TEAM Alexander Hazen Amara Haba Lorenzo Casalini Mie Hvas Sabine Siller
CEMS 2104 BUSINESS PROJECT ON SUSTAINABLE TRANSPORTATION IN AFRICA
SUPERVISORS CORPORATE SUPERVISOR: Gilbert Pooley
SUPERVISING PROFESSOR: Alberto Dell’Acqua UNIVERSITY SUPERVISOR: Edoardo Ambrosi
“Matatus are possibly the most important social space in Africa, its where all aspects of a society meet…”
Business Project 28/05/2014
“It would be every matatu driver’s dream to join the company!” (James, Nairobi) -‐ has been a matatu driver for 14 years
Why now? • Rapid urbaniza4on is exer]ng pressure on
public transporta]on across Africa • Minibuses are vital -‐ for many Africans they
are the only mode of transport available • Safety is a main concern in an industry
plagued by fatal accidents • Local authori]es in these markets are
looking for solu]ons to the increasing transporta]on challenge where demand exceeds supply
With Hakuna Matatu we aim to improve the safety, comfort, and profitability of African public transport by providing affordable loans to taxi drivers in order for them to buy their own new minibus vehicles
EXECUTIVE SUMMARY
“Hakuna Matatu cuts out the owner and empowers the driver”
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
1. ISSUE 2. HAKUNA MATATU SOLUTION
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
1. ISSUE 2. HAKUNA MATATU SOLUTION
Business Project 28/05/2014
“The African Region possesses only 2% of the world’s vehicles but contributes 16% to the global deaths…and the matatu industry trains criminals…the majority are not qualified drivers and have bad habits…”
(Global Status Report on Road Safety, WHO, 2013) (James, matatu driver in Nairobi))
Business Project 28/05/2014
Taxi Owner
Driver
Daily re
nt
Mini-‐van
Simple rent
No guarantees and no independence
ISSUES: 1) Lack of safety and comfort for passengers 2) High rents for old vans which need a lot maintenance and are unsafe 3) No job security: no chance for drivers to own a van due to lack of access to capital 4) No protec4on from owners towards corrup]on 5) Irresponsible behavior to increase daily revenues 6) Drivers work incredibly long hours but earn just enough to maintain their family 7) Bad fame of drivers (sex, drugs and alcohol)
Notwithstanding the problems, it is s]ll a very appealing business: -‐ One of the few businesses which provides immediate cash at the end of the day -‐ No need for sophis]cated qualifica]ons -‐ Strong commitment of the majority of the drivers -‐ Examples of innova]ons in the sector (e.g. Wi-‐Fi on bus, geo-‐localized ads, mobile payments) -‐ Passengers desire safer more reliable service
ISSUE: The exis4ng business structure is based on an informal sector, characterized by obsolete vehicles, no job security and thin profits for drivers
Driver rents the minivan on a daily basis and reckless driving habits, adopted to maximize daily revenue, are at the basis of extremely low safety in the industry.
Business Project 28/05/2014
Owner
% Ad revenu
e share
Daily M
obile
repaym
ent
Adver4sers Ad revenues
Ad slots
Driver
Banks and Capital providers
Company
$ $
Training and
supp
ort
MINI-‐V
AN
Taxi ownership
Independent entrepreneur
