Improving the Lives of Hundreds of Millions of People in India by Accelerating the Growth of BOP Markets in MedTech and Clean Energy. Presented at SOCAP/Europe.

1. INCLUSIVE INNOVATION
Improving the Lives of Hundreds of Millions of
People in India by Accelerating the Growth of
BOP Markets in MedTech and Clean Energy
Presented at SOCAP/Europe
May 2011
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2. STUDY APPROACH FOCUSED ON ENTREPRENEURS AND
MARKET ECOSYSTEM FOR MEDTECH AND CLEAN ENERGY
Key issues Study approach Results to-date
▪ How big is the opportunity? ▪ ON and McKinsey worked • Raising $50 million early
▪ How many / who are the together to define and stage MedTech fund
entrepreneurs targeting the analyze the market
• Investment discussions
BOP MedTech and Clean landscape, interview over 50
with 5-6 MedTech opps
Energy markets? entrepreneurs, and speak to
dozens of experts • Considering 2-3 specific
▪ How strong are their grant proposals for
business models? Can they ▪ Got terrific guidance from
great Steering Committee public health institutions
really help the poor? Why?
(e.g., Antony Bugg-Levine, • Invested in Agni, bio-coal
▪ What barriers make it Michael Chu, Brian Trelstad)
difficult to scale? firm
▪ Focused on specific market
▪ How can we best help interventions that could • Investment discussions
them? accelerate market growth with 3 Clean Energy
entrepreneurs
▪ What resources will be ▪ Discussed issues with key
required? policy-makers • Insights on opportunity /
model for market dev’t
2

3. INCLUSIVE INNOVATION: IMPROVING LIVES OF HUNDREDS OF MILLIONS IN
INDIA AND GENERATING ATTRACTIVE RETURNS BY ACCELERATING THE
GROWTH OF BOP MARKETS IN MEDTECH AND CLEAN ENERGY
1
Many entrepreneurial innovators are seeking to serve India’s vast BOP
markets for MedTech and Clean Energy; they have the potential to generate
massive social impact and deliver attractive financial returns
2
Multiple market development efforts (such as early stage financing, industry
associations, certification/standards, and specialized training) are required for
these entrepreneurial innovators to achieve their full potential and to develop
vibrant market ecosystems that create value for all stakeholders
3
Inclusive innovation – wherein impact investors, commercial investors,
philanthropies, development agencies, and governments collaborate to support
innovators and invest in market development – can overcome these challenges
and accelerate the growth of BOP MedTech and Clean Energy markets
3

4. INDIA’S BOP REPRESENTS 835 MILLION PEOPLE AND $360 BOP
BILLION IN DISPOSABLE INCOME
Household Household
income income
USD 1990 USD 2010 Population Disposable Income
PPP nominal Millions Billion USD 2010 nominal
>$8 >$17.03 25 294
$4 - $8 $8.52 - $17.03 85 241
$2 - $4 $4.26 - $8.52 246 320
$1.25 - $2 $2.45 - $4.26 415 257
<$1.25 <$2.45 419 101
SOURCE: McKinsey Global Institute; Global Insight; EIU 4

5. SIGNIFICANT LATENT DEMAND AMONG INDIA’S BOP POPULATION
Current demand + Latent demand1 = Total demand Latent
demand (%)
100% =
Healthcare Per capita healthcare 53
109 (47%) 124 (53%) 233
spend (PPP USD 2007)
Per capita annual
Energy electricity consumption 618 (37%) 1,066 (63%) 1,684 63
(Mwh/year)
Youth literacy
224 23
Education per thousand 764 (77%) 988
(23%)
(15-24 olds)
Bank Loans / GDP 45
Finance 540 (55%) 440 (45%) 980
per thousand
Tele density 129 16
Communication 660 (84%) 789
per thousand (16%)
1 Latent demand calculated from comparable benchmarks, viz. total demand of China
SOURCE: ESRC report; BP Statistical Review 2008, China Year Book 2009-09, Indian Banks Association, RBI, BIS 5

6. BOP DEMAND CAN YIELD VAST MARKETS
BOP 2020 MedTech Market Size
USD billion
2.00-3.50 ~10.0
~2.50 ~6.50
~2.75
~1.25
2010 Secular Effect of 2020 market Effect of 2020 market
growth frugal (base market (optimistic
innovation case) development case)
USD 10 billion market
equal to entire Indian
pharmaceutical
industry in 2007
Source: GlobalData; BMI; EIU; Cygnus 6

