“Brands and companies in India today can't find good, responsible partners because it's all in the informal sector,” said Vajipey. “The supply chain will fall flat on its face. That is why you don't see companies in India closing the loop on plastics.”
Their business plan is to provide high-quality recycled material and convince major brands in India and globally they can trust the material and use it.
That, they hope, will lead to more demand for their type of more expensive but better recycled resin, and slowly build up the industry.
Both Vajipey and Madangopal were born in India, but met while earning earned advanced engineering degrees in the United States more than a decade ago. They became friends, and discovered a shared interest in India's waste management problems.
They first tried to build a business in waste-to-energy, but after that didn't work out, the pair switched to plastics. They said they saw how recycling in India was both helping with and contributing to environmental problems.
“The back end of recycling, especially of recycling and plastic waste, is what causes a lot of issues in our country,” Vajipey said. “We feel this is going to snowball into something nasty in this country unless people do something.”
Beyond pollution from uncollected waste and from unsanitary recycling operations, the lack of government involvement creates practical problems for those who want to re-use recycled materials in new products because there's a huge variety in the quality of what's collected on the street, Vajipey said.
“It's left to the informal sector,” he said. “The goal of the informal sector is to recover at the lowest cost.”
Banyan has spent the last three years building its business on the ground in Hyderabad.
It's done extensive research with the kabadiwalas, the hundreds of roadside shops in neighborhoods that buy waste materials from individuals, known as rag pickers, who scavenge through trash for recyclables and try to earn a living, Vajipey said.
Madangopal, Banyan's chief operating officer, said one of Banyan's innovations is to try to use technology in new ways in recycling. It's built software apps to map the 1,500 kabadiwalas in Hyderabad and gather data about their materials.
Once it buys the plastic waste, it then applies rigorous quality control with spectrometers, high resolution filters and washing.
“Internally we normalize quality batch to batch,” said Madangopal, who worked for mobile content marketing company Motricity in Seattle. “We reduce a lot of the variability.”
Vajipey said that while Banyan is ready to manufacture commercially, the economics remain a challenge.
Banyan's costs are twice that of recyclers in the informal sector, Vajipey said, in large part because Banyan follows regulations. The company is an industrial park with water treatment, for example, and pays all wages and contributions to social insurance program, he said.
“All these things are extremely expensive to the small-scale recycler,” he said. “Only if you turn a blind eye to regulation, only then can you make it.”
Banyan's current customers are willing to pay it a small premium, he said, because better quality recycled resin means fewer equipment breakdowns and lower failure rates of their final parts.
But that premium is not enough for Banyan to be profitable, at the moment.
“Even though my local customer gives me a rupee more, Banyan still bleeds on a per-kilo basis,” Vajipey said.
Recycling has a low barrier to entry in India, he said. Someone can buy a small extruder for $6,000 and start recycling waste. But pollution control equipment would cost the same company $25,000.
“When you have such a low capital investment, there is very low regulation, not because government doesn't care, but because of the way we have urbanized,” he said. “It's very chaotic. You couldn't enforce any regulations.”
Still, he said they believe Banyan will be profitable.
Their goal this year, with their new larger factory producing at higher volumes, is to start talking seriously with major manufacturers who want to use recycled materials.
“We are able to produce really good quality plastics, which means that if brands want to solve the problem of recycling, they can do so,” Vajipey said. “In 2016, we want to enable brands to close the loop in whatever small way they can.”
“We are no longer in the proof of concept phase,” he said.
Banyan's financial backers see the operation as one that can grow quickly.
“I think it behooves us to back these two youngsters to develop something which actually could be hugely scaled up,” said Sanjay Nayar, CEO of KKR India. “That is something that we need as a country desperately.”
Artha Capital, which committed the $800,000 to Banyan, said in a news release that Banyan's business model can help reduce the environmental problems stemming from poor waste management.
“The consequences of our collective inaction seem negligible now, but over time will be devastating to the environment,” said Jaideep Khanna, managing partner of Artha. “We must each do our bit to stem the tide. Banyan, by laying the foundation for a formal recycling system, is doing just that.”