(Illustration by Mitch Blunt)
It’s graduation day, but there’s not a mortarboard hat in sight. Instead, the graduates at this celebration are wearing brightly colored headscarves and big smiles. They are all women, and many of them never had the opportunity to finish high school. But today they’re graduating from an entrepreneurship program in Bojonegoro, East Java—a rural area in Indonesia. They have completed a six-month course of study that has given them new skills in sales, marketing, and basic accounting, along with the know-how to maintain and repair the products that they have learned to sell. Now they are independent technology agents—“tech agents,” we call them.
The success of these women reflects the success of a project that our organization, Kopernik, has developed. And a critical part of this project is an approach that blends the use of philanthropic subsidies with the principles of entrepreneurship.
In the international development community, a vigorous—and often polarizing— debate has arisen over whether philanthropy or business offers the most effective way to reduce poverty. The relatively new field of impact investing, which aims to generate both financial returns and social returns, has emerged in part as an attempt to resolve this debate. Although it is too soon to draw firm conclusions about the effectiveness of impact investing, there are encouraging signs that some impact investors are achieving positive results. (For an overview of this topic, see the discussion that Paul Brest and Kelly Born launched with their article “When Can Impact Investing Create Real Impact?,” which appeared in the fall 2013 issue of SSIR.)
Kopernik is a nonprofit organization that delivers simple, affordable technology products to people in poor and often remote communities. Through an online marketplace, we connect donors, makers of innovative technologies (such as water filters and solar lanterns), and people in underserved communities who can benefit from those products.
Our approach uses philanthropic funds to subsidize the start-up costs of introducing technologies to a new community, even as it also establishes a market-driven sales mechanism that offers incentives to local sellers. When it comes to technology adoption, we have learned, offering products at subsidized, affordable prices is no less effective than selling them on a subsidy-free basis. In fact, lowering financial barriers helps to improve access to innovative technologies. Our experience in that regard aligns with the findings of important research conducted by the economists Jessica Cohen and Pascaline Dupas. They examined the impact of subsidies for insecticide-treated bed nets that support malaria prevention, and found that buyers who received a subsidy used the nets with the same frequency as buyers who didn’t. The buyers of subsidized nets were also more likely than the other set of buyers to purchase a second net.
At Kopernik, we’re pursuing a “middle way” that empowers people like the women who have become tech agents in Bojonegoro. Through trial and error, we have created a method that strikes a balance between philanthropy and business. Sequencing is crucial: We build charitable support before focusing on business sustainability. Our aim is to promote innovation not only in the form of the technologies that we deliver, but also in the financial mechanism that we use to channel products to those who need them.
Getting the Price Right
Instead of trying to enter a community as complete strangers, we typically partner with a respected local entity, drawing on its network of trust to help us deliver our products. In the case of the women’s entrepreneurship project in Bojonegoro, we worked with a local nonprofit organization called Farabi. It’s a group that has a good reputation, strong connections in the area, and a solid operational history.
In conjunction with Farabi, we held seven “tech fairs” (as we call them) in various villages. At each event, we introduced women in the community to products such as water purifiers and fuelefficient stoves. The women could test the products and ask questions about the benefits of using them. After each tech fair, attendees formed groups (each with its own coordinator and treasurer) that set out to sell those products at an appropriate price to relatives, friends, and neighbors in their village.
But what counts as “an appropriate price”? Answering that question, we have learned, requires a delicate balancing act. Consider a solar lantern project that we undertook in the Philippines. Our local partner decided to sell the products at prices that would provide for a 30 percent profit: $24 for a d.light S10 lantern and $48 for the larger d.light S250 lantern. (All currency figures are in US dollars.) The partner, aiming to make its operation sustainable, was testing the upper price limit in this market. Yet in a country such as the Philippines, where the monthly household income ranges from $20 to $2,000, that pricing tactic ended up attracting twice as many affluent customers as poor ones. Although the local partner successfully sold its entire inventory of solar lanterns and generated a sizable profit, the venture did not fulfill its social mission. Upon learning about this outcome through an impact assessment, we worked with our local partner to adjust the pricing scheme: For families with a monthly income of less than $120 per month, we offered the products at prices that were just above their cost to us.
