CrossBoundary Advisory

An Eye Towards Scaling Inclusive Optical Retail in Africa

An Eye Towards Scaling Inclusive Optical Retail in Africa

Written by Stefan Pagura, Marilia dos Reis Martins, and Maggie Savage

Nearly two in three people will read this article through a pair of eyeglasses or contacts. Many of us take this 700-year-old technology for granted.

But nearly 1 billion people around the world have a visual impairment that could be addressed with a simple pair of spectacles — a number that is only growing each year. Globally, only 35% of the population has access to quality refractive error services, and that number decreases to just 14.5% when considering only low-income countries. This burden falls disproportionately on less developed countries, where hundreds of billions of dollars of productivity is estimated to be lost each year due to uncorrected refractive error.

Over the past four years, EYElliance — an organization exclusively focused on global and national strategies to create equitable access to eyeglasses — has engaged in market systems innovation with the goal of fanning the flames of what’s working. In 2018 EYElliance identified an inclusive optical business model — Ver de Verdad in Mexico — that is proving you can reach low and middle-income consumers profitably, and at scale.

In recent years more entrepreneurs in countries with limited affordable optical solutions have recognized this business opportunity and have begun establishing new ventures. Inspired by and incorporating key components of Ver de Verdad’s success, EYElliance developed the Inclusive Optical Scale Out Program, to further build the pipeline of inclusive optical retailers — companies that are meeting the needs of low and middle-income consumers.

To build on this work, with the aim of crowding in catalytic capital that has been so instrumental in other industries, EYElliance asked CrossBoundary to assess how best to crowd in more investment into these inclusive optical retail businesses. Through the course of this work, we interviewed businesses across five African countries to get a sense of the market challenges and opportunities. Two things stand out — the opportunity for catalytic capital and the need for new approaches.

The challenge

Photo Credit: Soweto Graphics on Unsplash
Due to their stage of business growth, optical businesses often fall within the “missing middle” of available financing, requiring more capital than appropriate for microfinance or informal investors, but being too small or early-stage for banks or other direct investors.

Consequently, optical entrepreneurs are often starved of vital capital necessary for their growth. This is especially true when looking to sell to lower-income customers, where margins are lower and therefore turnover (and working capital) must be higher. Where they are able to source local bank capital, these sources of financing are prohibitively expensive, with interest rates as high as 18% (and rising). Coupled with that, collateral requirements that often involve non-movable assets mean entrepreneurs must put up their family homes or other real estate assets as the loan security.

Additionally, because of a widespread lack of eye doctors, skilled professionals are in high demand and frequently migrate to major cities where they can earn a higher income. For example, according to a joint report by EYElliance and the World Economic Forum, in Sub-Saharan Africa, 67% of ophthalmologists and 66% of optometrists are more likely to be employed in capital cities, and many leave their countries altogether for opportunities overseas.

With so few eye doctors and a lack of competition, private optical companies have often opted to focus on a small segment of urban populations that can afford to buy higher-priced glasses.

This challenging environment makes it difficult to justify moving into a customer segment that has a lower ability to pay. Yet in every market we looked at we found passionate entrepreneurs who were dedicated to being the pillars of eye health to the communities they served. Many spared no expense to get the best testing equipment possible, ensuring that no matter what customer showed up at their door they would get the eye care they needed.

Bright spots, such as Ver de Verdad and others exist, but what can be done to get them to grow and scale?

The case for innovation and catalytic capital
As with any complex problem, there is no single answer. The work together with EYElliance highlighted two major pathways forward: the use of catalytic capital, and investing in new operating models and partnerships.

Proving the market
We spoke with entrepreneurs across five countries that are building impressive businesses despite access to capital constraints. One such example is Lapaire — an innovative company serving low to middle-income consumers with affordable eyewear. In just over four years, the company has offered eye exams to over 150,000 people and expanded its operations to 7 countries on the continent. Over 70% of Lapaire’s clients did not own a pair of glasses before becoming a customer.

Investing in the growth of companies like Lapaire — and others in EYElliance’s network in sub-Saharan Africa and Latin America, such as Wazi Vision, MedOptics, StarEye Solutions, Rafiki Optical, Optic Creativity, Luz de Vida, and BottleEyes — could mean millions of pairs of glasses sold, and entrepreneurs that are able to open new locations, availing patients with needed eye exams and corrected vision with glasses.

