Thursday, 15 September 2011

Why Sanitation Should be Envious of Funeral Parlours – the Challenge of the ‘Missing Middle’ ...

by David Schaub-Jones

Last week’s post suggested that a lot of the buzz around sanitation right now is linked to issue of sanitation entrepreneurs (itself partly due to the craze for all things labelled ‘social entrepreneur’).  But it also asked how many of those businesses involved in sanitation in developing countries could truly be considered entrepreneurs?  All of which set me to thinking about the ‘missing middle’ ....

The ‘missing middle’

A session on small-scale finance at Stockholm first introduced me to the concept of the ‘missing middle’. What was meant by this is that there is a dearth of meso-finance (between $5000 and $500 000) available to the water and sanitation sector – i.e. medium sized amounts of money.

So if you need more than a small microfinance loans, but less than a large government, donor or commercial loan or grants then you struggle. (Click the link for a slide on this).

I suspect that this situation is even more pronounced for sanitation, with very few making this sort of money accessible to sanitation providers.
For sanitation, this led me to also question how many sanitation businesses are of the medium-size anyway – and would be looking for this money to begin with? 
In other words – how many are medium-sized ‘entrepreneurs’ and how many are really just small, one or two person businesses that won’t ever grow beyond that?

How important is the broker?

The other ‘missing middle’ for me was not about finance per se, but about the important brokering role that must take place if sanitation entrepreneurship is to ever really take off at the scale many of us hope for.

The problem is not that the sanitation business lacks glamour (a situation that has hardly slowed the growth of funeral parlours or pest eradicators). The problem is that the sanitation business lacks predictability, simplicity and rigour (at least in the eyes of bankers, small business consultants and others we are hoping take more of an interest).

To take this metaphor further - you don’t need to explain to a bank what a funeral parlour does. The business is easily understood and financial projections simple to apply. For now, this level of comforting familiarity eludes the sanitation sector.

We’re not yet where we need to be – i.e. boring and predictable.

So while the "Sanitation, everyone's Business" tune (last week’s hit single) may be zooming up the charts, there remains a need for people and organisations to act as a broker.  In developing country contexts, they help overcome the challenge of the ‘missing middle’ by extending one arm to the legion of private businesses active in sanitation and the other to the donors, bankers, venture capitalists and others that are keen to bring their finance and expertise to bear.
Let us worry later about whether people are looking to make money out of the ‘bottom of the pyramid’, to reach the poorest of the poor, or both.  First let us make the sanitation business boring, predictable and ‘simple’!
BPD, along with other pioneers, is trying to fill this ‘missing middle’. The role of broker, facilitator and mentor is hard and sometimes thankless work. But hopefully it will be worth it in the end.

After all, wouldn’t “Sanitation, everyone’s Business” be so much more satisfying as a platinum-selling album than a one-off chart topper?!

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