Business model; essen]al compe]]ve advantages: 1) SAFETY AND COMFORT: newer vehicles, with longer lifespan, less pollu]ng, more reliable (à higher fares) 2) MOBILE REPAYMENTS: daily repayment of the vehicle trough mobile-‐phone to overcome need for bank account 3) ENTREPRENEURS: elimina]on of “owners” from value chain to make local drivers independent entrepreneurs 4) ADDITIONAL REVENUE: streams from adver]sing, both outside and inside the vehicle, and from radio 5) SOLIDARITY: drivers are gathered in groups of 5 and they are all responsible for each other’s repayment
“Matatu drivers have the bad reputaSon of causing accidents and many drive under the influence of drinks or drugs” (James, Nairobi)
“We are lucky that its God judging us,
otherwise we would be the most cursed human beings on earth” (James,
Nairobi)
SOLUTION: Disrup4ve business model that eliminates one step from the value chain and empowers local drivers, provides them with safer vehicles, new revenue streams and mobile repayment of the minivan
Business Project 28/05/2014
PROBLEMS IMPROVEMENTS
q Highest road fatality rates of all the world in Africa and the region lacks laws and enforcement
q Low safety: obsolete vehicles result in higher opera]ng
costs and danger
q Reckless driving to maximize daily revenues so to cover daily rent
q Most profits appropriated by owners q High job insecurity q No access to credit to finance own venture
q No educa4on
q Lack of entrepreneurial mindset
q Newer vehicles to increase safety and comfort and lower
opera]ng costs q Educa4on to instruct drivers about loan repayment and
implica]ons and to ensure safe driving styles q Elimina4on of owners from the value chain q Addi4onal revenue streams via adver]sements q Entrepreneurial a]tude – possibility to own the vehicle q Access to finance via daily reimbursement + group liability q Mobile repayments for increased security + ability to track
payments
EMPLOYEEE ENTREPRENEUR
DANGER SAFETY AND COMFORT
“We are the backbone of Kenya’s black market…” (James, Nairobi)
IMPROVEMENTS SPILL-‐OVER: The transforma]on of drivers from underpaid employees to entrepreneurs addresses current problems in the industry, improves the service and ensures more safety for passengers
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
1. MACRO ANALYSIS 2. VOICES FROM AFRICA
Business Project 28/05/2014
Douala
Ibadan
Abidjan
Abuja
Accra
Addis Ababa
Cape Town
Dakar
Dar es Salaam
Douala
Durban
Harare
Ibadan
Johannesburg
Kano
Kinshasa
Khartoum
Lagos
Luanda
Lusaka Mombasa
Nairobi
0,00
0,20
0,40
0,60
0,80
1,00
0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,90 1,00
REPLAC
EMEN
T
GROWTH POTENTIAL
AFRICAN CITY ANALYSIS Abidjan
Abuja
Accra
Addis Ababa Cape Town
Dakar
Dar es Salaam Douala
Durban
Harare
Ibadan
Johannesburg Kano
Kinshasa
Khartoum
Lagos
Luanda
A market analysis of the minibus industry in 20 African lion ci]es shows that 6 hubs are par4cularly a`rac4ve when considered along the dimensions of industry growth poten4al and replacement need
The model is based on a comparison of variables across the different markets: Industry growth poten4al
The model is based on a comparison of variables across the different markets: -‐ Industry growth poten4al: Labor force par]cipa]on, vehicle ownership, popula]on, Popula]on growth CAGR
2010-‐2025, GDP growth CAGR 2010-‐2025, public transport alterna]ves, regula]on -‐ Replacement need: Exis]ng fleet size
Business Project 28/05/2014
NAIROBI ABIDJAN LUANDA DAR ES SALAAM LAGOS KINSHASA
PRICE OF CAR $ 20.900,00 $ 20.900,00 $ 20.900,00 $ 20.900,00 $ 20.900,00 $ 20.900,00 TRANSPORTATION $ 1.500 $ 1.500 $ 1.500 $ 1.200 $ 1.200 $ 1.200 IMPORT TAX $ 13.000 $ 9.000 $ 9.000 $ 10.000 $ 9.000 $ 7.315 CAPEX TOTAL $ 35.000 $ 31.400 $ 31.400 $ 30.700 $ 29.700 $ 29.415
