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5.1 Case Study 1: Enterprise solutions to poverty

Guest post by: Shell Foundation

Article Overview: Sustainable solutions to Indoor Air Pollution: the biggest killer you’ve never heard of

5.1 Case Study 1: Enterprise solutions to poverty

Key features of the Indoor Air Pollution case study
Breathing Space is the Shell Foundation’s
programme for tackling Indoor Air Pollution (IAP)
caused by smoke emitted from indoor cooking
with biomass. Acute respiratory diseases linked to
IAP kill about 1.6 million women and children
every year in developing countries while hundreds
of millions more suffer debilitating disease.

Historically, aid-funded efforts to tackle this
problem have had very little success.

Breathing Space is aiming to identify, test and then
diffuse on a very large scale, ‘market-based’
mechanisms for getting killer smoke out of the
‘kitchens’ of poor households.

Supply and demand-side interventions based on
business and market principles are being piloted in
8 developing countries. To date 200,000
households have been removed from risk – a
figure that will rise to more than a million by the
end of the pilot phase.

This is encouraging but trivial compared to the
size of the problem. More significantly a number
of the interventions tested are robust enough to
take ‘to scale.’ So next stage scale-ups underway
in India and Guatemala, based on financially
viable business models, are targeting three million
households.

By 2008, using our own resources as investment
capital and smart subsidies, the target is to get 10
million households out of risk. In parallel,
exploration is underway into the feasibility of
securing strategic partnerships and setting up
financially viable intervention mechanisms at the
international and national level to reach the
additional hundreds of millions of poor
households who will otherwise continue to suffer
from this ‘killer in the kitchen’.


The common consensus is that at the beginning of
the 21st century, more than 2 billion people are
still relying on traditional fuels for cooking and
heating. This translates into hundreds of millions of
very poor households cooking family meals indoors
on smoky stoves and open fires using ‘traditional’
fuels such as firewood, crop residues and animal
dung. The smoke and fumes emitted (known
colloquially as Indoor Air Pollution) contain
pollutants and particulates that when inhaled can
cause deadly and debilitating diseases such as
pneumonia and chronic obstructive lung disease.

In October 2004, the World Health Organization
(WHO) and the United Nations Development
Programme (UNDP) labelled Indoor Air Pollution
(IAP) the ‘Killer in Kitchen’ because it’s responsible
for 1.6 million deaths each year – largely woman
and young children – and blights the lives of
millions more. This makes little-known IAP the
fourth largest health threat to these groups after
water-borne diseases, malnutrition and
HIV/AIDS. IAP is also part of a well-known
poverty chain (the poor, not able to afford cleaner,
commercial fuels, must spend many hard hours
collecting ‘free’ biomass fuel) whose direct and
indirect costs are enormous.

The Shell Foundation approach

For these reasons and because IAP is the most
serious energy and poverty-related health problem,
the Shell Foundation has committed $10m to
tackle IAP through its Household Energy and
Health Programme (HEH) which we have
branded Breathing Space. The most important
feature of Breathing Space is not the money,
however, but our approach to tackling IAP. This is
basically to identify, test and then, ideally, cause to
be diffused on a very large scale, ‘market-based’
mechanisms for getting killer smoke out of very
large numbers of very poor people’s kitchens.

We adopted this approach for three reasons. First,
distorting regulations, health and safety concerns
and geography have inhibited commercial suppliers
of cleaner fuels from entering a market segment it
perceived anyway as having no money to spend.

Second, for a variety of largely ‘silo-mentality’
reasons, IAP as an issue, despite its significance, has
failed to attract much donor funding compared to
other poverty/health/environmental problems.37

Finally and most germane, the interventions that
did get donor funding have not made real inroads
into the problem on a significant scale. This is
partly because of limited funding but largely we
believe because the ‘solutions’ offered were basically
subsidised, technical fixes (mostly ‘cleaner’ stoves)
that were often designed elsewhere and bore little
relation to what the ‘market’ (millions of poor
households) wanted and could afford or to what
overcoming the IAP problem required.

In our language, very little business thinking
appears to have been applied to tackling the IAP
problem by either the donor or the project
deliverers. In our view, this resulted in most IDC
IAP interventions being neither financially viable
nor scaleable. Thus they usually made little sustainable
headway in eradicating the IAP problem.

A new customer value-proposition

The new generation of stoves designed to effectively
reduce emissions are significantly more expensive
than the lower-cost ‘efficiency stoves’, increasing the
barriers to access for poorer customers. In some cases
these improved biomass stoves are more expensive
than liquid petroleum gas (LPG) stoves. But LPG
as a fuel is often not available in rural areas. The
combined effect of these product limitations and
the low availability of desired alternatives is that
there is often a very poor customer-value proposition
for IAP reducing stoves and fuels. Consequently,
demand is low and marketing costs are high.

Against this backdrop, we reasoned that by successfully
demonstrating there might be at least partially
market-based approaches to tackling IAP, we might
be able to break the vicious cycle of ineffective
IDC interventions by better understanding and
tackling the market barriers. This in turn might
provide the impetus to attract sufficient donor
and/or private sector interest to tackle an avoidable
poverty problem that has probably caused 40
million unnecessary deaths over the last 20 years.

