embedding microfinance into sanitation programmes
TRANSCRIPT
EMBEDDING ACCESS TO FINANCE INTO
SANITATION PROGRAMMES
A STEP-BY-STEP APPROACH
Sophie Trémolet and Goufrane Mansour,
2nd February 2015, WaterAid, London
1
Mari
Objectives and process
Is it necessary to facilitate access to finance to support access tosanitation?
How can the market be stimulated to offer those services?
What role can WaterAid play in doing so?
1. Identify the need for microfinance to improve sanitation: understand the demand side
2. Map current provision of microfinance in the country: understand the supply side
3. Analyse potential needs for public funding: where are the market failures?
4. Identify catalytic role WA can play: what strategies could help trigger access to finance?
5. Define scaling up strategies
Understan
d the
market
Assess
how to
intervene
Understanding the demand
side3
Understanding the demand side4
Objective: Identify the need for getting access to finance
Key question: Are affordability and limited access to finance key challenges that could be overcome through facilitated access to finance?
How?
Existing knowledge of sanitation markets within WaterAid
Review of ongoing work in this area by other organisations
Ad-hoc research: Factors of demand for sanitation per sub-segment:
where are sanitation agents currently getting financing from?
Functioning of faecal sludge markets
Understanding the demand side5
Identified whether there is a need for microfinance and what
they are
Map current provision of microfinance in the country: understand the supply side
No need:
access to
finance is
not a
constraint
Outcome: identified the need for microfinance for sanitation, or
not
Understanding the supply
side6
Understanding the supply side7
Objective: understand local microfinance sector: Who are the key players: commercial banks, MFIs, SACCOs, ROSCAs,
NGOs?
What is their current involvement in the WASH sector?
Key question: is there a need to trigger a market response from financial institutions to offer sanitation microfinance products? Do these actors need to be incentivised to provide financial services for sanitation?
How?
Consult publicly available information, e.g. mixmarket.org
Consult microfinance consultants (e.g. MicroSave), microfinance associations (e.g. TAMFI in Tanzania) on the regulatory environment
Conduct exploratory research (like the SHARE-funded research in Kenya, Tanzania and India)
What sanitation microfinance exists? 8
Who is providing financial services for sanitation?
In India: found MFIs involved in sanitation, with support from NGOs. Some of these MFIs have spun off from NGOs
In Tanzania, the SHARE research in Tanzania found:
Limited experiences of microfinance for sanitation, only via small NGOs with no established systems or credit officers,
Identified that smaller and more “socially-minded” MFIs (e.g. Tujijenge, ECLOF) had a strong interest in the market
Less interest from commercial banks and large MFIs (eg. FINCA or Accion) – who fail to see sanitation as a “business area” – might be worth contacting them at later stage, through the SanFin-Tz working group
Who are the other key players supporting microfinance service development in the country/international level?
Supporting NGOs / channels for funds: Water.org, WASTE, FINISH, Homeless International (e.g. CLIFF programme)
Research and advocacy: WSP
Understand the regulatory
framework9
How is the microfinance sector regulated? In Tanzania, microfinance institutions are tightly
regulated: stringent conditions on savings taking institutions – many MFIs do not offer saving products
In Kenya: conditions are less stringent
Do financial policies/regulations support the social sector? In India, in the late 1990s, Reserve Bank of India (RBI)
issued a circular making lending to MFIs and SHGs part of the priority sector lending for banks
Relying exclusively on “smart subsidies” is easier when overall financial infrastructure provide adequate support to finance “social sectors”
10
Outcome: The provision of financial services for sanitation
is mapped. Now, where are the gaps and how should
public funds be provided to address market failures?
Map current provision of microfinance in the country: understand the supply side
Analyse potential needs for public funding: where are the market failures?
Understanding sanitation microfinance
market failures11
Objective: understand which aspect of the microfinance for sanitation market public intervention should target
Key questions: what are the barriers to sanitation microfinance development?
Not enough demand for sanitation?
Lack of knowledge by FIs about sanitation sector?
Lack of understanding of financial sector by WASH sector?
Lack of liquidity in the market, limited financial inclusion, over-indebtedness?
How?