INSURANCE $ 900 $ 1.000 $ 900 $ 800 $ 800 $ 900 ROAD FUND TAX $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 MAINTENACE OF CAR $ 2.000 $ 3.243 $ 1.700 $ 2.500 $ 2.000 $ 2.620 PETROL $ 3.250 $ 3.545 $ 1.334 $ 2.660 $ 1.660 $ 3.792 DRIVER ASSISTANT $ 260 $ 260 $ 260 $ 260 $ 260 $ 260 OPEX TOTAL $ 6.560 $ 8.198 $ 4.344 $ 6.370 $ 4.870 $ 7.722
DEPRECIATION $ 2.127,95 $ 2.127,95 $ 2.127,95 $ 2.127,95 $ 2.127,95 $ 2.127,95
An in-‐depth cost analysis across six most interes]ng ci]es shows that import tax and petrol price are main costs drivers
$35.000,00 $31.400,00 $31.400,00 $30.700,00 $29.700,00 $29.415,00
$6.560,00 $8.198,00 $4.344,00 $6.370,00 $4.870,00 $7.722,00
$-‐ $5.000 $10.000 $15.000 $20.000 $25.000 $30.000 $35.000
NAIROBI ABIDJAN LUANDA DAR ES SALAAM LAGOS KINSHASA
Capex and Opex in 6 African ci4es
CAPEX TOTAL OPEX TOTAL
Business Project 28/05/2014
Popula4on (million)
Popula4on CAGR 2010-‐2025
GDP CAGR 2010-‐2025 City level
Labour par4cipa4on rate
Vehicle ownership
Exis4ng fleet size
Regula4on Public transport alterna4ves
Local insight Recommenda4on: Poten4al as pilot
Lagos 11 3.8% 7% 56% 8% 75.000 moderate moderate
• Fierce compeSSon • Mix of new and old vehicles • Traffic congesSon is a bigger
concern than safety and comfort High
Nairobi 3 3.9% 7% 67% 3.4% 12.000 moderate low
• Intense compeSSon • Old vehicles (10-‐15 years) are
common • Accidents are a major concern
High
Kinshasa 8.5 3.7% 8% 43% 0.5% 1.200 low low
• Minibuses are very important because they are cheaper – people are poor
• CondiSons are very bad • Ge_ng from A to B is the main
concern – not safety and comfort
Medium
Abidjan 4 3.5% 5% 65% 2.4% 5.000 low moderate
• Minibuses are in bad condiSon • There is space for a new
compeStor • Safety is a main issue, comfort
less so as the buses are used for short distances mainly
Medium
Dar Es Salaam 3.5 5.2% 8% 86% 2.2% 8.500 low low
• The rise in populaSon exerts considerable pressure on road infrastructure
• The city is launching the DART project with many new low carbon buses
Low
Luanda 5 4.2% 10% 70% 1.1% 8.000 moderate low
• Minibuses are generally well maintained and safe
• Fares are non-‐negoSable and set in advance
Low
Lagos and Nairobi stand out as poten4al pilots when the markets are compared considering growth and replacement poten]al
Business Project 28/05/2014
NAIROBI LAGOS
PRICE OF CAR $ 20.900,00 $ 20.900,00 TRANSPORTATION $ 1.500 $ 1.200 IMPORT TAX $ 13.000 $ 9.000 CAPEX TOTAL $ 35.000 $ 29.700
INSURANCE $ 900 $ 800 ROAD FUND TAX $ 150 $ 150 MAINTENACE OF CAR $ 2.000 $ 2.000 PETROL $ 3.250 $ 1.660 DRIVER ASSISTANT $ 260 $ 260 OPEX TOTAL $ 6.560 $ 4.870
DEPRECIATION $ 2.127,95 $ 2.127,95
10% 2%
23%
37%
3%
25%
Capex NAIROBI
INSURANCE
ROAD FUND TAX
MAINTENACE OF CAR
PETROL
DRIVER ASSISTANT
DEPRECIATION
11% 2%
29%
24% 4%
30%
Capex LAGOS
INSURANCE
ROAD FUND TAX
MAINTENACE OF CAR
PETROL
DRIVER ASSISTANT
DEPRECIATION
Even if Luanda is financially arrac]ve due to lower taxes and fuel cost, the focus is on Nairobi and Lagos as those ci]es berer respect a wider range of selec]on criteria
Lagos has compe]]ve Capex and Opex costs whereas Nairobi has higher Capex due to high import tax
Nairobi’s new vehicle compe]]veness needs to be further inves]gated in order to ensure profitability
Although Nairobi has significant Capex it is an interes]ng pilot city considering macro analysis results.