7. 7 PRIORITY AREAS ARE MATERIAL AND FAST GROWING … Priority sectors
Projected Growth
2010-2015 %
16
Telemedicine 7. Healthcare IT
15 ENT
5. In Vitro Diagnostics
14 mHealth Dental
13
12 Neurology
11 2. Cardiovascular
10
3. Orthopedic
9 6. Nephrology and Urology
Surgical Equipment
8 4. Diagnostic Imaging
Patient Monitoring
Hospital Supplies
7
1.Diabetes
6
Drug Delivery Anesthesia/ Respiratory
5
4 Ophthalmic
Endoscopy Wound Care
3
0
0 0.005 1 0.015 2 0.025 3 0.035 4 0.045 5 0.055 6 0.065 7 0.075 8 0.085 9 0.095 14 22
2010 Size
Percent of Indian Med Tech Market
SOURCE: Global Data

8. A THRIVING BOP MEDTECH INDUSTRY WOULD IMPACT HUNDREDS
OF MILLIONS OF LIVES
Number of treatments per person per year for total BOP market (N=835 mn)
14X
BOP Additional Additional BOP 2020 Additional Effect of
annual per treatments treatments annual per treatments product
capita due to due to capita due to innovation
treatments secular frugal treatments market
in 2010 growth innovation (base development
case)
SOURCE: Global Insight 8

9. SIMILARLY, CLEAN ENERGY IS A VAST MARKET TOUCHING HUNDREDS
OF MILLIONS OF LIVES
Fuel Electricity generation and
Devices
sources distribution
Community Household
micro grids solutions
6.0-6.5
0.9-1.0 ~0.5
Potential 4.5-5.0 ~0.1
market 2020
USD billion
~705
Lives
touched ~465
Million
~25
~40 ~175
Capital
required ~150 ~2,500 ~45 ~250 ~2,900
USD million
SOURCE: McKinsey analysis
9
1 Equity capital is roughly one-third to one-half the total capital required

10. MANY ENTREPRENEURIAL INNOVATORS ARE SEEKING TO DEVELOP
THESE MARKETS
MedTech– more than 40
Focused on providers & medical devices
Clean Energy – more than 50
Focused on devices like solar lanterns & community micro grids
SOURCE: Discussions with entrepreneurs; web searches 10

11. LEARNING FROM TELECOM AND MICROFINANCE, ENTREPRENEURS
ARE PURSUING DISRUPTIVE INNOVATIONS
Microfinance and telecom The growth was
have successfully penetrated sparked by entry of … who initiated disruptive innovation in the market
the BOP new entrepreneurs …
Microfinance Microfinance Microfinance Telecom
Cumulative outreach of MFIs ▪ Small ticket loans, ▪ Differently priced
Million clients mainly for income recharge vouchers
Product
design generation ▪ Tariff cutters
▪ Group lending ▪ Minute packs
6x
▪ Field agents ▪ Extensive
Distri- reaching individual distribution
bution households (SKS network – 1
2003 2006
Microfinance re-seller for 1,000
reaches >100,000 individuals
Telecom Telecom
villages)
225x *
▪ Simple replicable ▪ Outsourcing of
models for network and IT
22x Efficiency
expansion management
– Training ▪ Over the air
– Stopwatch- electronic remote
based method recharging
for field ▪ Sharing of cell
2000 2010 2000 2010 operations towers
Teledensity No. of – Streamlined
Percent subscribers information
Millions management
SOURCE: Expert interviews, Web searches 11

12. FORUS HEALTH, A SMALL ENTREPRENEURIAL COMPANY, IS
DEVELOPING INNOVATIVE DEVICES
Forus Health has two
product offerings
1. Diagnostic device that can
detect 5 major eye
ailments that cause 90%
of blindness (diabetic
retina, cataract, glaucoma,
cornea, and refraction
problems) called 3nethra
which costs 1/10th of
existing products 3nethra’s innovative features:
▪ Single, portable, non-
2. Affordable dialysis solution invasive, non-mydriatic eye
called Renall (USD 7 per pre-screening device
session with new ▪ Provides an automated
membranes compared to “Normal – Need to See a
existing USD 35 with used Doctor” Report
membranes) ▪ Can send report thru mobile
network for remote diagnosis
SOURCE: Interviews with Forus management; Company website 12

