Frontier Markets – Investing in the Bottom of the Pyramid

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By: Ajaita Shah, Founder and CEO of Frontier Markets

Believing that Bottom of the Pyramid (BOP) households in India have a right to access goods and services that will positively impact the quality of their lives, Frontier Markets has set its sights on several initiatives including the lighting of homes and villages in remote rural locations.

Frontier Markets (FM) is a rural marketing, sales, and service distribution company that provides access to affordable and quality consumer durables to low-income households in India. We work primarily in solar lighting and power, and soon we will expand into cookstoves. The provision of these particular products will improve the quality of life in thousands of households that depend on polluting traditional fuels such as kerosene and offer safety from fumes and fire. It will also provide additional income to small retailers in the villages who become franchisees for FM.

Innovating Responsibly

It is too expensive for companies to build infrastructure in rural India and to have the feet on the ground to push products. The terrain is rough and the supply chain fragmented. The only way to make it worthwhile is to have strong margins across a wide product portfolio, which no single company has.

FM’s collective responsibility is to find innovative ways to overcome the barriers that prevent access, and once access is gained, ensure the quality and integrity of products we offer to people with very limited means. Anything less would destroy the fragile trust that must exist if we are to realize the goal of an educated and empowered citizen. Leveraging and building networks of retail points and providing support to retail entrepreneurs – especially after-sales support – is what differentiates us.

We carefully evaluate each and every product we sell in terms of relative social benefit and work with industry experts who provide independent research regarding product safety and positive outcomes. By doing this, we earn the endorsement of our local channel partners to ensure credibility with their members. We invest our own time and resources to learn more about rural households instead of relying on commonly held assumptions, inform BOP households about their options and the impact of the products we endorse, and are sensitive to cultural norms and values.

Shah with BOP Locals
FM evolved from my own experience in microfinance where I had spent several years in India in the microfinance sector exploring “credit plus” options to better service customers – particularly in health, water and energy. The microfinance sector targets customers who need more than just financial services. While microfinance has great potential as a channel, it is not an actual distribution solution for products or services. So, FM was formed in 2010 to focus solely on non-financial services and after-sales service. We built a retail network which are the fulfillment points for both sales and after-sales service.

Essentially, we set up service centers covering areas of about 300 Indian villages each, with our staff engaging local entrepreneurs to sell solar energy products. For those farmers who have brick-and-mortar buildings, this is a great opportunity to add these products to their offerings, sell them from their shop and be branded as a Frontier Markets retail location. At present, FM has 250,000 rural customers and 225 retail points. These outlets have sold 50,000 solar solutions.

FM has also started the “Solar Saheli” campaign to empower rural women to become solar entrepreneurs in their communities with the intent of educating other women on the merits of clean energy and cost efficient solar products. We currently have 250 Solar Sahelis. I found inspiration for this particular campaign in Solar Sisters (an international social enterprise) and the US-based marketing companies Mark Kay Cosmetics and Tupperware. These companies believe in training, inspiring and mentoring women to become income-generating entrepreneurs.

Investments, Financing and Collaboration

Our end customers sit on an energy spectrum. As you go beyond the 30km radius of our centers, there is less and less grid connectivity. Our market therefore varies from partial electrification to totally off-grid.

Our product basket is diverse for this very reason, ranging from 1W PICO systems to 100W/200W systems that are used for utilities. Once you move into this space, financing does become an issue. Our product basket ranges from USD $5 -1,000. We are just about to enter the kilowatt range in Rajasthan, providing solutions to health care centers, schools and the like.


Solar Lanterns, Solar Homelight System and Solar Torch

We have partnered with a Rajasthan partner, where we are linking sales to a local rural bank. Reserve Bank of India (RBI) regulations don’t allow leasing or rental, and distribution and after-sales service is already hard enough without providing consumer financing – so we’re not into providing that ourselves. We do provide, however, lines of credit to our entrepreneurs. We connect the wholesaler to the retailer, negotiate margins and control risk.

On the subject of financing partnerships, though, the rural bank model works very well in India because of the extensive Grameen model. For example, the customer puts in 30% of the cost of a product that is already subsidized due to regulations from the Ministry of New and Renewable Energy (MNRE). So let’s say a product is normally 50,000 Rupees. The subsidy reduces that to 35,000 Rupees. The customer puts down 10,000 Rupees as a down payment, and there is a 25,000 Rupees credit provided over 1-3 years plus interest, which is about 5%.

FM is now in 5 districts in Rajasthan and 4 in Andhra Pradesh. Next year is about scale and breakeven for the service centers. It takes three months to break even after setting up the center, as there is a lead-in time in building the market beforehand. Not all 9 centers will be breaking even, but enough so that the company as a whole is.

FM recently collaborated with the International Finance Corporation on an awareness campaign about the benefits of solar energy. This campaign forms part of IFC’s Lighting Asia initiative that aims to bring light to 400 million Indians living off grid.

With efficient distribution and superior service we hope to light 10 million households in the next five years and are expanding into solar water heaters and street lights.

About the Author: Ajaita Shah is the Founder and CEO of Frontier Markets and the President of Frontier Innovations Foundation. She has focused her considerable passion and acumen in microfinance on providing access to energy, healthcare and clean water to Bottom of the Pyramid households in India from FM’s base in Jaipur, Rajasthan. She has consulted with the Social Performance Task Force through CGAP and the Ford Foundation, Mastercard Foundation and the World Bank about microfinance in South Asia.

Among her many accomplishments she was a Clinton Service Corp Fellow (2006), an Echoing Green Fellow (2012), Cordes Fellow (2013), received the Most Influential Award in Microfinance for people under 30, and named in Forbe’s magazine’s 30 Under 30 list of social entrepreneurs.

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