New partners and usual suspects

We kicked the whole process off via stakeholder
consultation and a typical donor ‘Request for
Proposals’ (RFP), asking for proposals for potentially
commercialisable and scaleable ways of tackling
IAP. The RFP attracted about 140 proposals,
primarily from NGOs, of which most addressed the
IAP issue but failed to understand what we meant
by commercialisable or scalable solutions to IAP.

Nevertheless, we did find some very good NGO
partners who could talk, and were willing to walk
with us, a route to commercialising solutions to
IAP. So we set up pilots in a number of countries40
to explore systematically different market-related
IAP ‘solutions’ including the development and sale
of cleaner stoves, cleaner fuels, use of consumer
finance on a micro-credit model, education via
sophisticated marketing strategies, reducing costs
through mass production and distribution and so on.

Key actions for the pilot phase

Through these, we have sought, with our partners, to:

a. assess whether among our target ‘market’ – rural
households suffering from IAP – whether there
was an interest, willingness and ability to ‘pay’
for IAP solutions;

b. verify the effectiveness of the interventions: do
the improved products really reduce IAP
exposure;

c. assess whether there was some form of business,
financing and distribution ‘model’ or value
chain that could produce and market
appropriate and affordable IAP products to very
poor households.

In parallel, we carried out a systematic review of the
only two large-scale household energy programmes
in the world: the National Improved Chulha
Programme in India and the National Improved
Stove Programme in China. Lessons from these
two programmes have been extremely valuable in
developing our own approach. In both cases the
programmes were highly subsidised and had mixed
results in reducing IAP. The China programme is
largely deemed a success and has led to the
establishment of a thriving stove market as well as
some excellent technical innovation. The Shell
Foundation review was the first of the programme
since the 1980s and has brought the China
experience to the attention of the international
community. Neither programme is being
continued by the national government in question.

More than money

In addition to providing financial resources to the
pilots, the Breathing Space programme has three
features:

the provision to partners of significant technical
and business assistance through intensive handson
engagement by Foundation staff, local Shell
staff and finance and business consultants;
complementary activities (separately funded)
designed to answer key developmental and
commercialisation questions thrown up by the
pilots and especially by our ‘going-to-scale’
aspirations. These include development of a
standardised monitoring methodology to
measure the effectiveness of interventions, whether the product offering meets customer
needs and if there is a significant reduction in
IAP. A set of tools is also being developed for
market research, demand assessment, supply
chain development and sustainable financing;
In parallel, a second set of tools is being
developed for market research, demand
assessment, supply-chain development and
sustainable financing.

Lessons learned

Once the pilot phase is completed by the end of
2005 at a total cost of US$7 million, it will have
catalysed the market-based diffusion of smokereducing
products to poor households and
removed over one million at-risk individuals from
the perils of IAP. This is the first systematic IAP
intervention ever mounted though it is still limited
compared with the scale of the problem.

We’ve also learned along the way the value of and
how to introduce business DNA into a development
project context and how to help NGOs adapt their
skills and ways of working. This is essential to
meeting the rigorous demands of developing
financially viable ways of tackling a classic poverty
challenge.

This has not been an easy task because the nonmonetised
nature of the biomass fuel market, high
distribution costs in rural areas, differences in tastes
and diets, and the nature of the product offering
means that the most effective business models are
often decentralised, bundling together a network of
dozens and even hundreds of micro-enterprises.

The most successful pilots have combined
centralised component production, quality control
and supply-chain management with decentralised
installation and assembly of products, linked to a
network of social service providers (such as NGOs)
which provide the link to communities, social
marketing and awareness raising.

Successful models include both direct cash sales to
customers and sales to NGOs or public
institutions, which distribute the products through
their own social programmes with various
combinations of subsidies, micro-credit or in-kind
payments. The key factor is maintaining the
commercial integrity of the supply chain and keeping
it separate from whatever facilitation process is
used to get the product to the end customer.

Other advantages of this combined ‘public-private’
model is that the NGOs or public institutions can
provide some of the ongoing training on stove
maintenance and inspect installed products. Links
to micro-finance institutions and other financing
mechanisms such as revolving funds that provide
both enterprise financing to businesses in the supply
chain, and consumer finance to end customers,
provide an avenue for market growth and scale up.

Most importantly, the pilots have demonstrated
there may be viable business models, supply chains
and consumer financing mechanisms that could be
brought to bear on the IAP problem on a large
scale.

This has given us the confidence to take the next
steps in our ‘going-to-scale’ journey. In Guatemala
alone, for example, this means all involved moving
out of the comfort zone of managing a typical,
subsidised, low-risk (to the implementers and
funders) poverty project with a target population
of 5,000, to planning and implementing a selffinancing
market entry and distribution strategy to
get IAP interventions sold into a significant
percentage of the 600,000 at-risk and very poor
households. Meanwhile, in one state in India, the
scale-up approach will reach over three million
people, from a pilot level of 100,000.

Related Articles
  6.0 Propositions and conclusion: Enterprise solutions to poverty
  6.3 Come Together: Enterprise solutions to poverty
  2.0 Introduction: Enterprise solutions to poverty
  1.15 Building an employment agenda: Working Out of Poverty
  1.9 Building local development through cooperatives: Working Out of Poverty

Article Tags: Breathing Space, Breathing Space, IAP, IAP, Indoor Air Pollution, Indoor Air Pollution, poor households, Shell Foundation, Shell Foundation, United Nations Development Programme UNDP



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