In that way, we ensured that our primary target market—the very poor—could access life-changing technologies. Compare this approach to an investment model that does not include grants or other philanthropic subsidies. Investors who focus only on gaining a financial return are unlikely to support a business of this kind.
In the Bojonegoro project, we made sure to set the price of water filters and fuelefficient stoves at levels that would not exclude poorer families while still enabling tech agents to earn a small commission. What made that pricing model possible was the use of philanthropic funds provided by ExxonMobil, our chief donor for this project. Those funds covered start-up costs related to partner selection, promotion, and training. In a traditional business model, we would have needed to factor all of those costs into the final price, but philanthropic subsidies allowed us to absorb them and to set a price per unit that would support a sustainable distribution mechanism. Over time, according to our model, economies of scale in the more mature parts of the technology adoption cycle will make those subsidies unnecessary.
From Saleswomen to Businesswomen
Subsidies were only one part of the Bojonegoro story. Farabi, for example, offered support and guidance to the women’s groups through weekly phone calls and regular house calls. And the results were inspiring: In a relatively short period, the women sold enough cookstoves and water purifiers to enable them to repay the cost of the products to Kopernik. They were also able to earn a commission without taking on risk or debt, and that income stream has increased their ability to support themselves and their families.
After that initial success, the most motivated women in the project joined the entrepreneurship program that we described earlier. The program featured workshops, monthly feedback sessions on the women’s demonstration skills and product knowledge, and presentations from guest speakers—including a representative from Nazava, maker of the water filter that the women sell, and the founder of the Association of Indonesian Women Cooperatives.
Next, a group of women from the project came together to set up a business cooperative— the first of its kind in the region. Today, the cooperative has more than 50 members. Their core activity involves selling water filters, which they purchase for $14 and sell for $19 in cash (or $21 in three installments). The women have sold water filters to buyers in more than 20 villages throughout Bojonegoro. As a consequence, people in the region have greatly expanded their access to safe, clean drinking water. One key factor in the success of these tech agents is that, as technology users themselves, they appreciate the need to follow up with customers by answering questions and resolving technical issues.
More recently, the cooperative has expanded its services to include microlending. Members can access microloans through a scheme that involves a small down payment, a 10-month repayment plan, and a monthly fee that goes to the cooperative. The repayment rate has been very high, thanks in part to the strong foundation of social capital that exists among cooperative members. Women in the cooperative, inspired by their early successes, are now seeking extra capital to expand both the microloan program and the technology offering.
The cooperative is becoming well known both locally and elsewhere in Indonesia. The government in Bojonegoro often invites members to represent the community at public events. Meanwhile, the distribution model used by the cooperative has expanded to other parts of the country, including the provinces of East and West Nusa Tenggara. In West Nusa Tenggara, the star tech agent in the Bojonegoro cooperative came to a local training session to share her experiences and sales tips with aspiring entrepreneurs. Participants in the session rated her contribution as the most valuable part of the training.
What has made this story possible is an emphasis on carefully blending social impact and financial sustainability. With philanthropic support, we were able to make technology products available at prices that balance affordability (for the very poor) with profitability (for our tech agents). Later, the use of subsidies becomes less and less necessary. This approach, in contrast to other forms of investing, reduces the pressure on a fledgling business to generate an immediate financial return. Instead, it focuses on establishing a model that is sustainable in the long term.
The ultimate goal of the Kopernik approach is to create a win-win-win-win situation: People in remote communities gain access to life-changing technologies. Tech agents earn small but consistent revenues. Kopernik reinvests the funds that it recoups from tech agents (often in the same community where the tech agents live). And donors witness the direct and enduring social impact of their grant.
Read more stories by Tomohiro Hamakawa, Toshihiro Nakamura & Ewa Wojkowska.