Business Project 28/05/2014
Business Project 28/05/2014
“We are mostly concerned about how to beat the traffic and get to where we are going on Sme. We can hear some passengers urging the driver someSmes to pass alternate routes or to pass the road filled with dirt just to arrive on Sme at our desSnaSon. Safety is usually the second or last thing on the minds of most passengers.” (Jesse, Lagos)
“Accident is the worst nightmare for any matatu worker and even the passengers” (James, Nairobi)
“CondiSons are very bad security and comfort are not the priority, going
from point A to B is the main thing.” (Sofia, Kinshasa)
“Nigeria, DRC , Ethiopia, Kenya, South Africa, Tanzania and Uganda, are responsible for 64% of all road deaths in
the region“ (WHO, 2013)
Road deaths per 100.000 popula4on (WHO, 2010)
We address an actual need for safety and reliability to meet the main concerns of ci]zens
Business Project 28/05/2014
“The danfos are very old. Only maybe 10% look like they are not going to break down. 90% are probably plus 20 years old” (Meghan, Lagos)
“Majority are old vehicles between 10 and 15 years. (…) In the current transport market, the average matatu is 8—9 years old. This is not the year of manufacture since most of these vehicles are second hand imported from Dubai and Japan” (James, Nairobi)
“These services are in poor condiKon, with no informaSon on
the driver profile or even employers” (Philippe, Abidjan)
“Safety is important, yes, but comfort is perhaps more important, and traffic congesSon is a big issue. Traffic is so bad it can take 3 hours to go 20 minutes” (Kemi, Lagos)
Across the minibus industry in Africa there is a need for new vehicles and an increase in comfort
Business Project 28/05/2014
”More or less 90% of the populaKon depends on minibuses to get to and from work” (Sofia, Kinshasa)
“For most ciSzens it is the only transport mode available” (James, Nairobi)
“Danfos are important for the low income segment, including young professionals who can’t afford to commute in any other way”
(Meghan, Lagos) "Public transport is a big
headache to me. If I don't wake up early, I find no bus at all to
take me to work” (Tumaini Masawe, Dar es Salaam
Minibuses play a vital part in urban transport with high and constant demand
Business Project 28/05/2014
“A mandatory control backed by the government could help change the poor condiSon of minibuses” (Philippe, Abidjan)
“Empowering the drivers to have full control of the profit and have the responsibility to maintain the vehicles would see many vehicles well driven and beOer maintained as compared to the current state where they have to seek approval from the owner event in cases like sensiSve repair like brakes and excess smoke” (James, Nairobi)
“The main cause (red: of the poor condi]ons) can only be finance. For an investor to upgrade his fleet; he must be making profit. The problem is with most of those who own the 14 seaters. The income is not that big and the maintenance cost is high. Many of the current owners bought the vans amer the law was passed that the government will no longer register cars over 10 years” (James, Nairobi)
An innova4ve financing solu4on can change the industry
Business Project 28/05/2014
-‐ “the matatu industry; with its flexible operaSons and intense compeSSon it omen appears “chaoKc”. Yet it is a system involving very diverse vehicle owners, insurance companies, route associaSons, drivers, touts, route managers, mechanic; And, of course, the users.”
-‐ It is an industry that is most ciSed for
lack of management and no procedures. These include no schedules, fluctuaSng fares, undesignated stops and someSmes routes, compeSSon on the road, formaSon of cartels, poor working condiSons for labour and, on the posiSve side, flexibility and demand responsiveness.” (James, Nairobi)
Nairobi’s taxi industry is chaoKc but flexible
-‐ Kenya is technologically the most advanced countries in Sub-‐Saharan Africa.
-‐ There are several widespread innova4ve products/services that could strengthen our offer:
-‐ Mobile payment is widespread -‐ Innova4ve adver4sement op]ons exist
Complementary services are already established in the Kenyan market
-‐ The majority of matatus are old (10 to 15
years)
-‐ The industry is highly fragmented and largely informal
-‐ Buying a matatu is a substan4al investment many drivers/Kenyans can’t afford.
-‐ The industry is regulated under the Ministry of Transporta4on and Infrastructure, including registra]on, inspec]on and licensing of vehicles, tes]ng of drivers and road safety
Industry is fragmented, informal, and perceived as risky
-‐ For a large part of the urban popula]on it is the only mode of transport
-‐ The local authori4es do not offer a
viable alterna4ve to the matatus -‐ In addi]on to matatus on the private
market there are motorcycle taxies, regular taxis and bicycles
Taxis are vital / “only” public transport
PPP $860 (2012)
Exis]ng Fleet Size
12.000
Size of ac]ve Workforce 2.172.027
Vehicle Ownership %
3,4%
Nairobi is the second largest market with low vehicle ownership
