More than 2 billion people in the world do not have access to adequate sanitation, leading to water pollution and disease that cause 1.7 million deaths and cost $84 billion in worker productivity annually. This problem is prevalent in the slums of Kenya, where residents usually resort to “flying toilets” – plastic bags used for defecation and then tossed out onto the street.

A group of MIT graduates have come up with a solution during a Development Ventures class at the university’s Sloan School of Management. Their idea has now become a business called Sanergy (“sanitation” and “energy”), which received $100,000 in funds from USAID’s Development Innovation Ventures last year.

Sanergy is building a network of low-cost sanitation centers in Nairobi, which the startup will franchise to local entrepreneurs. Each center is designed to serve nearly 80 people, offering hot showers and clean toilets. Franchisees earn income by selling complementary hygiene products and through pay-per-use fees and membership plans. What about the waste? Sanergy’s system does not rely on sewers or septic tanks; instead, the excrement is deposited into airtight containers, which are collected every day and transported to a central processing facility. There, the waste is converted into energy and organic fertilizer and sold to the national grid and farms, respectively.

“As my grandmother likes to say, this is an input that never runs out,” says Sanergy co-founder David Auerbach. “We’re adamant about reducing sanitation-related disease, and in the end this is what this is about.”

The company hopes to have 6,000 toilets up by 2015 and believes that its market-based approach will address Kenya’s sanitation issue as well as generate jobs and income for the locals. Auerbach says that while the Nairobi City Council has plans to install sewers around the city, it will take them years to do so. “In the meantime, our facilities are a pragmatic solution that helps clean up the slums.”