action research project to develop a sanitation microfinance program (proposal)

8/20/2019 Action Research Project to Develop a Sanitation Microfinance Program (Proposal)

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Water Financing Partnership Facility

RETA 6498: Knowledge and Innovation Support for ADB’s WaterFinancing Program

PILOT AND DEMONSTRATION ACTIVITY

Activity Title: Action Research Project to Develop a Sanitation MicrofinanceProgram in Cambodia

Proposer: Habitat for Humanity – Cambodia

Request Date:

Country: Cambodia Region: SERD

Activity Proposed Start Date:

15 December 2010

Activity Proposed Duration: 9 months

Cost Estimate: US$50,000

Background and Rationale

1. Numerous NGO and government programs have been undertaken to improvesanitation conditions in Cambodia. Cambodia has been considered one of the countries inthe world with the lowest sanitation coverage in the rural areas. (Some 80% ofCambodians still live in the countryside.) There has been some success in raisinghygiene or sanitation awareness, and in developing latrine designs and a supply chain togive rural people regardless of income access to toilets. However, latrine take-up hasremained stubbornly low. Based on the Census 2008 figures, access to improvedsanitation in rural areas is 23.3%; the coverage rates in many communities ranges from0% to <10%. Children are particularly vulnerable to unhealthy environments; thousandscontinue to die from diarrhoeal and water-related diseases. Villagers who are unable orunwilling to buy latrines often cited having no spare funds as the primary reason. ThisPDA aims to understand the situation and needs of rural households and to assist theGovernment in developing a microfinance solution that will enable more rural householdsin Cambodia to install latrines.

2. To improve the effectiveness of donor assistance in Cambodia in the sector, theMinistry of Rural Development (MRD) leads a technical working group on rural watersupply, sanitation and hygiene and a WATSAN working group. ADB’s recent water and

sanitation projects in Cambodia around the Tonle Sap Basin include the following:

• The Provincial Towns Improvement Project , a concessional loan of US$20 millionequivalent, targeted seven provincial towns: Battambang, Kampot, KompongCham, Kompong Thom, Pursat, Sihanoukville, and Svay Rieng.

• The Tonle Sap Rural Water Supply and Sanitation Sector Project (TSRWSSP), atotal project cost of US$24 million of which US$18 million was a grant approved on

20 October 2005 (Grant 0018-CAM). It focused on about 1,760 rural villages in fiveprovinces around the Tonle Sap basin: Battambang, Kampong Chhnang, KampongThom, Pursat and Siem Reap.

• The Second Rural Water Supply and Sanitation Sector Project (RWSSP2) aims to

help improve water supply and sanitation facilities for the rural population in sixprovinces, and institute safer hygiene practices in those areas: TSRWSSP’s fiveprovinces (Battambang, Kompong Chhnang, Kompong Thom, Pursat, and SiemReap) and one additional province of Banteay Meanchey,

3. Habitat for Humanity's mission focus is to improve the lives of poor families byproviding them with sustainable, decent and affordable housing solutions. Improvedhousing is done through building core houses, repairing or rehabilitating existing housesand improving the sanitary or toilet facilities.

4. HFHC itself started to provide microfinance loans to families for water and

sanitation in 2008 (198 families in Phnom Penh and 40 families in Angkor Chum). HFHCconducted an orientation program after which is received loan requests from the villageauthorities (e.g. the village chief) and the school director. It conducted a meeting with thebeneficiaries, the village authorities and the school director to discuss the community’sneeds. Then HFHC checked the technical requirements and estimated costs, and anHFHC committee met to finalize each loan extended. (See Appendix I for an overview ofthe terms and conditions of these loans). Therefore, although HFHC has no experienceworking with MFIs, it has direct and relevant microlending experience for water andsanitation. The PDA will enable ADB and HFHC to examine the potential for and assistthe Government forge possible partnerships with MFIs to lend to households forsanitation improvements; hence expanding sanitation financing options available to

households.

Objectives

5. The general objective of this PDA is to support the Ministry of Rural Development(MRD) and local microfinance institutions in Cambodia develop and pilot test amicrofinance scheme for sanitation and hygiene improvement. HFHC will implement thePDA and facilitate the process by drawing on its previous experience in housing financeand small loans for water supply and sanitation.

6. Specifically, the PDA aims to:

a. Review the experience under ADB’s TSRWSSP;b. Confirm the importance of access to financing to latrine take-up rates and

establish the factors and types of financing which will likely facilitatehouseholds to acquire latrines;

c. Identify potential microfinance partners in project areas who are interested inimproving sanitation conditions, understand the terms of their sanitationfinance offerings, if any, and establish how to assist them to more actively

finance latrines;

d. Address the financing needs of households to allow them to acquire latrinesin a sustainable manner, and develop an effective communication andawareness-raising strategy for disseminating this information throughout thetargeted communes.