Nairobi is a pilot market due to its size, dependence on mini-‐vans, mature complimentary services and opportuni]es for improvements in safety
Business Project 28/05/2014
-‐ Deteriora4on in the transport system
infrastructure due to bad management of transport infrastructure by Lagos State Government (LASG)
-‐ Public transport in Lagos depends on
private, largely informal, minibus services, taxies and motorcycles
-‐ The number of privately owned vehicles
is rela]vely high, but as a mode of transport is reserved for the wealthy
Taxies are vital for the large low-‐income segment
-‐ Lagos is also fairly technologically advanced in
the Sub-‐Saharan context (e.g Nollywood) -‐ Adver4sement is a normal secondary revenue
stream in the city, on houses etc., and could also strengthen our offer
-‐ Radio taxi services and apps to order taxies
exist
Complementary services and advanced taxi services exist in the market
-‐ The industry is fragmented, 80% of owners own one vehicle and rents out to drivers on daily basis
-‐ Danfos are restricted from opera]ng in
certain areas of the city -‐ The industry is s]ll largely informal,
-‐ Local authori4es inspect vehicles for roadworthiness, but weak ins]tu]onal enforcement. Private sector inspec4on garages and new test for vehicles that are more than 5 years old recently introduced
Industry is fragmented, informal and confined to certain areas of the city
-‐ “Danfos are not well maintained. They are involved in accidents and most do not have spare tyres. Maybe condiKons could be improved if people pay more. I'm not sure. I know that people in some regions of the town will pay more for newer more comfortable cars. But most Smes it is about what is available. If the comfortable cars will be well spread and readily available, taxi users may opt for them.” (Jesse, Lagos)
Lagos’ minibus market is underserved
PPP $1,440 (2012)
Exis]ng Fleet Size
75.000
Size of ac]ve Workforce 5.998.128
Vehicle Ownership %
7,9%
Lagos is the largest market with a huge commuKng workforce
Lagos is a pilot market due to its absolute size, dependence on minibuses and fragmented industry. It is also the city with the highest fatal accident rate in Africa
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION
3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
Business Project 28/05/2014
Owner
Adver4sers
Driver
Banks and Capital
providers
Company
$ $
A focus on the model: from Applica]on to Ownership in eight simple steps – how Hakuna Matatu will eliminate the owner from the value chain and engage him in a learning process
Business Project 28/05/2014
1. Applica4on 2. Screening 3. Grouping 4. Training
5. Vehicle checks 6. Compliance controls
7. Addi4onal benefits
8. Vehicle Ownership
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
1. DRIVERS’ PERSPECTIVE 2. HAKUNA MATATU PERSPECTIVE
Business Project 28/05/2014
Drivers’ perspec]ve
• Entrepreneurial empowerment • Higher profitability • Long term incen4ves
Business Project 28/05/2014
Drivers will go through an easy step-‐by-‐step process with the possibility to become owners already within three years
We empower minibus taxi drivers to invest in themselves, their families and their futures.
• Ini]al mee]ngs with drivers • Presenta]on of value proposi]on
Introduc4on Period 0
• Forma]on of solidarity groups • 3-‐week training on safety, vehicle maintenance, customer service and repayment of loan • Transfer of vehicle to driver
Solidarity grouping Period 1 (1 -‐3 months)
• Daily repayment of loan through mobile platorm (45$/day) • Monthly vehicle checks
Vehicle checks Period 2 (for 3 years) • Minibus taxi drivers
have the chance to get micro-‐loans for their wives, allowing them to start a business and to increase the wealth of the family
Microcredit for wives Period 3 (amer 6 months of successful repayments)
• Complete repayment of loan • Ownership of vehicle is handed over to driver • Driver increases take-‐home income • New services to driver
Ownership Period 4 (from 3 years
onwards)
ENTREPRENEURIAL EMPOWERMENT: Auer the educa]onal process and successful repayment, drivers become owners and benefit from increased revenues, job security and berer planning for the future
"My son goes to school and says, “My dad is a matatu driver” He’s like,
“What? A matatu driver?” It doesn’t give you pride to be a matatu driver.” (James, Nairobi)
“Every Sme somebody finishes
a loan, it can literally become a vehicle out of
poverty” (Michael Wilkerson, Tugende)
Business Project 28/05/2014
Drivers income will increase drama4cally
1. MORE CUSTOMERS AND HIGHER PRICES The new minibus increases safety and comfort, which will arract more customers and allow to charge higher prices 2. LOWER MAINTAINANCE COSTS AND FUEL EFFICIENCY The new minibus reduces the number of breakdowns and thus minimizes lost revenues due to repairs 3. ADDITIONAL REVENUES FROM ADVERTISING With millions of people using minibuses to commute to and from work every day, minibuses present a huge opportunity for brands to engage consumers and adver]se their products, resul]ng in an addi]onal revenue stream for owners
