund investees slowly and steadily gain scale, we have started asking broader questions about healthcare for the low-income market. Mainly, we want to understand the major gaps and bottlenecks to providing healthcare to the low-income market in India and how these issues can be overcome. The India office is presently working on a status report of the healthcare sector in which we are trying to understand the challenges of the industry for our target market. What follows is a brief summary of our understanding thus far. Your feedback through questions, comments, nudges, pointers and criticism are appreciated.

Simply put, healthcare for the poor seems to have three central challenges: affordability, availability and quality. Effective, viable solutions will need to address all three issues.

A scalable and sustainable micro health insurance model will probably rank as the highest value intervention to address the issue of affordability, especially in a country like India where, according to India's National Health Accounts, an estimated 72 percent of healthcare expenditures are out-of-pocket. The idea of pooling risk to prevent unexpected health shocks from forcing a family further into poverty is intuitive and micro health insurance has been in India for some years now.

However, there remain challenges unique to the low income market. Micro health insurance schemes began by providing coverage only for major ticket items such as accidents and surgeries. For example, the Jan Arogya Bima Policy, launched specifically for the poor in 2005 by India's National Insurance Company, covers only hospitalization expenses incurred for medical or surgical treatment. But the industry quickly learned that this left a large gap between what was offered and what the poor actually needed.

Medical care for the poor is also burdensome due to the cost of smaller, more frequent expenses such as doctor consultations, drugs, non-surgery-related hospitalizations, maternity care and a host of other medical expenses. Due to moral hazard (fraud), adverse selection, inadequate healthcare provision mechanisms, and high marketing and transaction costs, a financially sustainable insurance model has yet to emerge. Nevertheless, insurance- and savings-based attempts continue to pop up all over India.

For example, the government has partnered with industry players to launch several micro health insurance schemes at the state level. The Yeshasvini Cooperative Farmer’s Health Scheme in Karnataka, which started out covering only major surgical operations in 2003, now includes diagnostic tests and investigations at discounted rates. Andhra Pradesh's Arogyashri initiative also has more comprehensive coverage and seems interesting. While similar models have worked in countries like Colombia and Thailand, we will need to wait and watch the sustainability and impact of these efforts in India.

Challenges of availability and quality often go hand-in-hand. In theory, the government provides health care to all its citizens through an extensive network of primary, secondary and tertiary facilities that reach even remote villages. In practice however, this network has deteriorating infrastructure, low quality care and doctor absenteeism that deter many of the poor.

Instead, the rural poor visit their local private doctors who are typically little more than quacks providing low-quality – and sometimes even harmful – services. For example, these types of healthcare providers are notorious for giving an injection of steroids and painkillers to give the patient immediate relief. Sadly, this treatment is only temporary and quite destructive in the long run.

This scenario illustrates the need for accessible, quality healthcare – one area where Acumen Fund has both current investments and some future pipeline opportunities. Our existing investments use innovative service delivery models including a focused factory approach to provide low-cost but quality care (LifeSpring), micro-health franchising to reach deep rural markets (Drishtee), integrated health centers for primary care along with social marketing for preventive healthcare (Sehat First), and integration of traditional medicine with a modern, scientific approach for treating chronic diseases (AyurVAID).

In addition to these innovations, attempts to use public-private partnerships to address the issue of quality healthcare are also being made. For example, the government has several contracts with private companies and NGOs to manage the village-based primary health care clinics. For example the foundation arm of CARE Hospitals has teamed up with the government in Maharashtra to provide the entire range of basic healthcare services at the district level. This is a model that seems to have worked well in Cambodia, where the government has contracted out rural health clinic operations to NGOs or the private sector.

In addition to ensuring that quality healthcare is available and affordable, it is also important to focus on critical supporting services such as diagnostics and drugs. In India, spurious drugs are ubiquitous and ensuring quality remains one of the biggest issues. The challenge is to improve supply chain and cold chain management to enable high quality, affordable drugs to reach deep rural markets. Players like ITC through their e-Choupal initiative are looking to tap this market. They have attempted to set up pharmacies in their rural shopping complexes to sell low-cost generic drugs and they also have doctors and basic pathology facilities. These are being developed as stand-alone profit centers and as referral centers for secondary care hospitals located in nearby towns.

Diagnostics are another key component of healthcare. Both imaging diagnostics (such as x-rays, CT scans and ultrasounds) and pathology lab diagnostics (such as blood tests) are critical for proper diagnoses and treatment. Today, this area of care consists mainly of small, unregulated players of questionable quality. However the emergence of large chains and their expansion into tier II and III cities might signal a trend towards consolidation and improved quality in the long term. Also, the pressure to increase the utilization of capital-intensive centers housing sophisticated equipment (hubs) might trigger expansion through smaller collection centers (spokes) into both the urban and rural low-income markets, making this a very important component of healthcare access for the poor.