Scope and Location of Work / Description of Activities

7. The PDA implementation will include the following activities:

Condu ct Si tuat ion / Needs A ssessment:

• Select [2-4] communes around the Tonle Sap Basin which meet all or most ofthe following criteria:(1) Under TSRWSSP and which benefited from initiatives to help increase

demand for sanitation infrastructure through hygiene awareness

(communes will not be those covered by RWSSP2);(2) In which HFHC has an active presence;(3) Located close to branches of the likely MFI partners (e.g., Angkor

Mikroheranhvatho Kampuchea ( AMK) and PRASAC MFI)1;(4) Located close to latrine suppliers who stock affordable latrines suitable to

the communes.

• Review the experience under TSRWSSP and of HFHC, by selecting twosamples of households from TSRWSSP communes. Female-headedhouseholds should be identified and included in the two sample groups:(1) Group A: [25] households constructed a latrine, and

(2) Group B: [50] households which did not construct a latrine, whether theywere unwilling or unable to do so.

• Develop a socioeconomic profile of the samples selected, with sex-disaggregated information where appropriate. For instance, the profiles shallinclude information on household ethnicity and poverty levels. Information maybe gathered from TSRWSSP reports, PDRD offices, commune councildatabase, etc.

• Assess the factors which motivated the households in sample (1) above,identify the type of sanitation infrastructure households choose (e.g., pour

flush, lined dry pit, etc), identify the source of financing for householdcontribution to the latrine construction supported by TSRWSSP, determinewhether the households considered themselves poor, and identify theirfinancing sources--assess credit terms available and which households are

1 These are MFIs that are currently looking at ways to use their networks to promote non-financial productssuch as latrines. The review will include MFI partners that are working in the Tonle Sap area and/or thosethat are working elsewhere but would like to expand into the Tonle Sap area.

“eligible” for such or similar financing; assess savings mechanisms forhouseholds using savings.

• Identify the reasons households in sample (2) above did not construct a latrineand what factors discouraged them from investing in a latrine. Also consider

those factors that would likely motivate them to invest in a latrine (e.g. furtherhygiene awareness, increase in household disposal income, access tofinancing for the related expenses such as the superstructure, access to a safeand reliable savings mechanism, improved latrine designs in flood-proneareas, more time, etc.).

• Assess the factors which motivate local entrepreneurs and their willingness toborrow from MFIs for building up their businesses in supplying materials orservices for sanitation improvements. This would be based on a rapidassessment of existing suppliers in adjacent towns or interested entrepreneursamongst the households surveyed.

• Identify potential MFI partners and the feasibility of partnering with these MFIsto:o Provide loans to rural households (e.g., collateral required, interest rate,

etc.) to finance new latrines and related expenses;o Develop a savings product for poor households tailored to finance new

latrines and related expenses;o Extend credit to suppliers of low-cost latrines and related materials;o Assess what technical advice could be provided apart from credit.

• Provide feedback to ADB and Department of Rural Health Care (DHRC) on

findings.

Condu ct market research / Focus grou ps discu ssions :

• [2-4] communes: assess understanding of the importance of hygiene and theneed for better sanitation; present MRD/DHRC’s latrine options for sanitationimprovements;2 present possible loan and/or savings schemes for feedback andrefinement.

• Potential latrine suppliers nearby: understand the designs and cost of latrinesavailable near the targeted communes; get their feedback on what current

arrangements they enter with households (e.g., credit) and seek suggestions onhow to improve latrine take-up.

2 MRD/DHRC has recently approved a manual, which illustrates the different options for household

sanitation improvements. The options shall be in-line with MRD’s definition for improved sanitation.Minimum standard shall be cost-effective, hygienic, durable, and upgradable to a water-sealed or pour-flushlatrine at a minimum cost (e.g., concrete ring-lined dry pit).

• Potential MFI partners: understand current schemes for microcredit for sanitation(if any), rural development or agricultural needs, determine whether it can beextended for household sanitation infrastructure, identify the challenges inproviding microcredit, reinforce the need and the opportunity; assist potentiallenders to get familiar with appropriate sanitation investments and to get

comfortable with the credit risk of potential borrowers. Provide feedback to ADBand DHRC on findings.