-‐ Outside the bus (bigger brands/partners) -‐ Inside the bus (local entrepreneurs e.g. FlashCast) -‐ Selected radio staSon tuned in for the whole dura]on of shiu
$-‐
$20,00
$40,00
$60,00
$80,00
NIGERIA KENYA
Daily income evolu4on
Old New New auer vehicle repayment
$-‐
$50,00
$100,00
$150,00
old new
$6,16 $17,78
Higher revenue – Lower costs = INCREASED PROFITS
Revenues Running Costs Fee to Owner Income
HIGHER PROFITABILITY: Increased daily income is key for incen]vizing drivers to change current industry organiza]on and adhere to Hakuna Matatu’s proposi]on
Business Project 28/05/2014
✔
X
X
Toyota Hiace is the best fit: high availability of parts at cheap prices and diesel engine are key in minimizing running costs
Nissan NV 350
Tata Winger
Toyota Hiace
€ 20.990 Higher comfort
16 seats New model
Only petrol Few spare parts
2 WD Expensive parts
€ 9.410 Low tech
7 seats Few spare parts
Only diesel Not solid for minibus
2 WD
€ 20.900 4 WD
16 seats Best value for money
Petrol / Diesel Spare parts available and cheap
Business Project 28/05/2014
q Auer repayment we want to avoid misuse of highly increased income; the reinvestment of a por]on will:
ü Reduce risk of misuse ü Result in addi4onal income
ü Help finance other further ventures
-‐50% -‐43%
7%
-‐38%
-‐46%
16%
-‐43%
0%
57%
T0 T1 T2
Daily revenue breakdown: 3 stages evolu4on q Drivers will keep an increasing share of the revenue they make every day:
ü T0: Current situa]on;
drivers pay fee to owner
ü T1: Repayment phase; fee to Hakuna Matatu
ü T2: Vehicle ownership; no more fees
$-‐
$10,00
$20,00
$30,00
$40,00
$50,00
$60,00
$70,00
Old New New auer vehicle repayment
Help Drivers become entrepreneurs by inves]ng in income producing assets
INCENTIVES TO THINK LONG TERM: Over ]me, drivers will get an increasingly bigger share of daily revenues, that combined with assistance for investment opportuni]es aims at co-‐crea]ng value
Business Project 28/05/2014
Company’s perspec]ve
• Lending solu4on between Hakuna Matatu and banks • Lending solu4on between Hakuna Matatu and drivers • Mobile repayment
Business Project 28/05/2014
LENDING SOLUTION: Hakuna Matatu owns the mini-‐vans and has full control over its assets un]l they are fully repaid, giving the company strong bargaining power towards incompliant drivers
HAKUNA MATATU WILL ACT AS A FINANCIAL INTERMEDIARY BETWEEN BANKS AND THE DRIVERS
à It is easier to contract loans à We buy the mini-‐vans and provide them to the drivers, which start to
repay the vehicle from the very first day This makes the company liable for the contracted loans…
BUT
We reduce the default risk since this model ensures full property and control over the asset and the right to confiscate the mini-‐van in case of
non-‐repayment or compliance
Case study 1: Three wheels United vs Hakuna Matatu. How we improved an already successful model
Bank lends money to Hakuna Matatu
Hakuna Matatu buys Hiace from Toyota to sell them back to selected drivers
Drivers leases car from Hakuna Matatu and has to pay daily fix amount
Driver pays 10% upfront of the car to the bank
Bank lends 85 % of the price of the car to driver
TWU provides the remaining 5 % as a loan to the driver
TWU has no control over the driver and the car. Although they provide only 5 %, they have no guaranty in case of default
Hakuna Matatu has a control and power of the cars as they own them. In case of default, the car can be confiscated
“I think your model is beper than ours because you own and have full control over the asset!” (Ramesh Prabhu, CEO TWU)
Business Project 28/05/2014
What happens in case of non-‐payment? Solidarity lending
Prior no]ce of non-‐payment A driver needs to inform us in advance if he won’t be able to make a payment. If drivers let us know about their problem, we can work with them to come up with a solu4on.
Without prior no]ce of non-‐payment If a driver misses a payment without prior no]ce, we will impound the minibus. The driver has one chance to show he is serious about repaying the loan. Auer the payment of the impounding fee, the driver will get back his minibus.
If a drivers misses a second payment without prior no]ce, we will take back the minibus and give it to another driver.
“Seven out of the nine organizaSons we currently work with, use group lending as their primary lending methodology. I think that it is a very effecSve mechanism to counter the lack of quanStaSve (financial) data on borrowers that you can base lending decisions on.” (Cameron Goldie-‐Scot, Musoni)
LENDING SOLUTION: Solidarity lending allows to overcome the lack of a tradi]onal collaterals and results in individual accountability from group pressure, peer monitoring and ul]mately in high loan repayment rates
Solidarity lending levers social capital: • peer pressure • mutual support • healthy culture of repayment. Drivers will be grouped in clusters of 5 individuals. The group structure creates financial incen]ves for drivers to monitor one another. A driver who may otherwise have defaulted on his loan may be induced to pay by pressure from his co-‐members, who would be held responsible for any shortall.
