A dose of the right medicine

Eye-catching branding

Yesterday saw the official opening of the first branch of Afghanistan's first pharmacy retail chain. ABIF has awarded a grant towards this major investment project that will eventually see 20 shops operating under the 786 Pharmacy brand across Kabul.

Counterfeit medicines are a huge problem in Afghanistan, costing money and lives, particularly for poorer consumers. While the Ministry of Public Health has been working to try to stamp out the sale of counterfeit medicines, a survey by a French NGO showed that something like 40-50% of the medicines being sold in licensed pharmacies are not genuine. Our estimate is that our target beneficiaries are spending US$10-20 million per year in Kabul alone on counterfeits.

In the absence of effective implementation of regulation, one of our Round 1 grantees spotted the commercial advantage in becoming a trusted retailer of genuine medicines. The business model is based on the simple unique selling point that consumers will be attracted to a recognisable brand that they know that they can trust. Targeting poorer customers would be achieved by locating the pharmacies close to public hospitals where these people go to receive free health care.

The applicant, Al Hadi Ltd, had a long history in importing and distributing medicines in Afghanistan, and saw the commercial potential for modernising the pharmacy retail sub-sector. Based on our own market analysis that had identified serious problems at the retail end of the pharmacy value chain, we immediately spotted the game-changing potential of their concept. We worked with them to develop their business plan and based on an example from Nigeria, we seeded the idea of a product verification system using mobile technology.

Apart from financing the significant investment, two things stood in the way of realising this project. First the pharmacy regulation prevented shops from being sited within 200 metres of another pharmacy outlet. This meant that (on paper at least) pharmacies could claim prime sites and prevent competitors from opening nearby. Secondly the same regulation only allowed one pharmacy, one license, one name. This regulation prevented the emergence of pharmacy retail chains - a key market development witnessed elsewhere in the developing world, allowing investment in the retail sector, upgrading skills and providing better quality assurance for consumers.

The applicant, with the support of ACCI, lobbied the Ministry of Public Health and earlier this year the Minister instructed officials from the Pharmacy Directorate to change the regulation to remove the anti-competitive restriction on locations and to allow multiple branches. The 200 metre rule has already been changed and the Directorate is currently working on the multiple branch regulation.

Interior of the first branch

As indications of their commitment to selling genuine medicines, 786 Pharmacies offer an SMS verification service that allows customers to check the barcode of their purchases against a central database, receiving an automated reply that confirms that their medicines are genuine. The shop also has an electronic receipting system that shows the exact product, the relevant batch number and expiry date. The receipt is stamped at the point of purchase as the 786 guarantee that the medicines sold are what it says on the packet. All of this is backed up by staff training for the pharmacists employed by the company. The SMS verification system is still in the testing phase, but the plan is that it will be rolled out along with the other branches over the coming months.

The design of the branding and the interior of the shops all adds to the sense that this is a modern, reliable retailer. The contrast between 786 Pharmacy interiors and a typical Kabul pharmacy is striking. Already the owner has been approached by one pharmacy license holder who wanted to take a franchise and open his own 786 store.

Despite this being early days, the word of what Al Hadi Ltd has done through the 786 brand is already out. The Ministry says that some other pharmacy license holders have approached them to apply for multiple licenses with the intention of setting up similar chains. This potential for crowding in by competitors was one of the main reasons that we were so excited about the market development impact of this investment. The benefits to our target beneficiary consumers will be enormous as the private sector imposes self-regulation driven by commercial interests. Eventually our small investment could end up benefiting millions of people in Kabul and across the country.

Cashmere processing line opened

The first de-haired cashmere from the new line

Just back from Herat where we attended the opening of the new cashmere de-hairing line at Herati Cashmere and Skins, one of our Round 1 grantees.

Seeing a grant project come to fruition is one of those experiences that makes it such a pleasure to work on the ABIF project. After speeches from various distinguished guests, we had a tour of the plant and I was allowed to cut a ribbon and press the button that started the de-hairing line!

As well as the formal ceremony side of the event, this was also an opportunity to meet several of the company's representatives who are going to be running the cashmere collection centres in Badghis and Ghor provinces. The new collection centres will allow farmers in remote areas to sell small quantities of cashmere that are then aggregated and transported to Herat, helping to strengthen the factory's supply chain. This means that farmers who were previously largely cut off from demand, or were unaware of the value of cashmere, will be able to access a new market and benefit from a new/more reliable source of income. As well as collecting the cashmere, the centres will also provide animal health services and harvest training for the goat-herders.

