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Innovative business models for the poor

By Jacqueline Novogratz

26 February 2009

Visit The McKinsey Quarterly for a video interview with Jacqueline Novogratz and an excerpt from her new book: The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World.

Beatrice Nguga, a wide-shouldered woman with a firm handshake and warm eyes, raised eight kids as a single mother in Kibera, a Nairobi slum that is home to more than a million people. In the 1990s, she buried each of her children—and their spouses. All had died of AIDS, leaving her to raise 12 grandchildren. She had no job and few prospects. “At one point,” she said, “I was so desperate, and the world felt so dark, that I could think of nothing but to beg for some money so that I could buy porridge and poison and end the suffering of myself and all of those children.”

When I met her, in December 2006, Ms. Nguga was overseeing the management of several businesses. She started by selling French fries. She then sold water in the slums. She added rooms to her house with the intention of renting them and started a butcher shop, a hair salon, and a restaurant, employing scores of people. Her youngest grandchildren were in school, and a number of the older ones had graduated from college. Today, she has 11 employees and 21 rooms, most of which she rents for income. She has reached this position by taking small loans from a community organization called Jamii Bora, repaying them in a timely manner, and borrowing again. Beatrice Nguga is a woman of integrity, strength, fierce determination, and faith in life.

Hers is a great success story, but what would have happened to her grandchildren if she too had fallen ill or died? In this sense, her story illustrates a larger theme: one of the greatest challenges in escaping poverty is inadequate health care. The resources, the technologies, and the knowledge to provide adequate medical services to everyone do exist. What we don’t have are innovative and efficient business models to deliver them.

It was to solve problems of this kind that I founded Acumen Fund, a nonprofit venture capital firm for the poor, in 2001. The fund, which invests philanthropic capital raised from more than 200 partners, starts from the perspective of people as users or consumers of services. We also believe that health systems must be economically sustainable and scalable, for only then will they reach the poor and the very poor. We invest in social enterprises experimenting with sustainable approaches to the delivery of health care and clean water, because we believe that integrating the creativity of poor people and the entrepreneurs who serve them is the most efficient way to find some of these solutions.

Solving endemic health problems will require a mix of public and private resources, market incentives, and large-scale public awareness campaigns. For conditions such as malaria, HIV/AIDS, and tuberculosis, the market gives the major drug companies few incentives to research treatments for low-income people. Fortunately, the Bill & Melinda Gates Foundation has pioneered ways of intervening to ensure that this critical research is undertaken. Large-scale vaccination campaigns, like those that eradicated smallpox and are now on the way to wiping out polio, also play an important role in improving health on a global scale.

Innovative business models are essential if we are going to offer good, affordable health services to the world’s poor. My background as a banker has convinced me that to deliver social goods such as health care and clean water, getting the economics right is no less important than it is in any other kind of investment. At Acumen Fund, we buy equity in companies that we evaluate as offering such solutions. Any returns are reinvested in the portfolio.

Let me give you an example. India has one of the world’s highest rates of maternal death in childbirth, accounting for a quarter of the worldwide total. Acumen Fund became a joint venture partner with the public-sector company Hindustan Latex to create LifeSpring Hospital. This network of maternity and child health care hospitals provides high-quality, low-cost maternal services with clear and transparent pricing. At LifeSpring, expectant mothers pay 1,500 rupees ($35) to have a baby delivered. That is more than the official rate at public hospitals, which are supposed to be free though they often require undisclosed payments, but only about a sixth of the price at a private clinic.

This business model works because of the organization’s relentless focus on customers, not patients—pregnancy is not a disease. The simple rooms are clean, bright, and pleasant. Standardization allows the network’s facilities to average eight times as many procedures as private clinics do. This increase in traffic allows LifeSpring to use doctors more efficiently, so the network’s medical cost per patient is just a quarter of what a private hospital spends. LifeSpring’s innovation was figuring out how to deliver world-class care—it is ISO 9001 certified—at a price that many of the poor can afford and that also makes economic sense.

LifeSpring’s goal is to increase the number of hospital-supervised deliveries and to reduce maternal and child mortality. The organization plans to establish 30 hospitals across India over the next three years and will then evaluate a franchise model in hopes of scaling up rapidly to 150 hospitals over the next two. Each facility, with 20 to 25 beds and the capacity to serve 20,000 low-income patients a year, will provide comprehensive obstetric and pediatric care, as well as ambulance, pharmacy, and laboratory services. The hospital network has already served more than 25,000 low-income patients, mostly from families working in the informal sector.

Does LifeSpring serve the poorest? That’s an excellent question; for people making $2 a day, the 1,500 rupee cost is more than two weeks’ earnings, which can be a difficult sum to save. The company is evaluating how to extend its services to those who cannot afford even its modest charges.

By identifying business models that work for at least a large percentage of the population, Acumen Fund hopes to help lead the way in using private innovation to solve large-scale public-health problems. The fund’s $20 million health portfolio also includes A to Z Textile Mills, Africa’s largest insecticide-treated antimalarial bed net supplier, which produces 16 million nets a year and employs 6,000 women; Dial 1298 ambulances, Mumbai’s leading ambulance provider, with a service-for-all pricing model that gives free or reduced-cost rides to the poor; and First Microinsurance Agency (a partnership with the Aga Khan Agency for Microfinance), which aims to provide health insurance to 500,000 customers in its initial two years of operation as Pakistan’s first health microinsurance provider.