For drivers it is easier to perform the monitoring and join the service through pre-‐exis4ng social rela4ons and local communi]es.
Business Project 28/05/2014
Percentage of mobile phone users that regularly make or receive mobile payments
COMPANY AS INTERMEDIARY BETWEEN BANKS AND
DRIVERS We eliminate the interac4on between drivers and banks
1) Easier to track for company 2) Less cash-‐related risk 3) Drama]c administra4ve costs reduc4on 4) No need for physical proximity 5) We make the business formal
-‐ Daily repayment via SMS
-‐ Specific quan4ty (45$/day) à intui]ve and safer (quan]fied on IMPLICIT interest rate). Drivers don’t save
-‐ One company account which collects all payments
-‐ Mobile payments and smartphone penetra4on on the rise
EASY ACCESS TO VEHICLE REPAYMENT: A mobile payment platorm makes repayments of mini-‐van quicker, easier and eliminates the need of bank accounts for drivers
Business Project 28/05/2014
Musoni is the first MFI globally to go 100 % mobile, enabling clients to receive their loan disbursements, repay loans and deposit savings using exis]ng MMT products. Less paperwork means focused energy on offering customers more face 4me and superior service with high quality reports and Integrated accoun4ng platorm that also considers Progress out of poverty Index (PPI) to track social improvement Musoni’s advantages for itself and its clients were reviewed in prac]ce and with clients and the findings are : 1. Efficient processing of data with reduc4on of errors in administra4on 2. Flexibility and 4me efficiency 3. Easier expansion to rural areas 4. Cash-‐less opera4ons means lower branch infrastructure and security costs
Reduc4on of transac4on costs for clients (up to 40 %), Reduc4on of real interest costs (up to 20 %)
30.000 end clients served in a year 5 million $ outstanding porsolio
Winner “most innovaSve use of technology” 2011 Global Microfinance Award
MOBILE PAYMENT IMPLEMENTATION: The Musoni System souware has been iden]fied as an interes]ng solu]on to manage mobile repayments
Case study 2: Musoni takes the tradi4onal microfinance experience to the next level
“When managed well, microfinance loans to the poor are repaid more reliably than tradiSonal banking loans to those with larger incomes“ (Freddie Racosas Acosta and Samuel Ndonga)
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
Business Project 28/05/2014
$-‐
$50.000
$100.000
$150.000
$200.000
$250.000
$300.000
$350.000
$400.000
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Hakuna Matatu Profits evolu]on
Total Net Income Income from vehicles financed with Debt Income from vehicles financed by Drivers
$(400.000)
$(300.000)
$(200.000)
$(100.000)
$-‐
$100.000
$200.000
$300.000
$400.000
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18 Y19 Y20
PV of Cashflows NPV
NPV:
EQUITY $ 400,000
DEBT $ 900,000
WACC 20.03%
NPV > 0 Y10
KEY FIGURES: PROFITABILITY DEBT FINANCED VAN
$ 735.10
PROFITABILITY DRIVERS’ FINANCED VAN
$ 11,769.52
CAGR 32.17%
With profits CAGR of 32%, an ini4al equity investment of $400K will be repaid in full in 10 years; vehicles financed by drivers boost profitability
DCF Projec]ons
Business Project 28/05/2014
0 50 100 150 200 250 300
0
10
20
30
40
50
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Fleet evolu4on
New vehicles New vehicles (debt financed) New vehicles (drivers financed) Fleet size
$(1.000.000)
$(500.000)
$-‐
$500.000
$1.000.000
$1.500.000
$2.000.000
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Debt and Drivers’ reinvestment
Debt repayment New debt Drivers' financing Tot debt outstanding Total financing (excluding ini]al equity)
* HM’s debt is kept stable at $900k; this allows the company to purchase new vehicles every year, for an amount equal to the debt ceiling level (900K) minus the amount reimbursed in that year.