13. DLIGHT, A PORTFOLIO COMPANY, IS ONE OF THESE
ENTREPRENEURIAL INNOVATORS
A day in the life of Monika Singh, 14 year old, UP
“My d.light lamp is much brighter than the
kerosene lantern. Because of the good quality
light, we are more interested in studying”
d.light has revolutionised the life of Monika’s family
▪ With d.light, Monika and her two siblings enjoy
brighter light for studies at night
▪ Shifting from kerosene lamps have saved them
from its smoke and soot
▪ Her father uses another lantern to farm at
night, and her mother uses one for cooking
SOURCE: Company interviews; d.light web site 13

14. MANY MARKET DEVELOPMENT CHALLENGES INHIBIT GROWTH OF
MARKET ECOSYSTEM
Market development
CONSUMER INADEQUATE challenges
EDUCATION & INFRASTRUCTURE
DISTRUST
End-user support Hard infrastructure UNCLEAR
▪ Product certification ▪ Transport MARKET
▪ Consumer protection ▪ Fulfillment STANDARDS
▪ Education ▪ Payment services
Entrepreneurial ventures Soft infrastructure
Consumer wealth
▪ Initial condition BOP Consumer ▪ Products and services BOP Business ▪ Industry associations
▪ Accumulated wealth (Demand) ▪ Delivery model (Supply) ▪ Industry standards
▪ Production costs ▪ Regulations
Capital
NO ACCESS Productive capacity ▪ Multiple stages
TO CREDIT ▪ Training ▪ Supplier network
AND ERRATIC ▪ Health
INCOME ▪ Safety LACK OF
TECHNICAL INSUFFICIENT
SKILLS RISK CAPITAL
14

15. LACK OF MARKET STANDARDS AND CONSUMER DISTRUST HAS
CONTRIBUTED TO A MAJOR CRISIS IN MICROFINANCE IN INDIA
Microfinance sector is stalling due to reported malpractices
High reported incidence of … leading to public
malpractice… backlash… … and regulatory intervention
▪ AP MFI (Regulation of money lending Act) - 2010
“Unrestrained lending Outcry – MFI registration mandatory for operation
by MFIs”
▪ “Do not pay MFI loans” – Cap on number of loans per borrower
– Penalties for violation
“Harassment by loan
▪ Malegam Committee recommendations
collection officers” Defaults
– Min. HH income of Rs.50,000 for giving loans
▪ Repayment rates – Ceiling of Rs. 25,000 on individual loans
“70 people in AP coming down
drastically, in some
– RBI to draft Customer Protection Code; to be
committed suicide over 6 adopted by all MFIs
months to escape places down to 10%
(vs 90%+ historically) – Responsibility for monitoring of compliance
payments” shared by MFIs, industry associations, banks
& RBI
Similar regulation and monitoring is needed in medical technology and clean energy sectors
Certification of technologies Treatment only through Specification of standards for small-
mandatory standard protocols scale suppliers of electricity (e.g.,
micro-grid solution providers)
SOURCE: Press reports 15

16. SUBSTANTIAL EQUITY CAPITAL IS REQUIRED BY 2020 TO GROW THE
INDUSTRY – MEDTECH EXAMPLE
Investment required
USD billions
5.25-8.75
Incremental capital
to sales ratio of
40-50%1
2.0-4.4
0.8-1.8 1.2-2.6
Potential revenue Investment Debt2 Equity2
growth required
1 Incremental capital to sales ratio is sales growth divided by CapEx, based on average of India and China over past 5-15 years; does not include
financial investments to fund operating expenses in early-stage, loss-making companies
2 ~60% equity to assets ratio based on the financial statements of select Indian medical technology plaers
SOURCE: McKinsey Global Institute; Global Insight

17. INCLUSIVE INNOVATION IS REQUIRED TO ACCELERATE GROWTH OF
BOP MARKET ECOSYSTEM
Early stage Growth capital
Public market financing
financing financing
BOP
market Impact Commercial capital
size 3 Large highly
investors providers (equity & debt) competitive ecosystem
(equity & with substantial capital
grants) investment
2 Moderately competitive
ecosystem with limited
capital investment
1 Small monopolistic
ecosystem with
minimal capital
investment
3-5 years 5-8 years
Gov’t, development agencies, philanthropic capital Time
for dealing with market development challenges
▪ Public goods
▪ Subsidies
▪ Dealing with externalities
17