We are confident that this laboratory of investments will uncover innovative service delivery models that can be scaled up further through private, semiprivate, or public investment. The goal is expansive but not impossible—to show the world a whole new world of possibilities.

Comment [21]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

It communicates important entrepreneurial management practices, such as how your venture will mitigate risk, and how your venture will manage uncertainty. Most importantly, new business venturing is now about focusing on creating sustainable value.

Posted 10 February 2010, 01:31 by jimmy
The idea of intoducing/enabling new technologies in health care must address the latest developments in Nanomedicine as evolutionary/revolutionary in health care must be adressed in India.The governance does not adress these issuues in the Insitutes and there is scope for cheaper and effordable technolofies includind family welfarw commodities.The Family planning is indirectly reduces the maternal and child health.Hence there is need to colloborate among all professionals in India.

Posted 5 June 2009, 00:09 by Dr.S.Mokkapati
Our Innovative Business Model to Eliminate Poverty is via Elevating the Mother in the Family to the level of a Total Quality Education and Health Provider for the family to assure that one child acquires World Class Higher Education in Business via TQLMA Collective Wisdom.

Posted 16 May 2009, 07:39 by Mufaddal Mirza
I really appreciate your commitment and the business model. But I have different opinion about the model.

I strongly believe that people should be empowered to make decision on their own health and wellbeing. Any business model should respect people’s view and provide opportunities and options.

Health care is the mandate of the Government and people should have access to quality health care, which is easily accessible and without any cost. It’s government duty to provide free health services. Any attempt to provide alternatives to government would only benefit those people who have paying capacity – usually poor do not have and are excluded from those services. Creating alternative service delivery systems only demobilises or discourages government efforts.

I admit that there are many loopholes in government run services and probably that’s the reason why there are so many private initiatives in the market. Government services need improvement and the role of private service providers should be to support government initiatives and empower people to demand for quality care. As rightly the article denotes “ those who visit the hospital or clinic are people not patient”, and “pregnancy is not a disease” on the same note I would like to say “health is a right and is a public good” – people should not be charged to avail services and no one should be encouraged to make money out of this.

Posted 14 May 2009, 05:58 by Jitendra Panda
The business model for the poor described by Novogratz in this article is very interesting. I do agree with you that the most important savior of Beatrice Nguga is the small credit, as was also practiced by Muhammad Yunus in Bangladesh. It is accessibility to loans that helped Beatrice changed her life and raised her grandchildren.
After all, many scientists recognized the relation between public health and economic productivity of the population. During my tenure as leader in a pharmaceutical company in Jakarta, we celebrated our anniversary by the provision of free health checks and free medication in many areas in West Java, amongst others in Jampang Kulon, which is only 60 km away from the next urban city Sukabumi. Patients needing prescriptions would need to travel 3 hours to come to the city and buy the medicines, as pharmacies are not available in their surrounding. This is a typical problem in accessibility of medicines.
I do not have experiences in business models for the poor, but I do think that the above principles of accessibility can add to success in health-care in Indonesia. It would be great, if universities in Melbourne would allow me to research the possibilities of increasing the accessibility of primary care and medicines plus health education of the population in the poorest parts of Indonesia – far away from the sparkling events in a city – to improve their quality of life. Health education of two scientists in the field can lead to a healthier lifestyle with more affordable cost for management a healthy population. This education system should go hand-in-hand with other governmental projects. The system in the country in terms of availability of medicines at affordable prices is at hand, it is the accessibility of health care that is missing in these rural areas. The reach of health insurance is low and reserved to government employees (Askes/ Askeskin).
As pharmacist my way of thinking is different than you as a banker with monetary themes in the foreground. I wanted to research a model for the poor with a unit consisting of only one medical doctor and one pharmacist serving for a population of around 100,000 inhabitants, cooperating together with the available system of Puskesmas (Indonesian Health Centre), Clinics, and Pharmacies in their environment. Relationship of the medical doctor and the pharmacist to serve the patient through an information system is less researched and the accessibility to health care in Indonesia would strengthen our economy in the long run.
The key is to find out economic ways and means to improve health care by accessibility and to increase level of education for a healthier life in places far away from the city to raise economic output of the population. For further planning, regional as well as national disease pattern as statistics provided by the information system will allow better planning of health care incl. the provision of early warning systems in the country for pandemics as may be the case with H1N1. This tetradic relationship between the medical, pharmaceutical, and information system will increase the value chain of the patients’ disease and provide a nomination of quality to health care. My guess is that after six months such unit will be self-surviving and would need no further support, except for central management for logistics and further training of the personnel. There is a need for starting capital to develop a self financially sustaining and affordable project like this to teach the population to take care of them selves. How can we get the starting capital to try out whether this thinking is worthwhile to introduce with 10 units as a start to come to the above ratio of one unit for 100,000 population?