Many investors may shy away from this type of retail investment due to fears of high upfront costs for store fitting and long roads to profitability at a store level — but in many cases, these concerns don’t hold.

For the most efficient companies, new stores can be opened for as low as US$10,000 (up to US$50,000 on the higher end) and payback periods can be as short as three months. When the unit economics stack up, what’s needed is catalytic capital to help to accelerate scale and prove out the market.

These companies do face real risks — they serve a customer with a lower ability to pay, in communities more exposed to economic downturn, and in countries that are more likely to feel the effects of global market cycles than others.

But as the unit economics of these businesses show, some of these risks are perceived to be higher than they actually are. When that is the case, the application of catalytic, risk-tolerant capital can fundamentally change market outcomes.

In the case of the inclusive retail optical sector, this may eventually result in the need for a dedicated blended finance vehicle — but the first step is for willing partners to step into the market and support companies like Lapaire and others that form the pipeline of investable businesses to send a needed signal.

The need for glasses is considered the biggest health crisis you haven’t heard of, and it’s time we change the way capital is flowing to the entrepreneurs that are trying to make it a crisis of the past.

Inverting the Problem
Many optical retailers deal with distributors to purchase stock of frames and lenses, holding some inventory to meet demand. Many also rely on workshops to cut and assemble eyeglasses. These “longer” supply chains limit expansion, especially in peri-urban and rural settings.

But what about the clinics, pharmacies, and health posts already in peri-urban and rural communities? How can these healthcare partners become eye-health partners as well?

Companies like Maisha Meds, Ilara Health, mPharma, Field, and others have disrupted pharmaceutical and medical device supply chains in Africa by leveraging technology to get the right products and technology to clinics and pharmacies when they need it.

These companies are working to improve affordability and quality in healthcare, and count tens of thousands of clinics and pharmacies as clients. Integrating an eye-health offering into the suite of services that these innovative partners offer could transform access in the peri-urban and rural communities they serve.

In this case, investing means providing the working capital these companies will need to bring eye health professionals to their partner clinics and pharmacies on a rotating basis, as well as stocking needed corrective eyewear, including ready-to-wear reading glasses, which have a simpler value chain for delivery than prescription eyewear.

Ilara Health ran a small pilot doing just that — bringing optometrists to their partner clinics and fulfilling orders that were made. Ilara was able to screen over 500 patients in their pilot, of which 60% needed glasses. Because they were able to offer the corrective eyewear at an affordable price, 50% of those patients purchased a pair of glasses.

At the pharmacy and clinic level, there exists an opportunity to expand access to hundreds of millions of individuals over the age of 40 that require reading glasses to continue to read and complete up-close tasks These include factory workers, teachers, farmers, tailors, and more. Reading glasses can be provided as an over-the-counter solution with limited training. With support from the Livelihood Impact Fund, Maisha Meds are launching a two-phase pilot to provide vision screening and reading glasses through their network of pharmacies in Kenya. The aim is to reach 100,000 patients following an initial 30-facility pilot to test proof-of-concept and establish the sustainable business model for private sector pharmacies and clinics operating in peri-urban and rural areas of Kenya to offer vision services.

The impact is visible (pun intended) and rapid. There is an opportunity to test new models, but it will require interested parties to be able to provide the initial capital to get these systems up and running.

Our work with EYElliance highlighted both the need, but also pathways forward to change this market. This doesn’t come without risks — but the opportunity to change the lives of a billion people should fortify the resolve of catalytic capital providers looking to maximize this risk to impact trade-off.

About EYElliance
EYElliance accelerates equitable access to eyeglasses for the one billion people who need them. We are working to create a world where children and adults in low- and middle-income countries can obtain high quality glasses where they live and learn. Without clear vision, children and adults are excluded from a world of educational and economic opportunities. EYElliance is driven by the solvability of this problem–we know that proven models already exist so we work on engaging and building an ecosystem to scale these models. Founded in 2015, EYElliance focuses on orchestrating systems-level change by applying four global and national strategies: government delivery, sustainable financing, catalytic partnerships, and institutional advocacy.

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