18. GOVERNMENTS, DEVELOPMENT AGENCIES AND PHILANTHROPISTS
PLAY KEY ROLE IN OVERCOMING CHALLENGES – MEDTECH EXAMPLE
Market
development Solution
challenge
• Conduct social marketing with Public Health agencies
Consumer – Prioritise health conditions that require increased awareness
1
education – Run nation-wide awareness campaigns (for example, TV, radio, print advertising, events)
– Partner with local bodies to implement programmes on the ground
• Set up academic and vocational institutes for training of health workers
Lack of
– Coordinate with emerging BoP healthcare providers to develop modular health worker
2 technical
curricula
skills
– Match health workers with job or franchise opportunities in BOP providers
• Establish institute for Healthcare Excellence
Unclear
– Create evidence-based public health guidelines
3 market
standards I – Create evidence-based clinical protocol
• Set up Medical Technology Certification Institute
Unclear
– Certify emerging medical technologies for Indian conditions
4 market
Standards II – Funded by manufacturers to make it self-sustaining
• Agree on standards for micro health insurance
No access – Franchise out semi-standard community health insurance programmes
5 to community-based organisations
to credit
– Manage the back-end of community-based insurance schemes (for example, reinsurance,
quality management)
SOURCE: Expert interviews; PATH; Public Health Foundation of India 18

19. INCLUSIVE INNOVATION HELPED IN GROWTH OF MICROFINANCE IN
INDIA Key interventions
RBI’s ‘project financial ▪ Allowing NGOs to act as MFI agents
literacy’ to increases ▪ Permitting composite loan-insurance products
financial awareness ▪ Allowing MFIs to act as banking correspondents
Social marketing Regulation
End-user support Hard infrastructure
▪ Product certification ▪ Transport
▪ Consumer protection ▪ Fulfillment
▪ Education ▪ Payment services
Entrepreneurial ventures Soft infrastructure
Consumer wealth
▪ Initial condition BOP Consumer ▪ Products and services BOP Business ▪ Industry associations
▪ Accumulated wealth (Demand) ▪ Business model (Supply) ▪ Industry standards
▪ Costs ▪ Entry / exit
ACCION’s training centre Capital
Productive capacity ▪ Multiple stages
for front-line officers & ▪ Training
middle management ▪ Supplier network ▪ Sa-Dhan: Industry
▪ Health associations for
in MFIs ▪ Safety networking,
advocacy and
Training Crowd in capital capability building
▪ Priority sector lending
(for profit) ▪ SMART campaign
▪ Development capital
▪ For profit investment certification for MFIs
upholding client
protection principles
19

20. INCLUSIVE INNOVATION REQUIRED IN CLEAN ENERGY A US$6 BN MARKET
Key interventions
Advocacy
BoP clean energy
Regulation legal access cell
Social marketing
End-user support Hard infrastructure
▪ Product certification ▪ Transport
▪ Consumer protection ▪ Fulfillment
▪ Education ▪ Payment services
Entrepreneurial ventures Soft infrastructure
Consumer wealth
▪ Initial condition BOP Consumer ▪ Products and services BOP Business ▪ Industry associations
▪ Accumulated wealth (Demand) ▪ Business model (Supply) ▪ Industry standards
▪ Costs ▪ Entry / exit
Training institutes for Capital
Productive capacity ▪ Multiple stages
handling technicians in ▪ Training
electricity generation ▪ Supplier network ▪ Institution to create
▪ Health industry standards certify
units ▪ Safety product quality
Training Crowd in capital
Coordinated financing with
(for profit)
lock in to simultaneously
stimulate demand and
supply
20

21. INCLUSIVE INNOVATION – STAKEHOLDERS COLLABORATING TO
HELP BUILD OUT THE BOP MARKET ECOSYSTEM
Inclusive Innovation benefits What to do
• BOP consumers receive • Impact investors: focus on early
innovative, affordable products stage investments, but demand
and services commercial returns
• Members of the BOP are • Philanthropists and development
engaged as producers (i.e., agencies: support, not distort market
employees or suppliers) development – need a careful, light
• Entrepreneurs overcome touch
market barriers and build great • Governments: ensure responsive and
businesses efficient regulatory regime
• Investors get competitive • Entrepreneurs: build effective industry
returns associations and collaborate to build
• Donors and governments soft infrastructure
work together to build
sustainable, fair ecosystems
21