On the whole, there still is a long way to go before quality healthcare becomes affordable and available to everyone in India. However, despite the many challenges, a combination of government initiatives, public-private partnerships and market forces seem to offer some hope that this ideal could become a reality.

Also, we’ve posted a few new job opportunities in our India and Pakistan offices. Check out the individual position descriptions for application process and deadlines.

Jane Karuru, SHF franchisee in the tiny village of Kirima, near Mt. Kenya, describes what motivates her

The desire to make a decent living and be able support your family is universal, and it’s one of the things that makes SHF’s micro-franchise model effective. Nurses are motivated not only by a commitment to serving health needs in their communities, but also by the desire to make money. Ask any SHF franchisee what they dream of and you’ll hear things like: “To build an extra room on my home,” “To send my kids to a better school,” “To get a better life for my family.”

This has a lot of advantages over government and non-profit models where nurses are salaried and have no incentives to provide better quality care. In general, SHF nurses work longer hours, provide better customer service, and are more responsive to community demands.

But this motivation to make money is also one of the greatest challenges/risks of the SHF model — how do you encourage franchisees to be driven entrepreneurs, while ensuring that they prescribe drugs rationally, maintain standards, and follow franchise guidelines? SHF currently does this by regular monitoring through field officers and strict punishment for violators, but this is time and resource intensive and difficult to scale. And it’s not fool-proof: at times franchisees misrepresent their sales, source products outside of the network, and in the worst cases prescribe drugs irrationally.

The challenge to strike balance financial viability and the delivery of quality health services to the poor will be an ongoing one for SHF — and one that will likely require a lot of experimentation and adaptation as we grow. For now we’re on a major hunt for more Janes, who have both the commitment to community and the drive to build viable enterprises, as we plan to open 15 new outlets in the next 3 months.

First, we’re proud to announce that we’ve disbursed the first tranche of our $757,000 debt investment in Ecotact Limited. Led by a dynamic entrepreneur – David Kuria – Ecotact builds high-quality, public, pay-per-use toilet and shower facilities on public land in urban centers. You can read more about Ecotact and its Ikotoilet program on the investment page; even more information can be found on the Ecotact web site.

The second new item on-site is related to the Ecotact investment. Marc Manara, a Portfolio Associate based in New York, visited Kenya back in May 2007. While there, he visited some Ecotact installations, and came away with a deep, personal understanding of the delicate balance between the need to tell stories and the importance of personal dignity. His related story – When to Put Your Camera Away – is a must-read for anyone who has visited or is thinking of visiting low-income communities.

The next Indian general elections are due soon, and one crucial battle line in the upcoming election will be the parties’ interest in addressing the bottom of the pyramid.

Recently, opposition leader Lal Krishna Advani of the Bharatiya Janata Party (BJP) declared that “…a whole new world will open up if we stop seeing the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value conscious consumers.”

(Interestingly, Mr. Advani borrowed his words verbatim from BoP strategist C.K. Prahalad. If that’s not an endorsement of the BoP approach, then I don’t know what is.)

Meanwhile, on the other side of the aisle, P. Chidambaram, the current finance minister of India and a Congress party man, noted that “sections left out, such as farmers, people belonging to the Scheduled Castes and Scheduled Tribes and Backward Classes, minorities and those working in small occupations, must be brought into the mainstream.”

While Congress and BJP have their own versions of the addressing inclusive growth, the truth is that the bottom of the pyramid will have much to cheer about no matter which party comes to power.

That said, the challenge in India is (as always) the last mile – ensuring that policy benefits actually reaches the intended people. The benefits of privatisation have been around for people to see in telecom and road infrastructure development, and this direction will not be reversed. It will not be a surprise if the government encourages private players to help breach the last mile barrier in many sectors including those areas that Acumen operates in (health, housing, water and energy). The government, irrespective of political affiliations, is likely to encourage partnerships with groups and enterprises who can deliver efficiently to the BoP.

Those of us at Acumen are excited and look forward to a new breed of entrepreneurs – perhaps inspired by politicians – that are addressing the problems of poverty.

Sehat First is a social enterprise that provides quality health consultation services and pharmacy services to lower income communities. Each clinic provides healthcare support to patients using an e-sehat (health) tele-consulting application that remotely links up doctors and specialists with their patients via the Internet.