Posted 6 May 2009, 20:44 by Richard Husada
HLL the creators of LifeSpring have worked with contraceptives consumables and the likes before they diversified into healthcare delivery (Ob&Gy and Pediatric care). Now their business model has to be complimented for its innovation. Anyone living in India could vouch for the fact that nursing homes and maternity clinics are, in number, the largest medical establishments present in India today. Every corner in India has one. Definitely its not all evenly spaced. Urban and semi-urban establishments have more density of such establishments where as rural has few. All of these are business establishments, differentiated only by the type of service provided and do service all strata of the society.

Life Spring hospital has set standards for these nursing homes. Life Spring’s business model is an inspiration, which will guide many more to follow suite. The key take away message here is to innovate. To cut cost, earn higher revenues and in the process give more to the society.

For the propagators of rural deficit in healthcare this business model also holds promise. For, the government could adopt the same and strengthen its already large chain of primary health centers. All because of the simplicity and sustainability of the model.

Posted 2 April 2009, 03:33 by Neelam Kachhap / healthcare journalist
I agree with the author’s premise that solving many of our healthcare issues, especially those related to serving the poor, involve using private innovation.

An example I was involved with here in the U.S. serves as a great example of how we can significantly expand healthcare coverage at a lower cost. Unfortunately, politics and a lack of courage prevented it from being launched. Somewhat secretly about twelve years ago, the government met with a large health insurer and a very large hospital chain in which I was an executive with for the purpose of designing a program and entering into an arrangement not just with those attending, but also other hospital systems, to close the VA hospitals.

What all those attending including the government recognized was that there was no need to maintain the VA hospitals. There was plenty of availability throughout non-VA hospitals. The veterans could be treated as well or better at private and public hospitals throughout the country. The key issue to the government was to ensure coverage and outstanding care, and that could easily be accomplished with a reasonable insurance plan. The government already had that and still does. It’s Champus.

My point is such an innovation can be applied today. We have three major insurance plans today with relatively effective payment bureaucracies that are government-controlled: Medicare, Medicaid, and Champus. One far-fetched idea is to consolidate those three. The savings could be used to expand coverage to the poor.

Other ideas that would result in even more savings, such as electronic medical records, other improvements in technology, mandated-group purchasing, standardization, etc., would result in more savings. Allowing more competition to these government-controlled plans from the private sector in the provision of insurance is controversial, but could result in a further reduction of costs.

The key is to have an effective and efficient insurance plan or plans that have reasonable payment plans. That ensures their customers (enrollees) have coverage and care. The second key is to allow those plans to implement sound business principles to reduce costs. Examples would be group purchasing discounts, standardization, and improved technology.

Posted 26 March 2009, 12:55 by Jay Jarrell
The reading is interesting but as with any article of this nature the take away can be different depending on what you want to.There is no ignoring the fact that ‘health care’ as a word offers different meaning depending on the backdrop.There is a huge difference between ‘health care’ and ‘medical care’.When we talk ‘health care’ …we care for health. This is totally preventive or say prophylactic in nature which to be successful will require tremendous effort in creating awareness through education and if carried out faithfully could result in minimizing the later….‘medical care’which again requires more of technical awareness. The first if taken care should cut down on the later. Hence education particularly for a country like India at the bottom of the pyramid is a must do!

Posted 14 March 2009, 08:41 by Prof N.Chandrasekhar
What I find unfortunate about the debate and the commentary is the ethereal level of focus. Healthcare to me is about service delivery models that has primary quality drivers that impact the citizen/patient, that is supported systemically by drivers like cost, supply, epidemiology, capacity and capability. The protracted emphasis on access and affordablity is cliched to the extent that those that can get to service delivery points and can pay a proportion of a fee are mostly getting short-changed. It begs the question – are we doing enough with what we have or do we throw our hands in air because we argue that we are not getting enough to serve all? Lastly the largely functional approaches to healthcare, due to what’s dished out from medical schools, nursing colleges etc. devoid of focussing of developing key life skills in healthcare practitioner is the really cause why we seem to be running faster and faster on the same spot.

Posted 13 March 2009, 04:52 by Dr Ashwin C. Hurribunce
Yes we do need business models that work for the poor and healthcare offers many opportunities for the same but unfortunately most of the efforts are being directed towards curative services there is a need to lay more emphasis on promoting health by investing in determinants like supply of clean drinking water and sanitation and food security. Today there is an urgent need to have cost effective technologies for managing waste in the cities ( recent outbreak of hepatitis in Modasa , Gujarat) and for providing potable drinking water to the people of the country. Stringent laws with strict enforcement for tackling the menace of littering and spitting in public places and tackling pollution of our rivers. We urgently need business models for these to begin with. The current recession provides an opportunity to the government to look at the avenues suggested for both public and private investment. The fact is that the markets always exist but we chose to manufacture cars , ACs and aircrafts( all activities responsible for creating stress on the environment) rather than clean water, sanitation and food ( activities that preserve environment) the mantra lies in creating labour intensive and green models the only limiting factor of course being time as we seem to be running out of it.

Posted 13 March 2009, 02:24 by mimisuper