Through existing knowledge of the sanitation sector: is there demand for improved sanitation?
Through basic research and interviews with key actors (MFIs, LGs): are the FIs aware of the financial needs in the sanitation sector? Are they prepared to take the risk to lend for sanitation?
12
Outcome: understanding main reasons why
microfinance for sanitation is not developed. Which
strategy can be adopted to address the issues?
Analyse potential needs for public funding: where are the
market failures?
Identify catalytic role for public interventions: what
strategies could help trigger access to finance?
Potential roles for public
intervention13
Conduct researchPlay an advocacy role to influence
public policy
Provide technical assistance to FIs
on sanitation-related issues
Act as a channel for funding through
guarantees and revolving funds
Act as a channel for smart subsidies
for FI capacity building
These approaches are not exclusive
and can complement each other
Conduct further research14
Objective: better understand the context for
microfinance for sanitation and the potential impact of
public intervention
Build evidence on what works (case studies); RCTs to
assess the impact of interventions that include a
microfinance component
Studies to assess affordability: what the market will bear
Studies to map out the existing microfinance markets and
their interest in sanitation
Studies that enable a better linkage with housing
microfinance (can we “piggy back” on housing loans?)
How: commissioning studies, setting up learning
workshops (with NGOs and international
Advocate to influence public
policy15
Objective: Seek to influence public policies so that microfinance interventions can be fully integrated in broader sanitation programmes
How?
Identify needs for reforming the regulatory environment (both for finance and for sanitation)
Lobby for sanitation policy changes (e.g. market approaches for sanitation in Malawi)
Lobby local governments so that they are better at enforcement – consolidate demand for sanitation
Set up working groups to gather government representatives and MFIs to enable ongoingexchanges
Provide technical assistance to FIs
on sanitation-related issues16
Objective: create “sanitation
champions” amongst FI and build
their capacity to deal with sanitation
issues
How?
Design and conduct training on
technical aspects of sanitation,
primarily aimed at credit officers (to
help them market these products):
Building demand for sanitation
Technical sanitation solutions (costs and
service levels, maintenance needs)
Assessing sanitation businesses
Other courses or special
communication needed for FIs
management
SHARE-funded action research in
Tanzania fall within this type of activity
Provide technical assistance on
sanitation-related issues (2)17
Support FI in carrying out market research:
o Identify the pertinent problems/questions that will feed into questionnaire
o Identify the areas with high demand for sanitation-related financial services
Clarify the regulatory framework for sanitation services and map out key actors: Policies, government acts, funding flows
Identify current donor programmes: identify potential areas of collaboration and potential sources of funding (grant funds for smart subsidies, soft loans)
Outcome: “sanitation champion”: he/she will (1) have a good knowledge of sanitation, (2) sell the product to senior management, be able to lead sanitation microfinance activities
Act as a channel for funding
through guarantees and revolving
funds18
Objective: Facilitate access to finance through direct intervention in the market
How?
Support the development of revolving funds (e.g. WaterAid in Tanzania for the gulpers)
Provide guarantees to FIs (W4P in Malawi)
Outcome: Loans are more likely to be disbursed; can be useful to pilot an approach. However these approaches usually fail to scale up + questions about their sustainability
Act as a channel for smart
subsidies for FI capacity building19
Objective: help FI with the design of financial
products that will be attractive for the customers
(households and sanitation businesses) and
generate enough revenues for the FI to carry on
these services
How?
Training of FI on market research for sanitation
Advice on the design of the financial product
Assist with financial projections for FIs to estimate
break-even point
Estimate the impact on customers (affordability) and
needs for “segmenting the market”
Take home messages20
Give priority to strategies where the FI or communities are in the lead
Better chance of success when the NGO is less visible and there is a
sense of ownership
Help them develop new products that meet the needs of their borrowers
Expect a lengthy process:
Partnerships have to be forged (“courtship” period)
Training of FI staff or communities is needed
Products have to be pilot-tested before being rolled-out to allow
revisions
Develop advocacy strategies so that governments and LGs become
real partners
To provide an effective regulatory framework and favorable policies
So that laws are enforced (particularly at Local government level)
Further contact
21