Listening to the stories and ideas of the HCS representatives

During our discussions with the collection centre representatives, they told us that not only was this a money making business for them, but they were paying more than the traders who previously controlled the market (where it did exist) and expected farmers to start to grow and harvest more cashmere goats as the word about the new market opportunity spread. They told us that with the new cashmere processing capacity, they could buy as much cashmere as the goat-herders could produce. HCS estimates that once all of the collection centres are up and running (in time for this year's harvest, expected in April), they will be buying cashmere from something like 40,000 goat-herders.

It is through this kind of private sector development driven by an anchor investment, that ABIF is not only changing the way that local markets work, but is also able to overcome the kind of security constraints that otherwise prevent direct interventions in remote areas of Afghanistan.

Access to finance breakthrough

Access to commercial finance in Afghanistan remains a serious obstacle to growth for SMEs. In a major breakthrough, earlier this week one of our Round 1 grantees has managed to secure long-term finance of US$250,000 from a local bank, largely thanks to support from the ABIF fund management team (who made the introduction and assisted with some of the negotiations), the strength of the business plan that the grantee presented and the fact that the ABIF grant agreement is signed and effective.

We have not had to provide any guarantees, all we have done is reassured the bank that the applicant has a viable business plan, has been through an extensive due diligence process and will receive the grant payments as various project implementation milestones are achieved. This relatively light-touch approach has helped to unlock a substantial loan for the applicant, allowing him to pre-finance the purchase of machinery essential to the investment project.

This is a major endorsement of our assertion that ABIF grants do not displace commercial finance, instead they should actually stimulate the commercial finance market. While this is a relatively small start in the greater scheme of things, this loan agreement shows the wider potential impact that ABIF can have on SME and market development. We hope that having helped one applicant to secure this finance and having familiarised the bank with our procedures, this will open the door to a wider co-operation between the project and the bank and we will see other current and future grantees achieving similar results.

We are all delighted for the applicant and are now looking forward to the rapid implementation of the investment project. This is great news for all concerned!

Round 2 shortlist

It is great to be back up and running at full speed... After a bit of a hiatus, we are now moving into the second phase of Round 2. A recent meeting of the ABIF Investment Panel approved a shortlist comprising 33 concept notes from 32 applicants, and earlier this week we held a workshop for all of the shortlisted applicants and our approved consultants.

Overall, the quality of concept notes in Round 2 was higher than Round 1, reflecting a much more effective marketing campaign and a growing understanding of what ABIF is all about. As a result the shortlist this time is longer than it was in the first round, and I am confident that we will see a lower attrition rate from shortlist to final application.

We also have the benefit of additional resources to support applicants through the second phase of the application process when they have to prepare a business plan, a financial model and a development outcome statement. As well as allowing more time for the sector specialists to provide feedback to applicants when they submit their draft business plans in early May, we also have a dedicated business plan specialist who will support applicants and consultants throughout the process.

The two day workshop that we had this week covered a lot of ground. After running through the roles of everyone involved (applicants and consultants, the sector specialists and expert advisers, the Investment Panel and DFID), we went through the business plan structure, introduced the improved financial model and explained what we mean by development outcome.

We do not expect our private sector applicants to become development specialists or their companies to become development agencies, but it is important that they understand that achieving a tangible development outcome is the principal justification for the grant funding from DFID and AusAID. We make it clear that this development outcome is an integral feature of the business models that we fund - what our applicants call customers or workers or suppliers, we call target beneficiaries.

We also went through the ABIF project assessment criteria and explained how we select projects for funding. By explaining this in detail, we hope that when the final selection is made those that fail to receive a grant may be disappointed, but at least they will understand the rationale behind our decision.

Among all of this, we constantly stressed on the importance of transparency and integrity. We have recently introduced an Applicant's Code of Conduct (available in Dari, Pashto and English from our project website) that explains our policy on illegal or corrupt practices and explains how anyone can report any suspicions they may have in this regard. It is an unfortunate fact of life that corruption is rife in Afghanistan, and we are determined to do everything that we can to prevent or detect corruption and to protect our own colleagues from malicious allegations (a real risk in this environment, especially when people are disappointed that they have not received a grant).

Finally, we introduced our list of approved consultants, local business development service providers who we have vetted and are available to provide support to applicants. Applicants are free to select a consultant from this list, introduce their own consultant to us for vetting or go for a DIY approach. So long as they use an approved consultant, they are eligible for a 50% cost contribution from ABIF of up to US$5,000. This amount has been selected based on how much work is involved in providing a fundable business plan and local market rates. Beyond vetting approved consultants, we do not get involved in the commercial arrangements between applicant and consultant, we want to encourage them to get used to negotiating a deal and then working together in a professional way.

The feedback from the 70 or so people who attended was entirely positive. The deadlines for the remainder of Round 2 are tight, but at least we are now starting from a solid foundation of a high quality shortlist and a good shared understanding of what is required.