Remote. That is what really resonated when I saw the location of the village. Even though it was only thirty minutes outside Karachi, the population was sparse with limited access to many social services like health facilities and education centers. These are the forgotten communities where ghost health units and primary schools are established and then neglected.

This point was further reinforced when Ms. Zahara Khan, Sehat First’s CEO, made her welcoming remarks at the ceremony. There is a strong need for access to doctors and lower cost medicines, especially in Pakistan where the number of available doctors per patient is incredibly low. In this scenario she says, “It is imperative to use emerging technologies to connect healthcare providers in far flung areas with medical experts in urban centers.” In this rural community where access to emergency services in non-existent, Sehat First is providing primary healthcare, post-natal care and innovative links to medical specialists.

While the main innovation of Sehat First remains its tele-health kiosk linking patients to doctors, what will really make this enterprise go the distance is its financially sustaining business model. Sehat First pairs a basic health facility with a pharmacy and a small general store that carries simple household goods. And while the main draw for the community are the health services, the accompanying general store help drive revenues with the potential to make the clinic center financially viable. This will be a learning experience for Sehat First and Acumen Fund on unique business models that operate in challenging environments.

What role can markets play in providing health services to the poor in developing countries? This was the theme of Acumen Fund’s Health Breakfast last week, which was presented by Omer Imtiazuddin, Acumen’s Health Portfolio Manager.

Omer started out by discussing how 40 to 60 percent of the population in our geographies (India, Pakistan and East Africa) currently use the private sector for health services (For example, see How Private Health Care Can Help Africa, McKinsey Quarterly). These services are generally not available to the base of the pyramid at an affordable price. Consequently, in India for example, 24 percent of all people hospitalized in a single year fall below the poverty line due to the cost of hospitalization. (See Health Insurance in India: Current Scenario, World Health Organization.)

These data point to a dire need and also to an opportunity for social entrepreneurs committed to providing affordable health care to the poor. We have learned from Lifespring (one of our investees in India) that it is possible to provide high quality medical care at one third to one half of market price with a little innovation and a focus on standards of care.

Omer also introduced our ecosystem approach to the health sector. We now have investments in healthcare providers, health financing and support systems. These generate significant opportunities for shared learning across our portfolio as well as for cross pollinating ideas and innovative solutions across geographies.

Our approach to malaria has been similar – we have built a portfolio of companies in the space. Our investments in A to Z Textile Mills (Tanzania) and Advanced Bio-Extracts (Kenya) have created leaders in the manufacture of long lasting insecticide treated bed nets and artemesinin (the critical component of new drugs to fight malaria). We have also moved into new product development with our investment in an insecticide treated wall lining. Beyond investments, we have also been working hard on research to better understand these markets.Omer concluded with some of the key learnings from our seven year engagement with investing in health.

The market is limited in terms of reaching the poor; subsidies are required for large scale distribution – especially to reach the poorest of the poor. At the same time, the private sector manages to provide last mile distribution and continuous access much more efficiently than the public sector.

Acumen has also learned that innovative health products and services need risk capital – an example of this is our investment in Pakistan’s first micro insurance agency. Lastly, emerging ‘clusters’ of investments can create ecosystems of learning – be it in health care delivery, distribution of health products and services, or franchising.

Our guests at the breakfast had interesting questions about cross subsidy models. This is one of the questions that we have struggled with: what is the proper ratio of subsidized services to market price services that maximizes the social impact of the organization while keeping them commercially viable and functioning? We have typically seen companies cross subsidize 20 to 30 percent of their customers (i.e., 20 to 30 percent receive free services, which are subsidized by the other 70 to 80 percent who pay). There was also a good discussion around health insurance for the poor and overcoming some of the major challenges (like adverse selection) in the markets in which we operate.

All in all, it was good to engage with our community over breakfast. I left with the feeling that there are many unanswered questions when it comes to our health portfolio, but with the support of many partners, we are making progress.

Since its founding in 2005, NextBillion.net has grown to become one of the more prominent websites and blogs discussing base of the pyramid (BoP) approaches to poverty and environmental degradation. As part of NextBillion.net’s recently-signed partnership between WRI and Acumen Fund, we are funding a round of upgrades to the site that are aimed at improving user experience and making the information on-site easier to find, use and share.

As we noted on May 15, WRI and Acumen Fund have committed resources to re-design and re-launch NextBillion.net later this year. We hope this re-design will make the site more user-friendly, enabling smoother subscription, sharing, commenting, story suggestion and a range of other features. That time has come.

If you are a web developer, or know one, please forward this RFP along. We are particularly interested in working with socially-minded firms and/or firms based in low-income countries.

Questions? Check out the RFP or contact Francisco or me directly.

Stay tuned for more Acumen Fund content…

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