Establ ish a sani tat ion microf inanc e (savings and/or loan) scheme with [1-2] MFIsand test the actual pilot in the selected communes:

• Work with the MFI(s) to develop savings and/or loan products and adoptapplication, underwriting and servicing criteria as necessary for any loans.Explore whether developing a credit enhancement or incentive structure forthe loan scheme is necessary to encourage MFIs extend credit.

Provide feedback to ADB and MRD/DHRC on findings prior to roll out of thepilot activity.

• Assist the MFI(s) to roll out the pilot savings and/or loan products in theselected communes.

• Develop with the MFI(s) and MRD/DRHC a system for monitoring, evaluationand reporting results of the pilot, to ensure continuous monitoring ofoutcomes/impacts even after the PDA is completed. This will help MRDmonitor the number of households or suppliers who default on loan payments.

Summarize lessons learned and good practices from the pilot-test; disaggregatefindings and lessons by sex, poverty levels and ethnicity; and makerecommendations for refinements, scaling up and replication in other sites. Sharefindings (together with ADB) during a TWG-RWSSH meeting, and prepare a jointstudy report for dissemination.

Desktop research on apply ing the co ncept to addi t ional si tes in Cambodia and

other countr ies (e.g. Indonesia, Philippines, Vietnam) and submitting a preliminaryreport on the same.

Implementation Schedule

8. The PDA will be implemented over a period of nine (9) months. There will beregular performance tracking and fine tuning of project strategies. The milestoneactivities and the estimated timetable for each are shown in the detailed implementationschedule below:

PROJECT SCHEDULE / TIMELINES

Activity Deliverables Time(months)

Responsible Remarks

• Desk research / review of literature re:TSRWSSP

• Identify potential MFI partners and reviewexisting sanitation microfinance options, ifany, offered by the potential MFI partners

• Identify latrine suppliers in the area• Understand the legal framework for savings

and loans microfinance products andsupplier credit

• A baseline profileof savings andloans microfinance

products andsupplier credit.

M1 Project Staff /Study TeamLeader /Consultants

FinancingExpert /Legal Expert/MicrofinanceExpert /SanitationExpert

• Household survey & situation / needsassessment in ADB’s TSRWSSPcommunes: Group A (borrowed money toconstruct a latrine) and Group B (did notconstruct a latrine)

• Review of financial options available tothese households.

• 2-4 communesselected andpriority needsidentified

• Inception Report,includingpreliminary

findings, a profileon the communes,and plannedactivities.

• In-depth discussions with potential MFIpartners; Work with the MRD, PDRD, MFI(s)to develop savings and/or loan scheme(s)and underwriting criteria for any loanscheme, and a monitoring mechanism forrepayments;

• If necessary, develop a credit enhancementor incentive structure for the loan scheme toencourage MFIs to offer sanitationmicroloans

• Memorandum of Agreement (MOAor groundwork forone) betweenHFHC,MRD/DRHC, andMFIs

• Several sanitationmicrofinancingmodels includingprimers andrelated knowledgeproducts

• Mid-term Report

M3-4 Project Staff /Study TeamLeader

FinancingExpert /Legal Expert/MicrofinanceExpert /SanitationExpert

• Share the proposed savings and/or loanschemes with a selection of targethouseholds to gauge level of interest andrevise model as needed

• CommunityWorkshops in 1commune

• Share final modelfor implementationwith ADB andMRD/DHRC

M5 Project Staff MicrofinanceExpert /SanitationExpert

• Implement the actual schemes: Marketingand awareness-raising campaign to presentfinal version of savings and/or loanmicrofinance models to all communes

• Arrangements entered into with interestedand qualified households

• CommunityWorkshops in allcommunes

• Savings and/ orloan microfinanceschemeimplemented and

M6-7 Project Staff MicrofinanceExpert /SanitationExpert

• Establish an arrangement with MRD/DHRCand the partner MFIs for a monitoringmechanism for sanitation loan repaymentsand sanitation deposit schemes, to continueeven after the PDA is completed

applied in allcommunes

• M&E and reportingsystem

• Follow-up and monitor sanitation

microfinance take-up through random spot-check

• Monitor household ability to repay loansthrough monthly loan tracking and homepartner interviews

• Conduct random satisfaction survey

• Draft Final Report

• Final workshop

• Coordination with interested parties andSocial marketing of the financing models

• Lessons Generation Workshop to sharefindings with other development partners(together with ADB) at the sector TWG and

WATSAN working group

• Final Report

• Presentation(together with

ADB) at the sectorTWG andWATSAN working

M9 Project Staff /Study TeamLeader

Institutional Management Arrangements

9. HFHC will act as the implementing agency with whom ADB will enter into a Letterof Agreement (LOA). HFHC will be working closely with the DRHC / MRD, the provincialdepartment of rural development, commune leaders/authorities, and the identifiedMFI(s). It is understood that HFHC will provide technical advice to MRD/DHRC andPDA oversight, including local logistical support for the PDA in general and for all thecommunity-based activities working with commune and village leaders. HFHC andProject staff will do regular monitoring and spot check of project performance.

