This post is the first in CHMI’s new Investing in Health series. Stay tuned in the new year for more posts and insights.
Monitor’s Promise and Progress report was issued this fall, the result of a 16-month study of 439 enterprises in Sub-Saharan Africa targeting people making $2-a-day or less.
The report covers sectors ranging agriculture to energy and clean water, so we spoke to author Mike Kubzansky to learn more about the survey’s takeaway for market-based health solutions. (You can think of these as your Cliff Notes for market-based solutions in health—the report yields much more insight.)
Did you identify distinct business models in health?
Mike Kubzansky: We covered 65 health enterprises using at least four distinct business models.
- One is the cross-subsidy model—this is a familiar approach used by large urban hospitals like Nairobi Women’s Hospital, which has both upper and lower income patients accessing a broad range of services from vaccination to surgery.
- The second model is represented by Living Goods in Uganda and HealthKeepers in Ghana: Networks of direct sales agents distributing goods to remote communities – the Avon model, but with products like medicine, condoms and bed nets.
- We identified a range of mHealth applications. Pesinet in Mali uses mobile phones to collect five key basic data points on infant health, sending the data back to doctors in clinics who advise women when they need to bring kids in. The technology encourages health-seeking behavior, linked to service delivery and medicine. Pesinet is operating in two districts in Bamako with 620 children enrolled. Now to sustain their operation they need to double their reach to about 65% of all eligible families living within a kilometer.
- High volume, low margin clinics made up the fourth model. LiveWell in Nairobi is a good example. They focus on primary care and the most expensive equipment they own is for hematological lab tests, so their capital expenses are not forbiddingly high and they can expand quickly.
Of course we also looked at various social franchise operations in Africa, for instance, Blue Star, but those are better documented and understood, so we spent less time analyzing them.
Does adding an ‘m’ before a health program make it more valid as a business model?
MK: Hype and expectation have gotten ahead of performance. We found no models [built around mobile phones] in health that had yet proven their ability to sustainably recover costs. We looked at 30 in mHealth and m-agriculture and – aside from mobile money schemes like M-Pesa -- the highest cost recovery was just 35%--all are small scale and early stage. M-PESA is only four years old, after all, so it’s still early days for figuring out business models. Some, like D-tree, create non-profit models.
MK: Many mHealth programs seek to establish trust with consumers via SMS. But 84 percent of rural consumers we spoke to preferred voice to text. When information comes in disembodied form, they don’t trust it. The Pesinet community agent—like the HealthKeepers agents—on the other hand is someone they know and can build up trust with.
Is the market for social investment in Africa different than India?
MK: It’s hard to make a blanket statement about health businesses across Africa but in general they not only compete with government clinics—this is easy because government clinics’ service is normally so dreadful—but also donor-subsidized clinics.
For example, customers used to government clinics value LiveWell’s prompt service and doctor availability. Yet LiveWell also competes with an NGO clinic with high quality services that are free.
African countries have different degrees of private sector activity in health. Nigeria has a lot while other countries like Senegal have very little. Private clinics are not allowed to compete with government clinics in Senegal . South Africa’s government guards their prerogatives to provide services to the poor. One of a few exceptions is a group of clinics called Clinix with linkages with government, for instance its branch in Soweto, Lesedi Clinic, which serves the township in a quasi private way by getting referrals from state facilities on a contractual fixed fee basis.
You mentioned that many investors don’t want to take a risk when there is little chance they will have a sizable return in early stage health businesses. Do investors provide technical assistance to help managers with their business plan?
MK: Many small enterprises need technical assistance just to get to the starting line—before equity investments can be made. Some groups do offer TA for small businesses. Grofin, funded by the Shell Foundation, Open Capital, Technoserve via its business plan competitions, even IFC—most provide some kind of TA, yet apart from IFC none works in health, and IFC minimum deal sizes are often too large for most of the earlier stage stuff we saw in health.
What challenges do investors face in health?
MK: There is a difference between market creation and market entry and the market does not yet exist for many preventative health care services. Need is not equal to demand. If you’re selling health services or clean water, you’re often asking people to change their behavior and start paying more for something they haven’t paid for in the past —a very difficult proposition.
Take HealthKeepers in Ghana. They are part of the community so they develop a rapport with their clientele. Yet agents must spend valuable time, for example, convincing moms why ORS [Oral Rehydration Solution for diarrheal disease] is important for their baby. ORS costs pennies! Yet when compared with the government’s typical approach, HealthKeepers’s agents may eventually prove to be a more cost-effective way to get families to use ORS. The point is with preventative health care is that often you need government or donor subsidies, or at least coordinated investment in demand generation alongside the activities of a private operator like Health Keepers. Governments can use their purchasing power to create “anchor demand” or to stimulate and reinforce demand so that the entrepreneurs don’t have to do all the convincing themselves.
Speaking of donor subsidies, there is a lot of promise in social franchising, which has typically been subsidized. But the large installed base of small providers in Africa suggests that if you developed a commercial franchise delivering health services you would lead with products the community already wants to buy—rather than purely or mainly contraceptive services, which require a salesperson to take on the role of behavior change agent.
MK: We connected the 25 most promising enterprises from our survey to more than 50 impact investors. We’ve already seen investments in three and conversations are ongoing between investors and at least 10 other enterprises.
Read the full report, coauthored by Ansulie Cooper and Victoria Barbary: Promise and Progress: Market-Based Solutions to Poverty in Africa. Monitor's companion report on Emerging Markets, Emerging Models is based on research primarily conducted in India.