The reinvestment of 25% of the income of drivers allows us to grow the fleet without increasing debt, while a policy of constant debt makes it possible to increase fleet size by a third* every year
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
Business Project 28/05/2014
Musoni permits a social performance measurement tool, the ‘Progress out of Poverty Index’ PPI can be used for two things: 1) to get a snapshot of the poverty level of clients at a par]cular point in ]me, and 2) to monitor the change in poverty level over ]me. The second is done by carrying out subsequent surveys auer a certain point in ]me, and then seeing how the client's score change over the period.
Tugende is a for-‐profit social enterprise founded in 2010 and opera]ng in Kampala, that helps motorcycle taxi drivers own their own motorcycles to accelerate out of poverty. But it is more than ownership:
Tugende’s first 25 successful drivers have invested their new savings in:
Posi]ve social impact • A recent World Bank study in
Bangladesh (spanning 3,000 households across 20 years) concluded that microfinance increases:
-‐ personal expenditure -‐ household assets -‐ labour supply -‐ children’s educa4on.
• Successful repayment of the loan makes minibus taxi owners and their families bankable and creditworthy. As a consequence, it provides them with easier access to capital.
Posi]ve social impact also opens opportuni]es for grant
funding!
“When Medie paid off the loan, he bought land for his mother and built her a house in a village
an hour from Kampala.” (Michael Wilkerson, Tugende)
SOCIAL IMPACT: The business model, besides providing drivers with a stable job, also leads to social and financial inclusion and new opportuni]es for their families and community
Case study 3:
Business Project 28/05/2014
1. BUSINESS STRUCTURE OVERVIEW
2. MARKET ANALYSIS AND COUNTRY SELECTION 3. OUR PRODUCT 4. BUSINESS MODEL COMPONENTS 5. FINANCIALS
6. SOCIAL IMPACT
7. NEXT STEPS
AGENDA
Business Project 28/05/2014
NEEDS POTENTIAL PARTNERS
Funds/Capital
Adver4sement
Mini-‐vans
Mobile repayment
Drivers educa4on and
community development
PARTNERSHIPS: A successful implementa]on of the business model requires the establishment of a variety of value-‐adding partnerships to leverage their specific knowledge and networks
Business Project 28/05/2014
j
à Transport (urban & intercity)
à Agriculture: Supply of fer]liza]on and pasteuriza]on machines à Waste management: Based on capacity of truck and demand à Tex4le: Sewing machines if produced on demand for MNO
COMPATIBLE NEW BUSINESSES
-‐ Constant and predictable cash flows -‐ Control over the asset provided
-‐ Training to entrepreneurial empowerment
-‐ Selec]on of clients based on network trust
-‐ Co-‐crea4on of the service
-‐ Leverage local knowledge and networks
POTENTIAL FOR FUTURE EXPANSION: There is great poten]al for the implementa]on of our service in other sectors in order to have future prospects of growth and extend our posi]ve impact on society
BUSINESS MODEL SUCCESS FACTORS
Business Project 28/05/2014
A dollar in charity has only one life; a social business dollar can be invested over and over again. (Muhammad Yunus)
Mini-‐bus perspec4ve: -‐ True commitment of drivers both in terms of repayment, as well
as mutuality lending
-‐ Berer understand the drivers and passengers opinion about our assump]ons and ideas (e.g. higher fares, radio adver]sement, safety and comfort importance etc.)
-‐ Drivers willingness to comply with stricter rules but make them understand the benefit
-‐ Understand the real interest of partners (Musoni, Flashcast, etc.)
Project structure perspec4ve: -‐ Define the country that will be used for the pilot project
-‐ Iden4fy key strategic issues and validate them (both quan]ta]vely and qualita]vely)
-‐ Consolidate the business model in order to make it investor ready
-‐ Iden]fy the best financing structure for the start-‐up (banks, PE etc.)
-‐ Present the business model and plan to poten]al key partners/clients and hopefully investors (pitching to Musoni, FlashCast, funds) to get a sense of the applicability and the costs, problems and true advantages
-‐ (Possibly start with the real implementa4on)
3 MONTHS 3 MONTHS 2 YEARS 3rd YEAR
NEXT STEPS: From idea]on to valida]on phase in the next 3 months in order to strengthen our assump]ons taking a fact-‐based approach
Business Project 28/05/2014
Business Project 28/05/2014
“If you go out into the real world, you cannot miss seeing that the poor are poor not because they are untrained or illiterate but because they cannot retain the returns of their labor. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty.” (Muhammad Yunus, Banker to the Poor: Micro-‐Lending and the Baple Against World Poverty)
ASANTE SANA!
Business Project 28/05/2014
Top Related