Alternatively a part-time person can be hired to do this or an intern with supervision byHFHC’s project officer. Costs of the project officer related to this logistical support willborne by the Project (e.g., fuel and other out of pocket costs). During implementation,other MRD departments, such as the Department of Rural Economic Development andthe Department of Rural Water Supply, may be asked to join meetings.

Proponent Qualifications

10. Habitat for Humanity Cambodia (HFHC) obtained its official registration from theRoyal Government of Cambodia in January 2003. HFHC works both in urban and ruralvillages. In urban Phnom Penh, 519 houses have been built and repaired, and 198

families have gotten loans for water and sanitation. In rural villages, the Siem ReapHousing and Community Development Program (SRHCDP) began in July 2007 and wasdesigned to address the housing and community development needs of families in the

Angkor Chum district of Siem Reap. To date, 156 houses have been built and repaired,and 40 families have gotten loans from HFHC for water and sanitation at the market rates

(1.9% per month).3 For the 3-year period starting October 2010, HFCH will focus on waterand sanitation in the Angkor Chum and Pouk districts of Siem Reap.

11. For the implementation of the PDA, HFHC will engage the services of thefollowing experts

• Project Team Leader: A background in finance and track record of enablingcreative financing partnerships. The Project Team Leader will work closely withHFHC staff to maximize leveraging of its existing initiatives and the sustainabilityof the partnerships established beyond the life of the PDA.

• Microfinance Expert: Significant experience in the MFI sector in Cambodia andexisting relationships with the key MFI players. The expert will be tasked withunderstanding the communes’ sanitation financing needs and preferences,working with the Project Team Leader to identify and approach suitable partnerswith partnership initiatives.

• Sanitation Expert: Significant experience in low-cost sanitation solutions and atrack record of social marketing and if possible, facilitating latrine take-up inCambodia.

• Legal Expert: Significant understanding of the legal and regulatory issues of themicrofinance sector in Cambodia.

Expected Results

Outputs :

12. The output of the project is a final report on a proposed sanitation microfinancearrangement/scheme between MRD/DHRC, HFHC and MFIs based on communityassessment, market research and pilot test. The outline of the report will be agreed withMRD and ADB in advance, and shall include recommendations/steps for MRD tomonitor and report results, and help scale up the pilot (if found successful).

13. HFHC will also submit an inception report and midterm report, as per the projectschedule. The report will include lessons, good practices from the pilot and a desktopresearch on applying such financing concepts to additional sites in Cambodia andcountries (e.g., Indonesia, Philippines and Vietnam) and a possible way forward to

refine and export the schemes tested. It will also include (i) a final workshop to presentkey findings of the PDA, and (ii) a presentation (with ADB) to the TWG-RWSSH andWATSAN working group in Cambodia and Water Community of Practice in Manila.

3 HFHC provided loans to households at a low market rate of 1.9%. In Siem Reap, for example, MFIs

were charging between 3.2% and 1.9%. HFHC loans range from $950 to $50 (or $200 to $50 for toilets).Loan below $200 did not require collateral. The average loan is repayable in about 3 years. See Appendix1.

Outcomes:

14. The PDA will improve the sanitation condition of the pilot communes around theTonle Sap Basin. It is expected that with capacity development and creditenhancement, the MFI partners will be motivated and have increased capacity to

facilitate increased access to sanitation financing for households (savings and/or loansolutions).

Impacts:

15. The results of the PDA are expected to help expand the sanitation financingoptions for households in Cambodia and other countries in the region (especiallyIndonesia, Philippines and Vietnam) based on lessons and good practices from the pilotarea.

Measurable Performance Indicators

16. Measurable performance indicators are the following:

Output Indicators:

• Number of MFIs identified, and those who are interested in participating in asanitation microfinance partnership

• Number of households, disaggregated by sex of household head, withapproved sanitation savings or loan schemes

• Number of local suppliers identified to participate in microfinance partnershipin sanitation improvement

• Percentage of unpaid loan in the project

• Number of loans disbursed, and loan repayment performance (disaggregatedby sex of the borrower)• Number of savings schemes activated, and number of deposits recorded

(disaggregated by sex of the borrower)

Outcom e indicators:

• Percentage of [participating] households, disaggregated by sex of householdhead, who apply for savings and/ or loan solution to improve sanitationcondition.

• Increased capacity of MFIs to facilitate access to sanitation financing.

Impact indicators:• Improvements on the sanitation condition of households, disaggregated by sex

of household head, through savings and/ or loan solution.

Stakeholders’ Participation

17. For this particular PDA, the following stakeholders will be actively involved: ADB,HFHC, MRD/DHRC including other MRD departments as necessary, provincial

department of rural development, households and entrepreneurs in TSRWSSP-supported communes, MFIs and commune/village authorities. HFHC will consult withother development partners as needed during the implementation of the PDA, including:

• Water and Sanitation Program (WSP), the World Bank (WB)• Water, Sanitation and Hygiene Enterprise Development (WaterSHED),

USAID’s Regional Development Mission-Asia (RDMA)• World Health Organization (WHO)• United Nations Economic and Social Commission for Asia and the Pacific

(ESCAP)• World Toilet Organization (WTO)• Lien Aid, a Singapore-based NGO which is working with WaterSHED on

communal water treatment enterprises and affordable toilet options inCambodia.

• International Development Enterprises (IDE)

Scope for Replication / Use elsewhere in Cambodia and in Other Countries

18. Considering that similar problems exist in neighboring countries in the Asia-Pacific region, and that HFH operates in 27 countries in the region, there is a high

potential to replicate this study in, and adapt its results to, other countries. After thestudy is completed, desktop research will be completed on applying the concept toadditional countries (e.g. Indonesia, Philippines and Vietnam) and a preliminary reporton the same will be submitted.

Cost Estimates

Rate per Day No. of Days Total

Specialist/Consultants’ Services

Finance Expert/Study Team Leader (international) $500 20 $10,000

Microfinance Expert (national) $200 40 $8,000

Sanitation Sector

Expert

(national) $200

20 $4,000

Legal Expert (national) $200 4 $800

Project Assistant / Translator (national) $50 44 $2,200

Sub‐Total $25,000

Training, workshops, conferences, meetings

∙ Initial Sampling [100] households ‐ transportation &

per diem of participants, venue, food, etc. $1,500

∙ [2‐4] Workshops with [200‐400] pax ‐ venue,

equipment, meals, transportation & per diem of

participants, etc. $8,000

∙ Lessons Sharing Workshop with [100] pax ‐ venue,

equipment, meals, transportation & per diem of

participants, etc. $1,000

∙ Travel expenses (international @ $1,250 x 6 for

airfare, per diem & hotel) $7,500

∙ Meeting expenses $2,000

∙ Office Supplies, Communication expenses, etc. $1,000

Funds allocated to a Loss Reserve (or some other

form of credit enhancement available to MFIs) $4,000

Total $50,000

APPENDIX I

Overview of Terms and ConditionsHFHC’s Sanitation Microfinance Loans

Loan Amount (range) $107.72‐$250

Purpose For water filter / jar / connection, toilet, pump, well and/or

rainwater tank. Low cost, but appropriate for local conditions,

consistent with guidelines and regulations (e.g., Informed

Choice and Households Latrine Construct Manuals of Ministry

of Rural Development), and environmentally sound

technologies will be applied for the design and construction

of toilets, including connection to septic tanks and/or other

wastewater treatment systems.

Repayment Period / Term • Up to $200, up to one year

• $201‐$299,

• $300 to $980, 2‐3 years

Frequency of Loan Payments Monthly, bi‐monthly or quarterly

Loan Collectors / Tracking

Collections

• HFHC staff collects from every home

• Each month, HFHC staff prepares a loan collection report,

a loan collection follow‐up report and a portfolio report

Interest Rate To be discussed. (Interest rate of 1.9%/month (no late

penalties) is roughly in line with the market and is viewed to

be affordable for the poor.)

Borrowers ‐Eligibility

Criteria

• Willingness to

community

permanently

• Ownership of Land Title Certificate (in lieu of actual land

title which is hard to get in Angkor Chum District, HFHC

accepts a land certificate signed by the Village and

Commune Chiefs)

• Currently living in sub‐standard housing (Siem Reap

follows the traditional house standards of the area)

• Ability to:

• Save money and/or construction materials

• Repay loan (provisions made for seasonal income)

• Willingness to

provide

equity

entire

village

involved in building the house)

• Willingness to contribute existing resources (i.e. tools,

construction materials, etc.)

• No double loan from other MFI or organization

• Family earns less than $1 per day per person

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